August 11, 2011
Investors Call for Improved Governance at News Corp
by Robert Kropp
In the aftermath of phone hacking and bribery scandals at the media company, members of the
Interfaith Center on Corporate Responsibility call for separation of Chair and CEO positions and
elimination of dual-class stock structure.
Anyone seeking to confirm that corporate governance affects firm value need look no further than
News Corp. Since the phone hacking and bribery scandal broke in early July, the media giant's stock
has fallen by 24% and $11 billion in market value has been lost.
scandal that led to the closing of the UK-based tabloid News of the World is not the only
questionable decision made by a company whose CEO and Chairman of the Board, Rupert Murdoch, was
recently described by Nell Minow of GovernanceMetrics International (GMI) as "a man who thinks
the rules don't apply to him and has gotten away with it so far."
GMI, which rates the
effectiveness of corporate boards of directors, has "consistently given News Corp an F, only
because there is no lower grade," Minow wrote in a commentary posted on Bnet.com.
Last month, Christian Brothers Investment Services (CBIS)
took a first step in addressing the corporate governance failures at News Corp, filing a shareowner resolution
requesting that the company separate the positions of Chair and CEO.
"By establishing a
separate, independent Chair, the Company can begin to rebuild the public confidence and trust that
is so critical to a major news organization," the resolution states. "It can also help ensure
shareholders that the Board of News Corporation takes seriously the events that have undermined the
company’s success and value will be remedied and monitored well into the future."
the resolution was submitted after the May deadline, CBIS will introduce it from the floor of the
company's Annual General Meeting in October.
This week, CBIS and other members of the Interfaith Center on Corporate Responsibility
(ICCR) issued an Investor Statement, expressing "strong concern about the unethical activities of News
The investor coalition, with $24.7 billion in assets under management and
800,000 shares of News Corp A shares, called on News Corp to separate the Chair and CEO positions,
elect an independent Chair, ensure that a majority of board members are independent, and eliminate
the dual-class structure of the company's stock.
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.
Laura Berry, Executive Director of ICCR, stated,
"The ongoing News Corp debacle exemplifies how poor governance can and does lead to inadequate
corporate practice and disastrous consequences for investors and society-at-large."
Tanner of CBIS said, "We hope all media companies see this as a warning sign to examine and improve
their own corporate governance structures and strengthen and monitor editorial standards."
Several media companies, including the New York Times and the Washington Post, share with News
Corp a dual-class stock structure.