Rinehart repositions but to what end?

Gina Rinehart's decision to lower her stake in Fairfax is all about getting on the board. The manoeuvring for influence – which if achieved will likely not bring more readers to the company – is an untimely distraction.

On the news that Gina Rinehart had sold 3.7 per cent of Fairfax Media it initially appeared that she might have been making good on her threat to dump her original 18.7 per cent shareholding. Unfortunately, for Roger Corbett and his fellow Fairfax directors, that doesn’t appear to be the case.

Fairfax and Rinehart have been at loggerheads over her insistence on oversized board representation for her shareholding and an ability to meddle in the group’s editorial affairs.

There was, however, an additional technical issue which today’s sale appears to be designed to overcome and which suggests that Fairfax isn’t free of Rinehart yet.

Rinehart’s Hancock Prospecting said the sale of the 86 million shares was undertaken to resolve an issue that arose under the Fairfax directors’ and officers’ insurance policy. Fairfax’s professional indemnity cover for its directors falls away if a director holding more than 15 per cent of the group’s capital sues a fellow director. Not surprisingly, given Rinehart’s propensity to litigate, that was an obstacle to her receiving an invitation to join the board.

While that particular issue may have been resolved with the sale, Rinehart’s voting power and the strength of her case for three board seats and the deputy chair, let alone influence over editorial policies, has been undermined in the process.

If Corbett wasn’t going to allow her influence over editorial policies with nearly 19 per cent of the company he’s hardly likely to blink at just under 15 per cent even if, as Hancock stated, it remains the largest single shareholder in the ailing media group.

Oddly in circumstances where it was announcing a sell-down of its shareholding, Hancock also denied "unsubstantiated rumours spread by others that we are about to make an offer for the company when we have previously stated we are not seeking control of Fairfax".

The remaining barriers to Rinehart’s entry to the Fairfax boardroom will be the scale of the representation she has demanded and her unwillingness to agree to being bound by the board’s governance principles.

A 15 per cent shareholding within a register as open as Fairfax’s probably warrants a board seat, maybe two if Corbett were being generous. It shouldn’t get Rinehart any more than two and certainly doesn’t earn any special concessions relative to the board conventions that existing directors have developed and agreed to.

The Fairfax governance principles at the heart of Rinehart’s concern relate to the board’s relationship with the company’s journalism, with the principles stating that day-to-day editorial direction and decisions on stories were a matter for the editors rather than the board and that directors are not to discuss company matters with managers or editorial staff without informing the chairman first.

It is unclear why that should be such an issue for Rinehart. There is nothing in the Fairfax charters of editorial independence that inhibits the ability of the board or management from replacing editors (in fact the charters explicitly recognise that right).

Rinehart could endorse the governance principles, even commit to abiding by the charters and, if she could get control of the boardroom, or at least become its dominant influence, appoint editors who share her views.

The problem with Rinehart’s campaign against the Fairfax board is that it is misdirected. The key issue isn’t with the content – Fairfax has grown its audiences substantially – but rather where the audiences lie and the difficulties Fairfax faces in monetising them.

They are largely and increasingly online, where yields are a fraction of those on which the cost structures of Fairfax’s metropolitan mastheads were built and, despite continuous cost-cutting, the metros are still reliant on.

With their classified advertising streams largely gone, their physical circulations shrinking as the audiences migrate online and the poor yield environment for digital media, Fairfax is a company caught in transition.

It is not alone – just about every general newspaper in the world is experiencing the same life-threatening pressures, with the broadsheets that were developed to carry classifieds worst hit – but it has been forced into a radical restructuring which will cost 1900 jobs and see the metros converted to tabloid formats to try to save what are about to become digitally-focused mastheads.

Changing editorial policies will do nothing about the fundamental, structural and quite wrenching trends occurring globally in the print media. Indeed, given the character of the Fairfax audiences, it could accelerate the demise of the physical papers if they suddenly started preaching climate change scepticism and adopted staunchly pro-mining agendas.

Corbett and his chief executive, Greg Hywood, are trying to manage a brutal transition from the old world to the new, without any successful templates to follow and nothing even approaching certainty about where and how that transition will end. They don’t need the distractions and instability created by boardroom challenges and tensions.

While it would have wreaked havoc in the market had Rinehart spat the dummy and dumped all her shares, as she has threatened to do if she doesn’t get her way, Corbett and Hywood might have preferred that as an outcome to a continuing and distracting siege.