In a substantial vote of "no confidence," News Corp. shareholders withheld more than 30 percent support from James Murdoch, Lachlan Murdoch, and three other directors at the media company's Oct. 21 annual meeting. The five board members received majority opposition from the shareholders not affiliated with the Murdoch family, which has a 40 percent voting stake through the company's dual-class structure. The dissent was greater than some investors expected, and several pension funds have called on the board to respond quickly.
While News Corp. has taken steps to respond to a U.K. phone hacking scandal, many institutional investors still have concerns about the board's oversight and independence from management. Various pension fund groups, such as the California State Teachers' Retirement System, the California Public Employees' Retirement System, and the U.K.'s Local Authority Pension Fund Forum, opposed some of the 15 board members and called for the appointment of an independent chairman.
Most of the investor dissent was targeted at directors with ties to the Murdoch family or management. Deputy Chief Operating Officer James Murdoch received 34.9 percent opposition, while director Lachlan Murdoch faced 33.7 percent dissent. Natalie Bancroft, a member of the family that sold Dow Jones to News Corp., encountered 33.4 percent opposition. Andrew S.B. Knight, who has served on News Corp.'s board for 20 years and chairs the compensation committee, faced 32.2 percent dissent, while long-serving News Corp. executive Arthur Siskind had 30.2 percent opposition. If one excludes the Murdoch family stake from the vote tallies, the five directors received opposition ranging from 67 to 58 percent. By contrast, the average dissent against S&P 500 directors has been about 5 percent this year.
News Corp. shareholders also withheld 22.7 percent support from David DeVoe, another long-serving company executive. Investors were more forgiving of Chairman and CEO Rupert Murdoch, who received 14 percent opposition. The display of shareholder outrage contrasts with last year's meeting, where all of the company's directors were elected with support that ranged from 89 to 99 percent.
News Corp. investors also voiced significant concern about the company's pay practices. The media company received almost 35 percent opposition during its advisory vote on compensation, which is more than three times the average dissent at U.S. companies this year. Almost 67 percent of the unaffiliated shares were voted against the company's say-on-pay proposal. The vote appears to be a reaction to the board's decision to give Rupert Murdoch a $12.5 million cash bonus in fiscal 2011, as compared with $4.4 million in fiscal 2010. In addition, while the board reduced Chief Operating Officer Chase Carey's base salary from $8.1 million to $4.05 million, the board retained an excise tax gross-up provision when it extended the term of his employment agreement, a practice that many investors object to.
Investors generally were encouraged by the vote results, and have urged News Corp. to bring more independence to the 15-member board, which has only eight independent directors (based on ISS' definition of independence).
"The high number of withholds . . . for certain directors demonstrates the strong desire of unaffiliated shareholders, such as CalSTRS, for a more independent board. In addition, the large negative vote on News Corp.'s say-on-pay proposal shows a greater need for alignment of interest between shareholders and management," CalSTRS said in a press release. "Trying to effectuate governance changes at News Corp. has been a challenging task for shareholders given the dual-class voting structure and the significant influence of the Murdoch family. However, as News Corp. continues to be a publicly traded company, CalSTRS believes that the company should be held to the same governance standards as other companies in the CalSTRS portfolio. The recent scandal has underscored the need for the highest ethical and governance standards."
Ian Greenwood, chairman of the Local Authority Pension Fund Forum, expressed a similar view: "These results show a clear desire for change amongst News Corp.'s shareholders. The level of investor opposition to certain board members is even higher than many had expected," he said in a press release. "[T]he board needs to move swiftly to institute genuinely independent representation. News Corp. would also benefit from a clear separation of powers at the head of the company."
During the annual meeting, a religious group, Christian Brothers Investment Services, presented a floor proposal that called for an independent board chair. That resolution received minimal support, as it did not appear on the company's proxy statement and investors were unable to vote on it unless they attended the meeting in person.