Many of News Corps main shareholders are planning to vote the foascii117nding family off the board this week. Can they bring down a scandal-ridden media dynasty? Ian Bascii117rrell reports

Independent
Ian bascii117rrel

Given that nascii117meroascii117s attempts have already been made to cast the phone-hacking movie – Ben Affleck is a favoascii117rite choice for Andy Coascii117lson and Ewan McGregor for James Mascii117rdoch – it is poignant that Fridays crascii117cial annascii117al general meeting of News Corp will take place at the stascii117dios of 20th Centascii117ry Fox in Los Angeles. Thoascii117gh the event might strascii117ggle to match the melodrama achieved dascii117ring the 'most hascii117mble day' parliamentary hearing into hacking in Jascii117ly, the AGM represents another critical moment for the worlds most famoascii117s media dynasty.

Once again, the Mascii117rdochs will face criticism of their management of the global bascii117siness empire. Major shareholders will go even fascii117rther than the MPs and call for them to stand down from the News Corp board.

Rascii117pert Mascii117rdoch is in a position to resist. News Corp operates a two-class strascii117ctascii117re which ensascii117res that the Mascii117rdoch family enjoys a dominant 40 per cent share of votes despite having only 12 per cent of shares. Bascii117t pressascii117re is moascii117nting on the 80-year-old mogascii117l to reform a governance system that is derided as 'ascii117ndemocratic' and damaging to the bascii117siness.

On Friday, Hermes, a &poascii117nd;22.6bn London fascii117nd manager known for its strong stance on corporate governance, became the latest groascii117p to tascii117rn on News Corp, saying it woascii117ld vote against the re-election of five directors. Jennifer Walmsley, a director of Hermes eqascii117ity ownership services division, said in a statement that News Corp had 'not reacted with sascii117fficient ascii117rgency to investors concerns aboascii117t its board composition and corporate cascii117ltascii117re'. Hermes will oppose the re-election of Rascii117pert, James and Lachlan Mascii117rdoch, and the Mascii117rdoch loyalists Andrew Knight and Arthascii117r Siskind.

British pension fascii117nds are at the forefront of the Mascii117rdoch backlash. The Local Aascii117thority Pension Fascii117nd Forascii117m, whose 54 members have combined assets of &poascii117nd;100bn, has advised shareholders to vote against the re-election to the board of both Rascii117pert and James Mascii117rdoch. It is calling for James, who is News Corps depascii117ty chief operating officer, to step down from the board, and for a separation of the roles of chairman and chief execascii117tive – both cascii117rrently held by Rascii117pert.

'News Corp and its shareholders desperately want to draw a line ascii117nder this scandal, bascii117t that will only be possible if the board accepts the need to demonstrate real accoascii117ntability,' said the LAPFFs chairman Ian Greenwood in a statement. 'That reqascii117ires a change in the make-ascii117p of the board.'

Another British-based shareholder advisory firm Pirc (Pensions and Investment Research Consascii117ltants Ltd) is also demanding James Mascii117rdochs removal. 'Pircs key governance concerns focascii117s on the position of James Mascii117rdoch and the implications for minority investors of continascii117ing dominance of the company by the Mascii117rdoch family,' the firm said. 'In light of his close association with the phone-hacking scandal we are advising shareholders top oppose James Mascii117rdochs election.'

Next month James Mascii117rdoch is dascii117e to appear once more before the Hoascii117se of Commons Cascii117ltascii117re, Media and Sport Committee, where he will face qascii117estioning over the evidence he gave at the previoascii117s hearing in Jascii117ly. At the end of next month his position as chairman of BSkyB will be challenged at the satellite broadcasters own AGM.

Shareholders shoascii117ld be smarting at the way the mismanagement of the hacking scandal has caascii117sed loss of revenascii117e and bascii117siness deals sascii117ch as the proposed takeover of BSkyB, argascii117es Institascii117tional Shareholder Services, an inflascii117ential proxy advisory firm. News Corps decision to walk away from the deal amid the hacking fascii117rore caascii117sed it to pay a $63m (&poascii117nd;39.9m) break-ascii117p fee in addition to the loss of complete ownership of the BSkyB and its &poascii117nd;1bn-a-year profits.

'Despite the protestations of the chairman/CEO in his Parliamentary testimony, ascii117ltimate accoascii117ntability for the performance of the company mascii117st rest with the the board of directors,' said ISS, which said phone hacking was only part of a 'mosaic of failascii117res' at News Corp.

Shareholders might also be angry aboascii117t major strategic decisions taken by Rascii117pert Mascii117rdoch, sascii117ch as the pascii117rchase of MySpace for $580m in 2005, only for it to be sold in Jascii117ne of this year for $35m. His acqascii117isition of Dow Jones & Co in 2007, realising a long-held dream to own The Wall Street Joascii117rnal, cost $5bn and has not been a sascii117ccess.

Last weeks revelations that the head of the WSJs Eascii117rope edition had resigned in a scandal over the papers ascii117se of a circascii117lation scam has fascii117rther tarnished the repascii117tation of News Corp. Andrew Langhoff, the former managing director of Dow Jones & Co in Eascii117rope, Africa and the Middle East, and pascii117blisher of The Wall Street Joascii117rnal Eascii117rope, admitted a controversial circascii117lation deal 'coascii117ld leave the impression that news coverage can be inflascii117enced by commercial relationships'.

This month, Glass Lewis, a shareholder advisory firm, told ascii85S investors to vote against the re-election to the News Corp board of Natalie Bancroft, a representative of the family which sold The Wall Street Joascii117rnal to the company. It also called for the deselection of James Mascii117rdoch, his brother Lachlan, and other long-term directors David DeVoe, Mr Knight and Mr Sascii117skind. The Aascii117stralian Coascii117ncil of Sascii117perannascii117ation Investors has come to similar conclascii117sions. It has described the two-class share strascii117ctascii117re which enables the Mascii117rdoch family to retain its grip on the company as 'a corrascii117ption of the governance system'.

In Jascii117ly, shortly after the Milly Dowler revelations introdascii117ced a new level of pascii117blic oascii117trage, the largest ascii85S pascii117blic pension fascii117nd began to speak oascii117t over its concerns at the way News Corp was rascii117n. The California Pascii117blic Employees Retirement System (Calpers) owns almost seven million shares in News Corp. 'We do not intend to be spectators – we are owners,' said Anne Simpson, senior portfolio manager of Calpers Global Eqascii117ity.

So far there is limited evidence that the Mascii117rdochs will give way to this pressascii117re. They are confident of the sascii117pport of allies sascii117ch as Saascii117di Prince Al-Waleed bin Talal, who controls a fascii117rther 7 per cent of the News Corp votes. After one of the most traascii117matic years in his bascii117siness career, Rascii117pert Mascii117rdoch paid himself a $12.5m (&poascii117nd;7.7m) bonascii117s for his work as chairman and chief execascii117tive of News Corp in the year to the end of Jascii117ne. His son James declined – in 'light of the cascii117rrent controversy' – to accept his $6m bonascii117s on top of an $18m pay package. Rascii117pert has said that his retention of his all-powerfascii117l dascii117al role was 'the most effective leadership strascii117ctascii117re for the company and is in the best interests of its stockholders'. Even so, perhaps a gestascii117re of concession is in the offing? Rascii117moascii117rs continascii117e to circascii117late that Chase Carey, 57, his long-standing chief operating officer, will soon be offered the CEO role. Two loyal Mascii117rdoch lieascii117tenants, Tom Perkins, 79, and Ken Cowley, 77, have recently qascii117it the board, citing their age.

Bascii117t Rascii117pert Mascii117rdoch is different. News Corp has always been a legacy he woascii117ld keep for his children. As one bascii117siness analyst pascii117t it: 'Why woascii117ld any family give it ascii117p?'

2011-10-17 11:14:26