August 07, 2012
Church of England Sells its Shares in News Corp.
by Robert Kropp
A year of engagement following the phone hacking and bribery scandal has failed to produce a
commitment by the media giant to improve its corporate governance, and the Church responds to the
lack of progress with divestment.
Divestment is a strategy rarely employed by most institutional investors. Generally, they prefer to
hold onto shares of companies that are underperforming or demonstrate governance problems,
believing that through engagement they can persuade companies to improve their practices.
An example of prioritizing engagement over divestment can be found in the SAGE (Sustainability Achieved
through Greater Engagement) Funds offered by Calvert Investments. The funds invest in companies that do not
meet Calvert's environmental, social, and corporate governance (ESG) criteria, and engage with them
to increase shareowner value and promote long-term corporate responsibility and sustainability.
But the firm does state that if engagement fails to achieve the desired results, "Calvert
may divest the holding from the SAGE Fund portfolio." And as Cary Krosinsky of Trucost told SocialFunds.com in 2010, "Divesting is a powerful
tool, and if you don’t use it enough you don’t have it in your toolbox."
divestment of an institution's holdings in a company regularly rated as having poor corporate
governance was revealed today, when the Church of England announced that it has divested its shares, valued at
approximately $3 million, in scandal-plagued News Corporation.
The total assets under
management of the Church's three investment bodies—the Church Commissioners for England; the Church
of England Pensions Board; and the CBF Church of England Funds—exceed $12.5 billion.
July, 2011, News Corp. was engulfed in a phone hacking and bribery scandal that exposed unethical
practices at the media company, which even before the scandal broke was described by GovernanceMetrics International (GMI) as having "systematic and wide-ranging" governance
"Investors subject to a fiduciary standard should…be prepared to justify a
decision to hold companies receiving" its worst corporate governance rating, GMI stated.
The Church of England's Ethical Investment Advisory Group (EIAG), which advises the investment
bodies on its ethical investment policy, engaged with 40 companies during the last year, including
However, in its press release announcing the divestment, the Church of England
stated, "After a year of dialogue between the company and the EIAG, the Church of England was not
satisfied that News Corporation had shown, or is likely in the immediate future to show, a
commitment to implement necessary corporate governance reform."
Andrew Brown, Secretary of
the Church Commissioners, stated, "Our decision to disinvest was not one taken lightly and follows
a year of continuous dialogue with the company, during which the EIAG put forward a number of
recommendations around how corporate governance structures at News Corporation could be improved."
"However the EIAG does not feel that the company has brought about sufficient change and
we have accepted its advice to disinvest," he continued.
In the US, engagement with News
Corp. has been led by Christian Brothers
Investment Services (CBIS), which has re-filed a shareowner resolution with the company this
year, calling for the separation of the positions of CEO and Chair of the Board. Rupert Murdoch
currently holds both positions.
The resolution was co-filed by the UK-based Local
Authority Pension Fund Forum (LAPFF), an association of 55 public sector pension funds with over
$180 billion in assets under management.
"This pervasive and continuing scandal has led to
an erosion of public confidence, helped to scuttle a critical business acquisition, and threatened
the journalistic reputation and viability of News Corporation's UK publications," the resolution
states. "That these revelations took years to uncover and are only now being addressed suggest a
lax ethical culture and a lack of effective board oversight."
An independent board chair
is necessary, the resolution states, "To steer the company through a process of reform."
Last month, 18 investors representing over $1.6 trillion in assets under management wrote to
Murdoch, stating, "It is important for News Corporation to uphold the highest standards of
corporate governance in order to protect the value of our investment. Appointing an independent
Chair at News Corp and its successor companies will go a long way to restoring shareholder
In an email sent to SocialFunds.com following the Church of England's
announcement, Julie Tanner, Assistant Director of Socially Responsible Investing at CBIS, wrote,
"We have sincerely appreciated Church of England's support for our resolution and share their
frustration with the complete lack of substantive change at the company. Even as new scandals have
come to the fore, News Corp has been unwilling to make the structural changes that would give
investors like Church of England confidence that News Corp is effectively dealing with its
"CBIS will continue to work for the appointment of an independent chair at
News Corp. and its successor companies, which we believe is a necessary first step in the reform of
the company's governance," Tanner continued. "By voting for our resolution at the News Corp. annual
meeting in October, shareholders can send a strong message to the Murdochs that the status quo is