The clock is ticking for Murdoch

THE protest vote against Rupert Murdoch and his board at New Corp's annual meeting in the Zanuck Theatre at Fox Studios in Los Angeles at the end of this week will not be big enough to directly force board changes in the wake of News's phone hacking scandal, but it is going to send a clear message that the time has come for the Murdochs to take a step back.

After issuing non-voting stock in takeovers, the Murdoch family controls 40 per cent of the votes at News Corp despite owning only 12 per cent of the shares. It is backed by 7 per cent shareholder Prince Alwaleed bin Talal of Saudi Arabia, and News is calculating that votes supporting the board status quo will run to about 80 per cent of the total at the meeting early Saturday morning our time.

The holders of the 20 per cent of News's voting shares that are pushing for change are nevertheless influential. They are primarily Australian and British institutions and voting advisers. US investors are less concerned with corporate governance issues at News, and more focused on the group's still-solid commercial prospects.

And while they have rallied around the phone hacking scandal in Britain, they have broader concerns, encompassing the disproportionate degree of control that the Murdochs have had at board level, and what that might mean when the 80-year-old chairman and chief executive Rupert Murdoch hands over day-to-day leadership.

Opposition to Rupert Murdoch's son James taking over runs deep now, and a baton-pass that occurs in any reasonable time frame would almost certainly see Chase Carey, News's deputy chairman and chief operating officer, take over as CEO, with Rupert Murdoch continuing as non-executive chairman.

The option has existed since mid-2009, when Carey was appointed chief operating officer, and also handed a new position, deputy chairman. And it firmed up as the hacking scandal expanded this year, engulfing James, who had crossed from successfully running the BSkyB pay TV business in Britain to head up London-based News International in 2007.

Rupert Murdoch unofficially anointed Carey in August at an analysts' briefing, saying: ''Chase is my partner and if anything happened to me, I'm sure he'll get it immediately - if I went under a bus.''

The meeting will confirm that with a 40 per cent voting stake, the Murdochs still effectively control News. If Carey or someone else outside the family is appointed to run the company, he or she will do so at their pleasure. But it is also clear now that Rupert Murdoch cannot hand operational control of News to one of his children as he had hoped.

James was appointed deputy chief operating officer, reporting to Carey, in March and is still chairman and CEO of News International, but is sidelined by the hacking affair: he will be grilled again by British MPs next month about when he became aware that phone hacking was widespread, after former News executives contradicted his earlier evidence.

Lachlan remains on the News Corp board, but is running his own race here in Australia after resigning as a News executive in July 2005. And James and Lachlan's sister, Elisabeth, has abandoned a plan to join News's board after News's $US615 million acquisition in February of her television production company, Shine - a deal that News says was negotiated at arm's length but which nevertheless stoked claims that Murdoch family members have the inside running.

There's no clean sign yet that Rupert Murdoch agrees that the need for News not to react impulsively before inquiries into the hacking scandal are complete is outweighed by a need to quickly spell out succession plans, and confirm that the Murdoch siblings are not in the frame this time around.

But the pressure for change could grow. Groups pressing for change include the Australian Council of Super Investors representing Australian industry funds with investments totalling $250 billion. It and US-based voting adviser Glass Lewis have recommended votes against six News directors - James and Lachlan Murdoch, 20-year board veterans Andrew Knight and Arthur Siskind, News executive David DeVoe, and Natalie Bancroft, a member of the family that delivered control of The Wall Street Journal to News in 2007.

Another influential US proxy adviser, ISS, is recommending votes against all directors except recent addition Joel Klein and nominee Jim Breyer, and Britain's Local Authority Pension Fund Forum, which represents local authorities with investments of #100 billion ($A153 billion), has recommended votes against Rupert and James Murdoch.

Investors that have called for the Murdochs and other directors to go include the California Public Employees' Retirement System (Calpers), the California State Teachers' Retirement System (CalSTRS) and Britain's shareholder activist fund, Hermes.

And News's sharemarket underperformance in recent years is a possible link between them and other investors who focus most on profits and the share price.

Between June 30, 2006, and June 30, 2011, News's voting shares generated a negative total shareholder return (share price and dividends) of 7 per cent. The S&P 500 index generated a positive return of 16 per cent over the same period, and a peer group of listed media companies returned plus 31 per cent.

News is tapping a cash pile that totalled $US12.7 billion on June 30 this year to fund buybacks and boost its share price. But the shares may trade at a discount to the other big media groups until succession is sorted, and the Murdochs take a back seat.