Sunday, 21 October 2012

News Corp: inside the kessel

Last week I attended the News Corp annual meeting for the second time, so thought it would be worth reflecting on what happened.

First the background. A lot of shareholders have had problems with News Corp, for a number of reasons, for a long time. There's the dual class share structure which gives the Murdoch family effective control despite holding only a small minority of the issued shares (as they hold a lot of the Class B voting shares). This has inevitably led to the family's interests distorting some decision-making, especially with Rupert Murdoch as combined chair and chief executive. Many would argue that the board lacks independent voices, and there are too many personal connections.

So News Corp has long been considered by some investors as a problematic company because of governance concerns. In fact that undersells it significantly. Various analyses put News Corp near the bottom of the scale in terms of governance. And it's not as simple as saying 'if you don't like it don't buy it' because of the growth of index tracking.

Last year's AGM took place a few months after the hacking scandal blew up, leading to the closure of the News of the World, the dropping of the BSkyB, departure of Rebekah Brooks, Murdoch Snr and Jnr being called before the DCMS delect committee etc. As a result it was a very bad-tempered meeting. Shareholders asked a lot of critical questions, and Rupert Murdoch was quite combative in responding to them. Among the attendees was Tom Watson MP who warned the board that computer hacking could be the next leg of the scandal. (For info, Operation Tuleta is now up to 17 arrests, the most recent one taking place last week.)

A year and a bit on from the hacking scandal the feel of the 2012 AGM was very different and the number of investors attending was noticeably down. The Q&A was much more respectful, on both sides, and Rupert Murdoch was much more polite. Either the company has decided to change its approach, it's a bit of a PR/IR makeover, or a bit of both. But the overall effect was to make it feel like an environment in which aggressive questioning by investors was a bit out of order. Quite an effective pacification strategy if it was intended.

The reason I was there was because the Local Authority Pennsion Fund Forum had co-filed a resolution with Christian Brothers Investment Services seeking the appointment of an independent chair. A second resolution, filed by the Nathan Cummings Foundation, sought the elemination of the company's dual class share structure. In a sense, this represented a more focused approach from shareholders seeking reform than last year, when a lot of them opposed individual board members (with James Murdoch receiving a massive vote against).

On both resolutions Viet Dinh handled the company's response, and essentially defended the company's existing practices, though I personally felt there was a chink of light on the issue of an independent chair. I also think that when the company splits in two there might be movement, but we'll have to wait and see.

Last year the company delayed publishing the results of the meeting until the Monday following the Friday AGM. This time they managed to get the results out within hours of the meeting. Both resolutions received a clear majority of independent shareholder support (about 2:1). This is quite a big deal, as the votes of the likes of CalPERS, Hermes etc don't actually get you very far on their own. To get a vote of 30% plus of all Class B holders means that some big mainstream assset managers were onside. This is important because they could have simply concluded that there isn't much point challenging Murdoch at his own company. Instead they chose to support the introduction of an independent chair.  

I suppose that's the best point to conclude on. Given the structure and history of News Corp there is an understandable tendency to be pessimistic about the prospects for change. I personally think, given recent events, that we have to give it a try. Phone hacking (and computer hacking, payments to police etc) only got the exposure it derserves because some people decided that they had to keep pushing, even though the odds were stacked against them. The least that long-term shareholders can do is exert some effort, especially as the issues that are being fought over are mainstream governance concerns - splitting roles and equal treatment of shareholders. And if in general we only pick the easy targets we aren't going to achieve a lot.

No comments: