Yesterday morning, as the shareholder vote tally was read aloud at the New York Times Company's annual meeting, a disquieting pall descended over the semi-filled New Amsterdam Theater. The result that 42 percent of the company's shareholders--54 percent if you exclude the Sulzberger family--withheld votes for the company's board nominees sucked out whatever oxygen was left in the auditorium. The board members on stage seemed to squirm as the uncomfortable reality of the vote set in.

Observing Chairman Arthur Sulzberger Jr.'s speech in advance of the vote, it became increasingly evident that the Times Company and its shareholders speak different languages. Sulzberger, wearing a slate grey suit and flashing his trademark impatience, heralded the company's journalistic excellence, its Pulitzer Prize victories and the public service of the Times' recent articles on diabetes. Noble accomplishments, all, but not the metrics that will placate a room full of shareholders who have lost significant amounts of money.

Indeed, the Times Company now finds itself at an intractable impasse with its rebellious shareholders. For the past year, a group of institutional investors led by Hassan Elmasry of Morgan Stanley Investment Management have castigated Sulzberger and his management, as the Times Company stock has lost more than half its value since 2000.

While Elmasry wields the cudgel of public pressure to try and bend Sulzberger to his will, the fact remains that the Sulzberger family has no reason to relinquish control of the Times Company--ever. Their manifest stewardship of the paper was guaranteed when the Times Company went public in 1969 with a dual-class stock structure. The Class-B shares held by the Ochs-Sulzberger family ensure their control of the Times Company board, no matter what shareholders say. Elmasry most certainly knows this, despite his public fuming to push the Sulzbergers from power.

One reason why Private Capital Management CEO Bruce Sherman, who controls 9-percent of the Times Company, has remained a silent partner in the proxy battle, is his belief that Elmasry's end-game is flawed: while cocktail party chatter and the white hot glare of media scrutiny might embarrass the Sulzberger clan, asking them to willingly give up their control of the Times by unwinding the dual-classes of stock is akin to telling the Windsors to put Buckingham Palace up for sale.

So if the Sulzbergers won't budge, what options remain for each side to end the stalemate? Elmasry could raise the white flag and sell his Times Company stock, but as head of Morgan Stanley's $11.5 billion Global Franchise fund, he will have to answer to his restive shareholders who have lost considerable amounts of money on his Times Company investment. In a statement released after yesterday's meeting, Elmasry indicated his campaign would plow on. "The withhold vote this year is significantly higher than last year and is an emphatic call for accountability," Elmasry said. "A clear majority of the Company's public shareholders, over 50 percent of the non-family Class A shareholders, are calling on the Board to take prompt action."

The necessary reinvention of the newspaper business will unfold over the next decade or more, outpacing the time horizon mandated by Wall Street's thirst for quarterly profit growth. During his presentation, Sulzberger framed the debate in epochal terms, labeling the challenges facing the Times as the "most dramatic transformation in our long and distinguished history."

Writing in the Wall Street Journal in February, Steven Rattner, a former Times reporter who now runs Quadrangle Group's $2.9 billion media and communications private equity business, charted a future in which newspapers would be privatized into print models of National Public Radio, which thrives on a mix of corporate underwriting, government subsidies and philanthropic support (Joan Kroc, wife of McDonald's founder Ray Kroc, recently donated $200 million to NPR). "The omnipresent stresses suggest that we can't expect the objectives of enterprises that were organized around a for-profit interest to necessarily intersect with societal value of quality journalism," Rattner wrote.

For his part, Sulzberger could lead a leveraged buyout of the Times Company and remake the paper as a non-profit trust. The open question, of course, is how the $3.3 billion Times Company would (or could) service its debt as a private enterprise. And it's unclear whether the current and future generations of Sulzbergers would tolerate losing the liquidity of their public shares by tying up their wealth in a private Times. But with the public markets becoming ever more incongruous with the democratic mission that newspapers like the Times carry out, the Sulzbergers must ask themselves how committed the family is to protecting the institution that they have wrapped themselves in since Adolph Ochs purchased the Times on August 18, 1896. Going private is the strongest signifier of that commitment, and perhaps, this year's annual shareholder meeting will be the company's last.

By Gabriel Sherman

Photo by Jin Lee/Bloomberg News