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October 25, 2011
Murdoch to Shareowner Activists: the Polls are now Closed
    by Robert Kropp

Julie Tanner of Christian Brothers Investment Services describes the frustration of advocating for governance reforms at the annual meeting of scandal-plagued News Corp.


Long-term sustainable investment strategies may have made significant inroads into the mainstream in recent years, but it only takes a glance at the share price of News Corp's stock this week to realize that short-term investors chasing after quarterly returns continue to wield an outsized impact on global financial markets.

The phone hacking and bribery scandal sent the media giant's stock price and market valuation plummeting earlier this year, but by the time of the company's annual general meeting last Friday its stock price had recovered to almost what it was before the scandal.

The improved returns occurred despite the fact that an ongoing Parliamentary investigation has recalled James Murdoch, a News Corp board member and the son of Rupert Murdoch, the Chairman and CEO, to answer more questions about what he knew of phone hacking in advance of the scandal. In addition the UK media regulator Ofcon is investigating whether News Corp's 40% share in the BSkyB is "fit and proper."

In a call to shareowners before the meeting, Tom Watson, an MP who is involved in the UK investigation into News Corp, said that he thought it would turn out that News Corp won't be able to hold its shares in BskyB, according to Julie Tanner, Assistant Director of socially responsible investing (SRI) at Christian Brothers Investment Services (CBIS).

Tanner attended the annual meeting in Los Angeles to submit a shareowner resolution from the floor, calling for the separation of the positions of Chair and CEO. That News Corp does not have an independent Chair is one reason why the company is consistently cited by
GovernanceMetrics International (GMI) as having one of the worst corporate governance ratings of all North American companies.

GMI also pointed to the relationship between Murdoch and the board, whose members include two of his sons, and the presence of a dual-class stock ownership structure as contributing to the company's record of poor governance as well.

At the meeting, Tanner told SocialFunds.com, Murdoch "started the meeting by saying that what happened was deplorable and he'd get to the bottom of it."

"And then he showed the stock price over the short term, over three months and the year. Your company's doing well, he said," Tanner continued.

Because the scandal broke well after the Securities and Exchange Commission (SEC) deadline for filing proposals to be included on the proxy ballot, the proposal by CBIS had to be introduced from the floor, where only the approximately 75 investors in attendance could vote on it.

Tanner said in her
statement at the meeting, "The issue is so pressing that the resolution has been supported by proxy voting firm Glass-Lewis, and by prominent investors with over $400 billion in assets under management, including CalPERs, the Church of England, and the UK's Local Authority Pension Fund Forum, who believe, like many of us in this room, that the pervasive and value destroying scandal at our company requires stronger, independent leadership on the board and a more thorough response from the entire board."

"An Independent Chair can play a pivotal role in leading a coherent, long-term response to the challenge of restoring the company’s reputation," Tanner continued.

Tanner told SocialFunds.com, "It was great because the Church of England was there and they supported the proposal. Then CalPERS got up and they supported the proposal. PIRC, the UK proxy advisory service, supported the proposal. And the International Brotherhood of Electrical Workers was there and expressed their support."

"CalPERS also announced that the proxy voting arm of Hermes had given them their shares to vote, so Hermes voted their shares in favor of my resolution as well," Tanner added.

The meeting, Tanner said, was one of the most poorly run annual meetings she had ever attended, an unusual development because Murdoch had run so many such meetings in the past.

"When Edward Mason of the Church of England got up to speak," Tanner said, "Rupert said to him, 'I heard your investments aren't doing very well.'"

"You're insulting a shareholder who came to the meeting to raise valid concerns while a scandal is underway?" Tanner asked.

Watson came to the meeting as well, Tanner added. "Watson was trying to get Rupert to acknowledge some of the charges. He asked Murdoch if he had shared with investors all the allegations that were out there," she said. "He said there was more to come, such as computer hacking allegations. Rupert said he was not aware of that evidence."

"And then Rupert said something like, Okay, the polls are closed," Tanner continued. "He definitely wanted to shut down the meeting. He just showed disrespect for shareholders. Clearly, he did not want to hear what they had to say. It's unfortunate. It's the one time in the year when the board can hear concerns."

"Murdoch didn't even attempt to provide to shareholders how shareholder value was being protected," she said. "I would have thought the board would have gone through an explanation of what they're doing internally in terms of investigations and when they will release information about them."

One of the staples of annual general meetings is the election of board members, the results of which are basically a foregone conclusion in the case of a company whose dual-class structure concentrates 40% of the voting power in the hands of Murdoch. Nevertheless, the proxy advisory firm Glass Lewis advised shareowners to vote against six directors for re-election to the company board, including James and Lachlan Murdoch.

The results of the proxy vote, which were released in the days following the meeting, dealt another harsh blow to the company's reputation for corporate governance. Doing the math, Tanner found that with Murdoch's votes subtracted, about three-quarters of shareowners voted against the re-election of James and Lachlan.

Describing the board's insider arrangement as "the polar opposite of transparent corporate governance," Tanner said, "The dual class structure and the fact that so many shareholders don't have a voice are real problems. Shareholder concerns are not rising to the top of the agenda for the board. These are significant concerns that have been in the press for weeks and have been raised by influential shareholders."

Clearly, independent shareowners have spoken emphatically to the corporate governance failures of News Corp. The Parliamentary investigation into the phone hacking and bribery scandal is expected to wrap up after James Murdoch's reappearance in November, just days before he faces calls for his ouster as Chairman at the annual meeting of BskyB.

As for the future plans for CBIS, Tanner said, "If nothing is changed at the company in a significant way, we'll probably refile in accordance with the SEC so all shareholders will get to vote their independent shares."

Asked about the possibility of divesting its shares in News Corp, Tanner said, "Traditionally, Christian Brothers doesn't sell because we feel we can make a difference by holding shares and going to meetings to force votes on the issues. For certain firms, divesting is certainly something that's under consideration. But for us, it's a little too soon to do that because we have had success in making recommendations. We need to explore further."

 

 
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