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October 21, 2013
Shareowners Call for Independent Chair at Twenty-First Century Fox
    by Robert Kropp

A resolution co-filed by Christian Brothers Investment Services and the British Columbia Investment Management Corporation is supported by two-thirds of independent shareowners, but the company's dual-class stock structure insulates Rupert Murdoch from a majority vote.

In June, News Corp split into two entities. Rupert Murdoch's publishing empire retained the original corporate name while the much more profitable entertainment assets became Twenty-First Century Fox.

There was considerable speculation at the time that the split into two companies was made because of the 2011 phone hacking scandal that forced the closure of Murdoch's London-based Sunday Times, an analysis that Murdoch has denied.

Whatever the reasons for the split into separate companies, some of the poor corporate governance practices of Murdoch remain. Both companies have retained a dual class stock structure, which allows Murdoch to control about 40% of each. And despite the fact that Robert Thomson, formerly the Managing Editor of the Wall Street Journal, was named CEO of the publishing business, Murdoch has retained the positions of Chairman and CEO at Twenty-First Century Fox.

In addition to the consequences of inadequate oversight by a board lacking independence—consequences highlighted to a jarring extent by the phone hacking scandal—a study conducted by GMI Ratings found 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.

“Splitting the company may have shifted the public’s focus away from the scandals, but it hasn’t addressed the root cause,” said Julie Tanner, Assistant Director of Socially Responsible Investing at Christian Brothers Investment Services (CBIS). “Its corporate governance practices remain mired in the past.”

Along with co-filer
British Columbia Investment Management Corporation (bcIMC) , CBIS returned to Twenty-First Century Fox's annual general meeting in Los Angeles on Friday with a shareowner resolution calling for the separation of the positions of CEO and Chair. In an email, Tanner wrote that proxy advisory firm Glass Lewis supported the proposal, while ISS believes “the proposal is in best interest of shareholders and in line with good governance principles.”

Also, a coalition of investors representing $1.9 trillion of total assets under management and with 66 million Class A shares in the company wrote to Murdoch, expressing support for the proposal. “Upholding the highest standards of corporate governance will better protect the value of our investment in Twenty-First Century Fox,” the investors wrote. “Given the reputational, legal and regulatory risks brought about by allegations of phone hacking and payments to police officers by pre-separation News Corporation subsidiaries in the UK, and subsequent investigations in the UK and the US, we believe the board is in need of independent leadership.”

At last year's annual general meeting, two-thirds of the independent shareowners agreed with the argument advanced by CBIS and voted in favor of the resolution. "With the level of support our resolution has received, the News Corp board can no longer afford to ignore the company's independent shareholders and must appoint an independent Chairperson," Tanner stated after last year's meeting. “Having a CEO serve as Chair presents a conflict of interest and is an impediment to a strong, independent board.”

At the year's meeting, the resolution was was presented by Tim Shaler of CBIS. “The separation of the company into News Corp and 21st Century Fox presents a unique opportunity to change the current leadership structure which is an impediment to a strong, independent board, whose primary job is to monitor management on behalf of all shareholders,” he stated. “Appointing an independent Chair will give shareholders more comfort that real oversight of the executive team is being exercised.”

Once again, approximately two-thirds of independent shareowners supported the proposal. “The level of family control – Mr. Murdoch owns 40% of voting shares – and the dual class share structure was engineered to keep power in the hands of Mr. Murdoch,” Tanner stated after the meeting. “This strong result compels the board to take action. Until then, shareholders will continue to voice their disapproval through the few channels available to them.”

It was reported that a vote on a proposal to end the company's dual-class structure was prevented from coming to a vote at the meeting because representatives of the
Nathan Cummings Foundation, which filed the resolution, were not present. At last year's meeting, a similar proposal received two-thirds of the votes of independent shareowners.

“The company has failed to convince shareholders that the status quo is in our best interest,” Laura Campos of the Foundation stated after last year's meeting. “We deserve a say in the running of our company, and Murdoch should not continue to be insulated from shareholder concerns.”


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