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News Corp. braces for more shareholder criticism

October 08, 2012|By Meg James
  • James Murdoch adjusts his tie as he arrives at the High Court in London to give evidence to a judicial inquiry looking into the phone hacking scandal at News Corp.'s London newspapers.
James Murdoch adjusts his tie as he arrives at the High Court in London to… (Peter Macdiarmid )

Investors have long protested Rupert Murdoch's tight grip on his media conglomerate News Corp.

Over the years, shareholders have complained about nepotism and outsized executive pay packages. They have winced over board members' lack of independence from Murdoch and the company's two classes of stock, which allow the Murdoch family to call the shots because they control the voting shares even though family members own less than 15% of equity in the company.

A year ago, shareholders were restive after a phone hacking scandal exploded at the company's British newspaper division.

The ethics fiasco derailed the company's $12 billion bid for full ownership of the lucrative pay TV company British Sky Broadcasting and started the meter running on legal bills, which now top $225 million, to defend the company during police and other government investigations into the scandal.

At News Corp.'s annual meeting next week in Los Angeles, several shareholders plan to continue to blast News Corp.'s governance practices. Some believe the company has not made sufficient reforms, and should appoint an independent chairman to oversee the company.

Rupert Murdoch, 81, currently serves as chairman and chief executive.

"News Corp. needs to take more significant action," said Julie Tanner, assistant director of socially responsible investing at Christian Brothers Investment Services, which owns shares of the company's stock. "The company's managers need to listen to the shareholders who are outside their inner circle."

However, last week the Murdochs received a vote of confidence from an influential organization that has long criticized the company. Institutional Shareholder Services, one of the leading proxy advisory firms, last week recommended that shareholders reelect News Corp. directors, including the troika of Murdochs: Rupert and his sons Lachlan and James.

The ISS endorsement was a dramatic reversal from a year ago, when ISS recommended that votes be withheld from several directors. Last year's annual meeting resulted in no-confidence votes for several board members, including Lachlan, who lives in Australia, and James, who serves as deputy chief operating officer of the sprawling conglomerate from the company's New York headquarters.

The ISS action reflects shareholders' more sanguine view of News Corp. more than 15 months after the phone hacking scandal mushroomed into headlines around the world.  And for good reason: News Corp.'s stock is up more than 60% from a year ago, and achieved a 52-week high on Friday, with stock trading at $25.19 a share.

The company also has beefed up its compliance division, including hiring a former prominent Securities & Exchange official, John McCoy, who was associate regional director of enforcement division in Los Angeles before joining News Corp. this month.

And, in late June, News Corp. announced that it was spinning off its book and newspaper publishing business into a separate company. Anticipation of the move, which should be approved next year, helped to boost the stock price, dramatically improving shareholders' fortunes.

Not all shareholders are satisfied. Another prominent advisory firm, Glass Lewis & Co. of San Francisco, recommended that shareholders vote against the election of five directors, including Lachlan and James, who has had a bruising year.

James Murdoch has resigned prominent positions in the wake of investigations into the hacking scandal.  He has been roundly criticized for his lack of oversight of the newspaper division -- which he managed for four years as the scandal emerged and began to unravel.

Reporters at News Corp.'s now shuttered London tabloid, the News of the World, eavesdropped on cellphone voicemail messages of celebrities, sports figures and the royal family in pursuit of juicy scoops.  British authorities have arrested about 50 people allegedly involved in the scandal.

"Given the poor oversight exercised by James Murdoch during the News of the World matter we believe shareholders would be better served by the appointment by another director, preferably independent from the Murdoch family and one not tainted by the News of the World matter and its continuing investigations," Glass Lewis wrote in a report last week.

News Corp., in a statement, took issue with Glass Lewis' conclusions.

“News Corporation strongly disagrees with Glass Lewis’ recommendations which are not consistent with the great strides the company has made in terms of corporate governance, compliance and driving shareholder value,” News Corp. said.

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