More pressure to reduce Murdoch family's influence

NEWS CORP has now attracted the public displeasure of at least five shareholder groups and advisory firms ahead of its annual general meeting this month, one of which wants Rupert Murdoch off the board, and all of which have concerns about a board stacked with deferential directors.

By InvestSMART · 10 Oct 2011

By InvestSMART ·
10 Oct 2011

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The advisory firm Glass Lewis told US investors on Friday to vote against the re-election of James and Lachlan Murdoch, as well as long-term directors David DeVoe, Andrew Knight and Arthur Suskind, plus Natalie Bancroft, whose family sold The Wall Street Journal to News Corp.

The note, reported by Adnews, said shareholders should "carefully consider the nature of the relationship" each director had with the Murdoch family - which controls the company through a two-class share structure giving it 40 per cent of the votes from just 12 per cent of the shares - so the company could have a board with "proper independence levels and strong oversight".

The firm said last month that "applying rigorous oversight has not been a strength of the News Corp board" and it had "consistently failed to achieve standards of good governance due to the board's historical deference".

News Corp has won some support by launching a popular $5 billion share buy-back, but the board composition remains contentious. The Local Authority Pension Fund Forum in Britain has joined the criticism, telling its members that James Murdoch's presence on the board was "causing significant reputational damage" to the company, and his re-election should be opposed.

Unlike the other groups, it wants his father removed from the board, as Rupert Murdoch remains both the chairman and chief executive in contravention of Australian Stock Exchange guidelines. The forum chairman, Ian Greenwood, said in a statement: "We believe that to secure News Corp's long-term future such reform is necessary."

Last month, the Australian Council of Superannuation Investors made the same recommendation as Glass Lewis against the Murdoch brothers and four other directors, while the advisory firm Pension Investment Research Consultants in Britain has made similar recommendations.

In July, the largest US public pension fund, California Public Employees' Retirement System, called the two-class share structure "a corruption of the governance system" and said it was considering its options for forcing reform.

The strength of the Murdoch family's hold on the voting shares make the moves unlikely to succeed, but ACSI believes a message of change needs to sent to the board, and opposition at the October 21 annual general meeting in Los Angeles would do that.

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Frequently Asked Questions about this Article…

What shareholder pressure is News Corp facing over the Murdoch family's influence?

Multiple shareholder groups and advisory firms have publicly criticised News Corp's board ahead of its annual meeting, urging changes because they believe the board is too deferential to the Murdoch family. Some groups are calling for votes against specific directors and one forum has even urged the removal of Rupert Murdoch from the board.

Which advisory firms and investor groups have recommended voting against News Corp directors?

The advisory firm Glass Lewis recommended US investors vote against the re-election of James and Lachlan Murdoch and several long-term directors. Other critics mentioned in the article include the Australian Council of Superannuation Investors (ACSI), Britain’s Local Authority Pension Fund Forum, Pension Investment Research Consultants (PIRC) and California Public Employees' Retirement System (CalPERS).

Which News Corp directors have been singled out by critics?

Glass Lewis specifically named James Murdoch, Lachlan Murdoch, and long-term directors David DeVoe, Andrew Knight and Arthur Suskind, as well as Natalie Bancroft, advising shareholders to 'carefully consider the nature of the relationship' each had with the Murdoch family.

What is the two-class share structure at News Corp and why are investors concerned?

News Corp’s two-class share structure gives the Murdoch family 40% of the votes while owning only about 12% of the shares. Critics say this concentrated voting power undermines board independence and governance, with some investors calling the structure a 'corruption of the governance system.'

Has News Corp taken any actions to appease investors, such as a share buy-back?

Yes. News Corp launched a US$5 billion share buy-back, which has won some support from investors. However, the board’s composition and governance concerns remain contentious among several shareholder groups.

What governance issues are being raised about Rupert Murdoch’s role at News Corp?

The Local Authority Pension Fund Forum and others have criticised Rupert Murdoch for serving as both chairman and chief executive, which the forum says contravenes Australian Stock Exchange guidelines and is damaging the company’s long-term reputation and governance.

What could happen at News Corp’s annual general meeting on October 21?

Shareholder opposition and recommendations from advisory firms could lead to votes against the re-election of certain directors, sending a message to the board about the need for change. Given the Murdoch family’s voting control, dramatic outcomes are unlikely, but visible opposition could pressure the company to consider governance reforms.

What should everyday investors keep in mind about these News Corp governance concerns?

Everyday investors should be aware that concentrated voting power from a founding family can affect corporate oversight and long-term strategy. Watch proxy recommendations from advisory firms, shareholder votes at the AGM, and any board reforms or governance disclosures that follow, as those developments can influence shareholder value and corporate risk.