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October 20, 2012
Independent Shareowners Want Murdoch out as Chairman of News Corp
    by Robert Kropp

Resolutions calling for separation of Chairperson and CEO, and end to dual-class stock structure, gain support of two-thirds of independent shareowners at media company's annual meeting.

Following last year's revelations that News Corp employees had engaged in widespread illegal phone hacking, shareowners and other stakeholders have repeatedly expressed concerns that the media company's lax ethical culture was enabled in part by its poor corporate governance practices.

GMI Ratings included News Corp in its Risk List of most poorly governed corporations, for lack of board independence and a dual-class stock structure through which Chairman and CEO Rupert Murdoch and his family own approximately 40% of its voting shares. Citing concerns about objectivity and independence, the proxy advisory firm Glass Lewis recommended that shareowners vote against six of the company's directors.

The phone hacking scandal broke too late for shareowners to file resolutions addressing poor governance practices in time for last year's annual general meeting. Nevertheless, Julie Tanner, Assistant Director of Socially Responsible Investing for
Christian Brothers Investment Services (CBIS), introduced from the floor of the meeting a resolution calling for separation of the positions of Chairperson and CEO.

"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 stated at the meeting, noting that institutional investors with over $400 billion in assets under management supported the governance reform.

Shareowners reconvened in Los Angeles this week for this year's annual meeting, and the
resolution calling for an Independent Chair, co-filed by CBIS and members of the UK-based Local Authority Pension Fund Forum (LAPFF), was included on the proxy statement. In a proxy advisory briefing distributed to shareowners in advance of the meeting, the investors stated, "The shareholder proponents call for an independent Chair to improve the board's oversight of management and risk and strengthen accountability to shareowners."

Furthermore, the investors cited a
report from GMI Ratings finding that five-year shareowner returns are nearly 28% higher at companies with a separate CEO and chair. GMI also found that the cost of employing a combined CEO/chair is 151% of the cost of a separate CEO and chair.

While the proxy advisory briefing described engagement with News Corp "positive in nature, the board continues to lack independent representation."

In August, the
Church of England announced that it had divested its shares, valued at approximately $3 million, in News Corp. After a year of dialogue between the company and the Church's Ethical Investment Advisory Group (EIAG), the Church "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," it stated.

"They've made some changes," Tanner told before the meeting. "They've appointed two new board members and have created business standards of conduct. But we have concerns on both issues. One of the new board members, Elaine Chao, has been a frequent contributor to Fox News. And Alvaro Uribe, the former President of Colombia, has been implicated in a wiretapping scandal."

"The business standards of conduct are a step in the right direction, but it's unclear what the oversight mechanism is or when shareholders will receive updates on the effectiveness of the standards," Tanner continued. "While there have been some changes, they haven't been sufficient to address the key concerns. What is needed are sweeping changes."

A solid two-thirds majority of independent shareowners turned out to agree with Tanner's assessment. "While Mr. Murdoch claims that the interests of his family are in line with those of all shareholders, this vote proves that most independent shareholders would disagree," Tanner stated after the results of the votes were announced. "We are looking for long-term value in the company, which requires substantive change to the weak corporate governance practices that have brought us to this point."

"We are thrilled by the strong support registered by independent shareholders for our resolution," Tanner wrote in an email. "With this level of support, the News Corp board can no longer afford to ignore these calls and must appoint an independent Chairperson."

Also included on this year's proxy ballot was a resolution filed by the
Nathan Cummings Foundation, calling for the elimination of the company's dual class capital structure. The resolution was supported by two-thirds of independent shareowners as well.

"These results demonstrate the need for a one vote, one share structure," Laura Campos of the Nathan Cummings Foundation stated. "The company has failed to convince shareholders that the status quo is in our best interest. We deserve a say in the running of our company, and Murdoch should not continue to be insulated from shareholder concerns."

In addition, substantial independent votes were recorded against the appointments of three insiders—Natalie Bancroft, James Murdoch, and Lachlan Murdoch. James and Lachlan are sons of Rupert Murdoch. Votes against the three were actually higher last year, when Institutional Shareholder Services (ISS), like Glass Lewis, recommended that shareowners vote against six nominees for the board. This year, ISS recommended that shareowners back the nominees, presumably on account of the measures taken by the company that Tanner referred.

Nevertheless, a considerable number of independent shareowners disagreed with the ISS recommendation.


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