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News Corp. Board Meeting: Battle in L.A.

Shareholders gird to vent their ire at the Murdoch-controlled board

Photo: Bobby Bank

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This Friday, in a theater tucked away on the Fox Studios lot in Los Angeles, the entire News Corp. board will stand for re-election by shareholders, whose interests each director is tasked with protecting. Only the most zealous and disillusioned are likely to make the trek for the vote—which means things are likely to get ugly.

The last three months have not generated much goodwill among News Corp. investors. After the revelation on July 4 that News Corp.’s shuttered U.K. tabloid News of the World hacked into the voicemail of a teenage murder victim, the company has experienced a nonstop series of arrests, executive resignations, and—keenly important to the investors—erratic drops in share price.

At the center of the scandal sits James Murdoch, Rupert’s son, a News Corp. executive, and until controversy hit, heir apparent to the media throne. The younger Murdoch, a News Corp. board member, has not shaken allegations that his hands were in the hacking mess. Last month, a former NOTW legal manager told Parliament that he informed Murdoch of an email that suggested pervasive phone hacking at the newspaper. The implications of that testimony, which contradicted James Murdoch’s own that he had no knowledge of widespread hacking at the company, left certain News Corp. investors beyond disgruntled.

Proxy advisory firms around the world have urged News Corp. shareholders to oppose the re-election of certain board members, noting that most directors are Murdoch insiders: family members, current News Corp. executives, former Murdoch careerists, family friends, and Australian cohorts. Indeed, the lack of independence is glaring.

Still, there are two types of News Corp. voting shareholders: the Murdoch family and everyone else. Though the company’s stock is traded on public exchanges and Rupert Murdoch and his family hold a relatively modest 12 percent financial stake in the media conglomerate, the company’s corporate governance policy is far from “one share, one vote.”

Responding to the fallout from the scandal, proxy advisory firm Glass Lewis recommended investors vote against six directors, including James Murdoch. Proxy firm ISS took it a step further, advising shareholders to vote against every board member (including Rupert and both of his sons) except for the two who have served for less than a year.

“That’s fairly unusual. Boards have to get into trouble before you get a negative recommendation…This is an extraordinary situation,” says Ric Marshall, chief analyst with GovernanceMetrics International, an independent provider of corporate governance ratings and research.

As for the likelihood of a board overhaul, Marshall was not optimistic but saw it as an opportunity for investors to let the Murdochs know they’re paying close attention.

Marshall says, “It’s probably impossible for shareholders who want to remove the Murdochs and other board members to actually win a majority vote, but a very high vote against the Murdochs would be very embarrassing.”