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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.

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, "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 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, 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 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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