Shareholders urged to purge Murdoch & sons from News Corp Paul Barry .. Wednesday, 12 October 2011
Shock waves from the News of the World phone hacking scandal continue to batter the defences of Rupert Murdoch's News Corp.
Yet another leading advisory firm, Institutional Shareholder Services (ISS) is urging News Corp's big shareholders to purge Rupert and 12 of his 14 fellow directors from the family-dominated company at its annual meeting in Los Angeles in nine days time.
A British advisor, Pension Investment Research Consultants, has urged shareholders to vote against News Corp's chief operating officer James Murdoch and nine other News Corp directors.
So what chance do they have of success?
Well, in the first round, virtually none. Even though the Murdoch family only owns 12% of the media group, it controls almost 40% of the votes, and is likely to win backing from Prince Alwaleed bin Talal al-Saud, the Saudi Arabian sheikh who has a further 7%. So it is almost inconceivable the Dirty Digger will be defeated.
But the vote could exert "huge moral pressure" on News Corp's independent directors, according to Crikey founder Stephen Mayne, who will be at the LA meeting to represent the Australian Shareholders Association. "It is likely to be a record vote against directors in the USA and a record vote against the Murdochs," Mayne told The Power Index this morning.
And that may well bring about change. "The key measure will be, what do the independent shareholders think," says Mayne. "I believe we will get a clear majority of the independents voting to remove Murdoch family nominees. The big question then is how do the independent directors respond."
Mayne says the first thing that needs to happen is for there to be a majority of independent directors. "Lachlan Murdoch might go, so might Arthur Siskind, who is a long-time Murdoch loyalist," he says. "The next step would be to stop Rupert having the roles of both Executive Chairman and CEO. Sir Rod Eddington could step up to be chairman."
The last thing is the gerrymander (the arrangement that gives the Murdochs 40% of the votes for only 12% of the share capital).
"I had lunch with [News Corp directors] Peter Barnes and Sir Rod Eddington last week," Mayne told The Power Index, "and argued that it absolutely had to go."
"Now it's true that Google, Viacom and even Warren Buffet do have 'A' shares and 'B' shares, so there are other companies in the USA doing this," says Mayne, "but here in Australia we believe in democracy. And once you get the majority of independent shareholders voting against you there's huge pressure. So I'll be saying to Rupert at the meeting, 'Do the decent thing and stop standing behind a gerrymander which would make even Sir Joh Bjelke Petersen blush'."
Inside the campaign to change News Corp governance September 15, 2011
Rupert Murdoch may face a grilling from investors at next month's News Corp. AGM.
After the biggest global blitz of bad publicity ever to hit a major public company, the 2011 News Corporation AGM at Fox Studio in Los Angeles on October 21 is shaping up to be a corporate governance event to remember.
Can 80-year-old Rupert Murdoch hang on to the post which has made him leader of the most powerful family in the world?
The pre-AGM arm-wrestling gets under way in earnest today when News Corp's two leading independent Australian-based directors, Sir Rod Eddington and Peter Barnes, meet in Melbourne with representatives of the Australian Council of Superannuation Investors.
ACSI represents superannuation funds which manage about $300 billion and has teamed up with a global coalition of like-minded investors to call for substantial governance changes at News Corp.
This includes things such as replacing Rupert Murdoch as chairman, conducting an independent investigation into the phone-hacking scandal and appointing a clear majority of independent directors.
All 15 News Corp directors will be up for election at the AGM and it is already clear there will be substantial protest votes against some of them, including Rupert and James Murdoch.
Despite being a former News Corp executive, Sir Rod Eddington is nominated by the company as its “lead independent director”, but he is yet to speak publicly about the governance issues raised by the News of the World scandal.
(Fairfax Media, publisher of this website, competes with News.)
Modest board changes
In terms of governance concessions by News Corp so far, the only move has been the retirement of the two oldest non-executive directors and the appointment of one impressive freshman, James Beyer, a director of Facebook, Dell and Walmart.
Billionaire venture capitalist Tom Perkins, 79, quit the board earlier this month, telling Bloomberg that “having two 80-year-olds on the board wasn't great corporate governance."
Despite describing Rupert Murdoch as “a great friend of mine” and serving as a director since 1996, Tom Perkins was described by News Corp as an independent director.
The other director to depart was Ken Cowley, 77, who spent 47 years on the News Corp payroll, including 17 years as the executive chairman of News Ltd in Australia. Amazingly, Rupert Murdoch's most loyal Australian foot soldier was also somehow classified as an independent director.
With Rupert and James Murdoch digging in after the phone hacking scandal, despite throwing overboard all other responsible executives such as Rebekah Brooks and Les Hinton, the focus now turns to why the independent directors are tolerating this situation? This is especially so given News Corp's financial under-performance over recent years courtesy of blunders such as the Myspace and Dow Jones acquisitions, which blew up about $4 billion of shareholder funds.
Despite being led by the world's oldest and longest-serving CEO, who clearly failed to deal with the phone-hacking scandal, News Corp last week distributed documents for the AGM which included a claim endorsed by all directors that retaining Rupert Murdoch as the all-powerful executive chairman remained “the most effective leadership structure for the company and is in the best interests of its stockholders”.
The independent directors supporting this highly controversial position are meant to represent the 87per cent of News Corp shares owned by non-Murdoch investors, although a two-class voting gerrymander gives the controlling family a dominating 40per cent of the voting stock.
Faced with such an undemocratic structure, the two best ways to leverage governance changes at News Corp are class actions against the board and company and direct engagement with independent directors who are reliant on the support of institutional investors for other board gigs in their home markets.
The campaign against Sir Rod
For instance, in 2009 ANZ announced Sir Rod Eddington would succeed Charles Goode as chairman but was then forced to back down, largely thanks to a campaign run by Dean Paatsch who was then heading the Australian arm of the powerful proxy advisory firm Risk Metrics.
Risk Metrics unearthed detailed concerns about Sir Rod's role as a director of Allco Finance Group, which collapsed in 2008 with investors and creditors in the broader conglomerate losing more than $5 billion.
Using this information, Risk Metrics also recommended its institutional clients vote against Sir Rod's re-election as a Rio Tinto director in 2009. An unprecedented 60per cent of the Australian institutional vote followed this advice.
Sir Rod quit the Rio Tinto board earlier this year shortly before he was due to face re-election, so News Corp is now his last remaining public company directorship.
If the Murdoch family continue to vote their stock in favour of Sir Rod receiving $US284,000 a year as the lead independent director, then it will be very hard to dislodge him.
Why Peter Barnes is vulnerable
However, Sir Rod's fellow News Corp independent Peter Barnes is in a different position because he is reliant on ACSI's members to continue in his role as chairman of Metcash and Ansell, two Australian listed companies with wide open share registers.
ACSI is clearly muscling up for a fight after this week hiring Dean Paatsch, who left Risk Metrics 12 months ago, to assist it through the coming AGM season.
It was ACSI, then advised by Paatsch, which successfully negotiated key governance concessions from News Corp when it shifted from Australia to Delaware in 2004.
ACSI was also involved in co-ordinating a successful class action against News Corp in Delaware overturning a poison pill governance structure which Rupert Murdoch pushed through his compliant board in 2004 after rival media mogul John Malone bought 18per cent of the voting stock and threatened the Murdoch family's dominance.
This ACSI-backed class action included personally suing the News Corp directors, an aggressive tactic which sparked a fierce backlash at the time.
No Australian retail fund, including the giants such as MLC and Colonial run by the Big Four banks, chose to join this class action as the less conflicted industry funds did all the heavy lifting.
Union influence over super funds
These days, ACSI is run by Ann Burns, a former secondary school teacher who rose up through the labour movement to be appointed CEO of the peak superannuation body in 2008.
Her background highlights the influence trade unions have over Australia's industry superannuation funds. For instance, ACSI chairman Gerard Noonan is a strong union man, who spent 30 years at Fairfax as a journalist, including 4 years editing The Australian Financial Review.
Noonan landed the top job at ACSI courtesy of being chairman of the $3 billion industry fund, Media Super, a post he was appointed to by the journalists' union, the Media Entertainment & Arts Alliance.
Ann Burns is in Paris this week attending a meeting of the International Corporate Governance Network, a global membership organisation with more than 500 leaders in corporate governance from 50 countries.
The challenge for this group is getting agreement on action ahead of the News Corp AGM because co-ordinating such large membership groups can be like herding cats.
The ICGN need to appoint a global spokesman authorised to co-ordinate action with various shareholder bodies, class action lawyers, media commentators and regulators around the world. It also needs a strong presence at the AGM itself and intense engagement with News Corp directors and institutional shareholders.
Will fund managers speak out?
Whilst the pall of News Corp intimidation has largely lifted in Britain, many potential Australian critics remain silent, fearful of attack by News Ltd which enjoys majority control of the local newspaper market and enormous power in controlling public debate.
Will the Australian fund managers and super funds be prepared to step up and argue the case for governance reform at News Corp?
The likes of Perpetual, AFIC, Colonial, MLC and BT have all been completely silent so far.
Another interesting element is the scrutiny being applied to the governance of industry super funds themselves at the moment.
BusinessDay commentator Adele Ferguson produced a terrific column on Monday (Super in the spotlight) highlighting the poor governance of many super funds, which don't disclose trustee fees or even send audited accounts to members.
How can super funds which take the governance road lecture Rupert Murdoch about News Corp's governance?
Meanwhile, as Murdoch commentators such as Andrew Bolt continue to claim Julia Gillard's media inquiry is some sort of totalitarian attempt to silence free speech, it will be interesting to see how freely the Murdoch press itself covers the governance issues surrounding the Murdoch family leading up to the AGM.
Appointing the highly regarded former Federal Court judge Ray Finkelstein and The Age's former media writer, Dr Matthew Ricketson, to run the media inquiry will ensure it is both robust and well led.
After the Gillard Government launched this shot across the bows at News Corp from a political perspective, the question remains whether the broader labour movement will use its clout through ACSI and industry funds more generally to loosen the dominating grip on the company Rupert Murdoch has exercised for 58 years.
The facts of this situation would certainly suggest strong action is needed. Only time will tell if ACSI, the ICGN and all those in charge of Australia's $1.3 trillion superannuation pool are up to the task.
Disclosure: Stephen Mayne is a director of the Australian Shareholders' Association, where he is company monitor for News Corp. He will be travelling to the October 21 AGM in LA and is having lunch with News Corp directors Sir Rod Eddington and Peter Barnes in Melbourne on September 28 to discuss governance issues. Follow him on twitter @maynereport or email Stephen@maynereport.com. http://www.smh.com.au/business/inside-the-campaign-to-change-news-corp-governance-20110915-1kab2.html
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