James Murdoch, left, was until recently the heir apparent of his father,… (Sang Tan, Associated Press )
In a stinging rebuke, News Corp. investors signaled their unhappiness with Rupert Murdoch's plans to eventually install one of his children at the helm of the global media conglomerate.
More than one-third of the votes cast at the company's annual shareholders' meeting opposed returning his two sons, James and Lachlan, to the company's board of directors. Murdoch, the company's chairman and chief executive, fared much better. He won the backing of an overwhelming majority of the votes cast — 86% — in Friday's election.
The strong signal of no confidence in Murdoch's sons — particularly James — was significant because the family controls 40% of the company's voting shares. Factoring out those votes, the message was even stronger: About 70% of votes cast were against the sons' high-level roles.
"What this vote says is shareholders do not think that his sons should be governing this company just because their last name is Murdoch," said Needham & Co. media analyst Laura Martin.
Martin said the outcome at News Corp. was the most dramatic example of shareholder discontent since former Walt Disney Co. chief Michael Eisner suffered a 43% no-confidence vote during a raucous annual meeting in 2004. Directors stripped Eisner of his chairman post, and within two years he left the company.
The News Corp. shareholders' vote comes in the wake of a phone-hacking scandal in Britain that has roiled the company and resulted in the closure of the 168-year-old News of the World. Journalists for the London tabloid have been accused of illicitly monitoring voice mail messages left on cellphones belonging to members of the royal family, celebrities and victims of crime.
The tally, disclosed Monday in a filing with the Securities and Exchange Commission, marks the first time investors have indicated their lack of confidence in Murdoch's onetime heir apparent, James Murdoch.
Just seven months ago, the 38-year-old Murdoch was elevated to deputy chief operating officer of the company. However, he has been tarnished by his role in the phone hacking scandal, and on Friday garnered the fewest votes of the company's 15 directors. Thirty-five percent of the votes cast opposed his return to the board, raising questions about his future at News Corp.
He has been called to appear before Parliament on Nov. 10 for a second time to answer questions about his knowledge of the eavesdropping debacle at News of the World. James, who oversees News Corp.'s European and Asian operations, authorized large settlements to hacking victims but has insisted he was unaware that the hacking was widespread.
Two former News Corp. employees contradicted statements he made last summer about when he first learned of the widespread nature of the unethical reporting practices.
"It's very rare that you get significant opposition to board membership," said Edward Lawler, a professor at USC's Marshall School of Business. "The board now finds itself in a sticky situation. This is clearly a challenge by shareholders for the board to do something to try to establish some credibility."
Murdoch's 40-year-old son, Lachlan, fared only slightly better than his brother. Thirty-four percent of the votes cast opposed his return to the board. He left the company's management in 2005 after a clash with senior executives but remains a News Corp. director.
In contrast, Chief Operating Officer Chase Carey received strong support from the company's shareholders, garnering 91% of the votes cast. Joel Klein, executive vice president of News Corp. and a former New York City school chancellor, collected 96% of the votes cast.
Friday's vote also highlighted investor unease with News Corp.'s dual-class stock structure, which critics have long contended provides Murdoch with undue influence. Murdoch and his family control nearly half of the company's voting stock, but they own only about 13% of the outstanding shares in the company.
"If you ask people to invest in your company and then you don't listen to them, then what is the point of investing in that company?" said Charles Elson, a corporate governance expert at the University of Delaware. "Ultimately the investment source will dry up."