Tuesday, 18 October 2011

Where News Corp goes next

Though its AGM is fast approaching, I think we can safely say that what happens to News Corp will largely not be determined by its (non-Murdoch) shareholders. Not directly at least. As is well known, despite holding an minority smallish chunk of News Corp's shares, Murdoch Snr has the whip hand in terms of voting rights. Add in some friendly faces, and knowing the passivity of many asset managers, and no-one really expects any directors to lose their seats on Friday.

The global shareholder opposition to the existing News Corp board is truly impressive, and a rarity. I know from experience how difficult it is to get investors both on the same page, and willing to take a public position on the need for reform. In that sense I struggle to think of a similar case to the forthcoming AGM. There will be some very big votes against News Corp directors and, if I were a betting man, I would say that James Murdoch will take the biggest hit (he is the one director everyone seems to be voting against).

But let's be clear how we got here, and where things are likely to go. Essentially News Corp has been undone by the efforts of investigative journalism, a few key politicians and some celebrities. Shareholders have come late to the party and many don't seem to have followed developments closely (hence I think a few have been very shocked and, no doubt, will be again in future). Shareholder pressure has developed as a further source of pain for News Corp once the initial blows had been landed.

Looking ahead, I suspect that the key players in deciding News Corp's fate will be a mixture of politicians, regulators, rival media, whistleblowers and law firms. Post-AGM shareholders will probably find they exercise the most influence via the last group, but I suspect they will largely play a supporting role. So let's examine who might cause problems for News Corp and why.

1. Politicians. There are a number of political interests here. First up the Coalition knows that allowing a revised News Corp bid for BSkyB to go through would look rather bad. So they don't have much to gain by letting News Corp have an easy ride. Add to this that, so far, Ed's one major success has been the way he called the hacking scandal and you can bet he will continue to try and push Cameron hard on this. And let's not forget the DCMS committee. At some point it's going to publish a report on hacking. That is bound to include some commentary on News Corp's governance, and some of the key individuals who are still there. A critical perspective could put an awful lot of pressure on.

2. Ofcom. It essentially has a watching brief on 'fit and proper' as it applies to BSkyB's licence which can include taking account of the behaviour of News Corp. So if the DCMS committee report comes out very critical this could be an important factor. The role of the current BSkyB chair sticks out like a sore thumb I think.

3. I would keep watching The Guardian and, increasingly, The Indie. Both have turned up a lot of info that has fed investigations into hacking. Last week's Nick Davies' piece on the WSJ pumping up its circulation figures shows that they are starting to look at whether other parts of the Murdoch empire are infected. I imagine that computer hacking, which a) a lot of people expect to be the next element of the scandal and b) is the subject of its own police investigation, will be the subject of some coverage.

4. Whistleblowers (though perhaps this is too grand a term). As Tom Crone and Colin Myler's decision to openly and publicly contradict James Murdoch's version of events shows, there are some disaffected former employees now on the prowl. Some clearly feel they have been let down by the company they worked for, and as such News Corp can no longer rely on them to keep quiet. This could result in further damaging revelations.

5. Law firms. Add wrongdoing to cover-up to misleading public statements and legal firms who work on behalf of shareholders will get interested. This could be quite a big deal.

So in all of this shareholder pressure may play a relatively minor part. I make this point for a couple of reasons. First because what has happened at News International for sure, and perhaps elsewhere in News Corp, represents a major scandal. If shareholders can't really make much headway in a case like this (in part because of the way News Corp's share ownership is structured) don't get your hopes up about the prospects for shareholder engagement where the rights and wrongs are less clear cut.

Second, because in reality it has always been like this. In the real world holding companies to account for poor behaviour has always required a range of stakeholders putting on pressure - shareholders cannot usually do it alone. This is important when thinking about shareholder engagement in a public policy context, where it is sometimes held out as a non-statist 'solution' to various problems of corporate behaviour. Or to look at it from the other direction the primacy granted to shareholders in governance is sometimes held out (mainly by the Right) as a reason why government/regulators etc should not and need not stick their noses in.

Therefore my conclusion from my experience to date with News Corp is that it demonstrates the need to try and form effective coalitions, but coalitions that go beyond the investor community alone.

No comments: