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May 19, 2011
News Corporation Adopts Political Spending Policy
by Robert Kropp
The Nathan Cummings Foundation calls on the owner of Fox News and the Wall Street Journal to add
board oversight and payments to trade associations to the policy.
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Following engagement by the Nathan
Cummings Foundation, News Corporation, the owner of Fox News and the Wall Street Journal,
recently adopted a policy of disclosure of the company's political donations.
According to the new policy, adopted in April without an announcement from News Corp.,
the media company will annually disclose on its website all corporate political contributions. In
addition, the policy states, "All Corporate Political Contributions must be approved in advance by
News Corporation's Executive Vice President for Government Affairs."
News Corp. and Rupert
Murdoch, its founder, Chairman, and Chief Executive Officer, came under criticism during last
year's mid-term elections for contributions of a million dollars or more to both the US Chamber of
Commerce and the Republican Governors Association (RGA). RGA reportedly spent at least $5 million
to help elect John Kasich, a former Fox News commentator, to the governorship of Ohio.
Noting that Murdoch had publicly stated that the RGA contribution "doesn’t reflect on Fox
News," but was in fact the result of his personal friendship with Kasich, Lance Lindblom, President
and CEO of the Nathan Cummings Foundation, told SocialFunds.com, "Murdoch said the contributions
were made because change was needed in Washington. But that is not a decision for him to make. That
may be a decision for shareholders to make, but not the CEO of a corporation."
In a letter
sent to News Corp. yesterday, the Foundation stated, "While this new policy represents a
significant step forward, it still leaves unresolved many of the core issues raised in our previous
communications with you."
"It fails to address our concerns regarding Board oversight of
the Company's political spending, disclosure of non-earmarked payments to trade associations and
other third-party groups, and disclosure of how payments will be used to serve the Company's
long-term interest," the letter continued.
As an example of the policy's shortcomings,
the letter points out that company's direct political contributions to candidates totaled $519,425
in 2010, slightly more than half of the single contribution to the Chamber.
"While there
is no way to know without further disclosure," the letter stated, "It seems likely that such
payments were not expressly earmarked for independent expenditures, yet clearly the payments were
made with a reasonable expectation that a significant portion of the payment would be used by the
US Chamber for political expenditures."
"The new Policy does not go far enough," Lindblom
said. "The Board must provide oversight and complete transparency of the political spending process
going forward."
According to a white paper on its website,
the Foundation has engaged with corporations on the issue of political spending for years before
last year's Supreme Court decision on Citizens United. It addressed the issue with Pfizer and Merck
as early as 2004, and both companies have since adopted policies on political contributions that
include board oversight and payments to trade associations.
Lindblom told SocialFunds.com
that the Foundation's shareowner engagement activities are designed to both enhance shareowner
value and fulfill its social mission. Media organizations such as News Corp., he said, are
especially vulnerable to reputational risk over political spending, as last year's contributions by
the company revealed.
Lindblom credited the Center for Political Accountability (CPA) and
its President, Bruce Freed, for developing the template for engaging with corporations on political
spending activities. In large part due to the efforts of CPA, 85 major corporations, including 51
of those listed in the S&P 100, have adopted some form of a political spending policy.
According to CPA, at least 34 shareowner resolutions addressing political spending have been
filed this year.
The Foundation's engagement with News Corp. began in 2010, following
widespread news coverage of the contributions to the Chamber and RGA. It could not file a
shareowner resolution at the time, Lindblom told SocialFunds.com, because like several major media
companies, News Corp. has a dual-class structure. A dual class structure is comprised of one class
of shares for outside investors, and one that confers majority voting status for insiders.
In their 2010 study of dual-class
firms, authors Gompers, Ishii, and Metrick found that firm value decreases, and agency costs
increase, as the voting power of insiders increases. Murdoch and his family, through their voting
shares, retain control of the company.
Lindblom told SocialFunds.com that the Foundation
converted its holdings in News Corp. to voting shares, and is likely to file a shareowner
resolution with the company on political spending if engagement fails to improve the current
policy.
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