Hacking news

A couple of unrelated bits of hacking news.

1. Yesterday the Indy reported that the cops are still looking at taking a corporate charge against News UK. An important thing to remember here is that if they do this using section 79 of RIPA the executives in the firing line don't need to have known about hacking, they can be found negligent.

2. Trinity Mirror reported today that it set aside £4m for dealing with and resolving civil claims relating to phone hacking. But they say that it's not possible yet to quantify other potential financial risks relating to hacking:

It remains uncertain as to how these matters will progress, whether further allegations or claims will be made, and their financial impact. Due to this uncertainty a contingent liability has been highlighted in note 18.

Hackety hack

So, the verdicts in the hacking trial are in (though Coulson and Goodman may face a retrial on the bribery charge). The two big decisions - Coulson guilty, Brooks not - might seem to make this more of a political story now than a corporate one. And indeed the last two days have mainly seen Cameron in the frame.

But hold on. We now have convictions against several former News Corp employees (remember, away from the headlines, that several pleaded guilty). There is no question that extensive illegal activity went on, and now people have been convicted of it. One of those that pleaded guilty was Neville Thurlbeck, of the famous 'for Neville' email. And there are more trials to come.

One important unanswered question is whether a corporate charge is likely. It is obvious that the police were interested in this (as they should be). We now know that Rebekah Brooks and Andy Coulson were cautioned by the police in relation to a corporate charge, and Les Hinton was also reportedly interviewed.

There has been no forward movement on a corporate charge to date because the police needed to see what happened in the hacking trial. And - on the hacking issue alone - we now have several convictions of editorial staff. According to The Guardian they also agreed to not interview Rupert himself until the verdicts were in. Now they are, an interview looks to be on the cards.

I don't know much about corporate charges, though Section 79 of RIPA doesn't require knowledge for a director to be held liable, you can be negligent too (and plenty of senior News Corp staff seem to have had no idea what was going on under their watch...). A corporate charge would also have a bearing on 21st Century Fox's relationship with BSkyB. Surely Ofcom would have to revisit the 'fit and proper' test?

Also worth noting, in passing, that Tom Crone was arrested a second time last November. This is the guy who has claimed several times that he told James Murdoch all about the 'for Neville' email, and who was dumped on by Rupert Murdoch. He was previously arrested in August 2012 for conspiracy to intercept communications. I haven't seen what the second arrest was for.

And this is before we get into the business of payments to public officials and the Foreign Corrupt Practices Act and other possible action in the US. There's still quite a few challenges for the Murdoch empire (and Trinity Mirror may follow). This is (still) a long way from over.

And finally, I couldn't help but find this amusing (from here):

Brooks’s lawyers tried and failed to persuade the judge to ban all trade union members from the jury on the grounds that they were bound to be antagonistic.

Shareholders want a new (non-Murdoch) chair at 21st Century Fox

Friday was the AGM of 21st Century Fox, and once again there was clear support from non-Murdoch family shareholders for the introduction of an independent chair at the company.

FWIW, I am pretty sure this will happen in the next few years. When Rupert Murdoch stands down, or (lets be honest - he's an old man) dies, I can't see the board wanting to appoint Lachlan (James is dead in the water, in my opinion) as either chief exec (Chase Carey will get this I reckon) or chair.

Of course the hacking trials may hasten things if new information comes out.

NEW YORK — October 21, 2013 — Approximately two-thirds of independent Twenty-First Century Fox, Inc. shareholders voted in favor of a resolution calling for the appointment of an independent Chair of the Board at the company’s annual shareholder meeting today in Los Angeles, casting doubt on whether shareholders see their interests as aligned with those of the Murdoch family. The resolution received 29% of the independent shareholders and 64% of all shareholders.

The shareholder proposal to strip Mr. Murdoch of his chairmanship was jointly introduced by Christian Brothers Investment Services (CBIS) and Canada-based British Columbia Investment Management Corporation (bcIMC), with support from the Local Authority Pension Fund Forum (LAPFF) in the U.K.

“The level of family control – Mr. Murdoch owns 40% of voting shares – and the dual class share structure was engineered to keep power in the hands of Mr. Murdoch,” said Julie Tanner, Assistant Director of Socially Responsible Investing at CBIS.  “While it is virtually impossible for a shareholder resolution to “pass,” at Twenty-First Century Fox, this strong result compels the board to take action. Until then, shareholders will continue to voice their disapproval through the few channels available to them.”

“Unfortunately, some of the corporate governance problems at News Corp are just being repeated at Twenty-First Century Fox,” said Doug Pearce, Chief Investment Officer and Chief Executive Officer of bcIMC. “The new company deserves a fresh start, with proper oversight and adequate controls on power.”

“Once again, shareholders have made their feelings clear,” said Kieran Quinn, Chair of LAPFF. “This is the second year running that a majority of minority shareholders have backed the need for an independent chair. We encourage the board to respond constructively to a clear message from the company’s shareholders.”

Section 79 of RIPA

Just a reminder that under section 79 of the Regulation of Investigatory Powers Act directors can be held responsible for breaches, even if they were not aware of them (ie due to negligence). There has been speculation in the past that directors of News International could be caught by this, and that the police might be interested in pursuing this.

Presumably, though, the cops want to wait for the individual cases to go through, as they involve direct RIPA breaches (phone hacking!), before following up by exploring corporate charges. So next month's trials could have some bearing on this.

Also worth noting that when the Met were asked specifically about the issue of corporate charges, at the Leveson Inquiry, News Corp's co-operative stance was highlighted. See this Guardian story on the Section 79 problem for News Corp. the reason I mention this that in that recent Exaro scoop of the secret Rupert Murdoch meeting some of the things he says include that a) he regrets being so co-operative and b) the company has started being more difficult in dealings with the police.

Given that its very unlikely (now) for anyone to get hold of an email/recording of a current senior News Corp exec explicitly admitting that they knew what was going on, these sort of things take on more significance. And, of course, if people start pleading guilty next month the whole thing takes a new turn.

Stock up on popcorn.

James Murdoch: popularity in 2012 vs 2011

As I've blogged previously, somewhat surprisingly James Murdoch got an easier ride at BSkyB's 2012 AGM than the 2011 meeting. This was despite getting slammed by both the CMS select committee and Ofcom inbetween.

To recap, in 2011 the vote against his re-election was 17.4% with 7.1% abstaining, the comparable figures in 2012 were 4.9% and 0.35%. So clearly some big shareholders backed right off. Today, whilst hoovering up the latest asset manager voting disclosures, I thought I'd take a look at votes on James Murdoch at BSkyB's 2012 AGM, versus those in 2011, to see who switched sides.

This is what I can find so far (2011 vote first, 2012 vote second)

Aberdeen - Oppose / For
Aviva - Oppose / Oppose
CCLA - Oppose / Oppose
F&C - Oppose / For
Goldman Sachs - Abstain / For
Hermes - Oppose / Oppose
Jupiter - Oppose / For
Kames - Oppose / For
L&G - Oppose / For
M&G - For / For
Martin Currie - Abstain / Abstain
Newton - Oppose / Oppose
Royal London - Oppose / For
Schroders - Oppose / Oppose
Standard Life - Oppose / For
State Street - Abstain / Oppose (yes, those are the right way around)
SWIP - For / For
Threadneedle - Abstain / For
UBS - Oppose / For 

These are just the ones I can find, but it tells the story. A lot of institutions backed off, despite (or, perhaps, because of) the intervention of both Parliament and the broadcasting regulator. Pretty unimpressive IMHO.

News Corp / BskyB news

It's been a while since I blogged about this, but things are hotting up again for a variety of reasons.

Most notably, the secret recording of Rupert Murdoch's candid chat with staff from the Sun, that was released to the world by the excellent Exaro News, has set all kinds of things moving. First Rupert Murdoch has been called back in front of the DCMS select committee to explore the differences between what he said on the tape, and what he has said previously. Personally, given what we saw in 2011, I wouldn't expect a lot from this, but worth keeping an eye on.

Second, the Foreign Corrupt Practices Act continues to loom in the background. Rupert Murdoch was asked about this on an analyst call and (largely) denied a Michael Wolff article suggesting that a record settlement with the DoJ was imminent. On these points I have come across an academic expert on the FCPA who has blogged on why a News Corp settlement might not be a blockbuster, but also (an oldie) why News Corp can be caught by the Act.

Third, in turn, Ofcom has confirmed to Exaro News that it will be having another look at the 'fit and proper' test in relation to BskyB. On first glance, this might seem to pose little threat, since Murdoch Senior is not on the board (whereas James Murdoch was chair). However, it's worth remembering that as part of the recent News Corp split, the company's shareholding in BSkyB also has to be dealt with. A recent BSkyB RNS shows that this is now held by 21st Century Fox, the broadcasting bit of the Murdoch empire. The importance of this is that at Fox Rupert Murdoch is still combined chair and CEO, whereas at 'new' News Corp he is the (backseat driving?) executive chair. In other words, his personal influence is, at least formally, much stronger in the former.

That may give Ofcom a reason to have a look, but it's clear the tape that has been made public may not be the end of the story. In September the trials of current and former News International journalists, including Andy Coulson and Rebekah Brooks, begin. As the existence of the leaked recording shows, trust has broken down inside the company. This does lead you to wonder if people with nothing to lose will start talking. Indeed, some news that has made it into the papers already suggests that they will.

And I bet there is still more to come...

Beeb vs News Corp

As far as I am aware, no-one sent the former BBC director general an email suggesting (before broadcast) that the Newsnight report on sexual abuse might be fundamentally flawed. Yet, despite this, he has taken personal responsibility for a failing within the organisation he was in charge of.

I said this reccently about James Murdoch ahead of BSkyB's AGM -

In other fields individuals in leadership positions subject to this level of criticism would be forced out, even if there was no 'smoking gun'. 

I didn't realise it would be proven true - in a directly comparable organisation - so quickly. Perhaps Entwhistle would have been better off if someone had emailed him - he could just claim he hadn't read it properly. That defence works in public companies, apparently.

BSkyB AGM - as expected

So, James Murdoch has been re-elected with an approx 5% vote against, according to reports (no RNS yet). As expected, institutional shareholders backed off once again, despite the Ofcom report, DCMS committee report etc.

A small factoid to consider - if the reported level of opposition is right (with minimal abstentions, apparently), this means that he had a much tougher ride in 2008 (6% oppose, approx 13% in total not in favour) than today. That was because he moved from chief executive to chair in breach of the Corp Gov Code. (Oddly opposition to his re-election as chair fell right back by 2010 to less than 2% when a News Corp bid for BskyB was looming).

So not being an independent chair was more important on appointment than when a bid was in the offing, and being re-elected was easier after being critcised by both Parliament and your industry's regulatory body.

Pick the bones out of that one, as they say.

UPDATE - AGM results here. Two other directors - DeVoe & Siskind - got higher votes against than James Murdoch. Neither criticised by Parliament and Ofcom as far as I am aware....

BSkyB - don't expect an upset

BSkyB's AGM takes place this Thursday and, inevitably, James Murdoch's re-election has become the focus of attention once more. At last year's AGM he was re-elected with a vote of almost 19% against. That would register as a big protest in any company as votes against directors are very low typically. But of course BSkyB isn't an ordinary company, as it has News Corp as a controlling shareholder. Once you take account of its 39% stake, the vote from other shareholders in favour of James Murdoch (ie excluding votes against and abstentions) was about 55%.

Since last year's AGM three things have happened. James Murdoch has stood down as chair, though he remains as a non-executive. He has been criticised by the DCMS select committee, which found his role in the hacking scandal unimpressive, and was unable to decide how reliable his evidence was. (It's worth noting, by the way, that his loudest defender on the committee is now a columnist for The Sun). Thirdly he has been criticised by the broadcasting regulator Ofcom, I think in stronger terms than the DCMS committee did. Ofcom ruled in BSkyB's favour, as expected, on the 'fit and proper' test, but there is an implication in its report that had James remained as chair then its thinking might have been different (though its decision might still have been the same, obviously).

Already there is a bit of noise around the AGM thanks to Fair Pensions' valiant efforts to keep this issue alive. But I would be surprised if the result of Thursday's meeting is anything other than an easy win for James. For some investors, giving up the chairmanship was enough. Others won't take a view on the hacking scandal, and essentially give James the benefit of the doubt. In addition, the fact that BSkyB cleared the 'fit and proper' test means that a big threat to the company has passed. Add all that together and you can see that there's enough wriggle room for mainstream investors to back off. (And bear in mind that some big players backed him last year anyway).

For what it's worth (and everybody look what's going down...)   I think this is problematic. It demonstrates, to me, the enormous gap between the idea that shareholders can/should play a quasi public interest role in companies and the reality on the ground. In other fields individuals in leadership positions subject to this level of criticism would be forced out, even if there was no 'smoking gun'. In a PLC, especially one with a powerful controlling shareholder, things are different. These kinds of judgments are easily ducked if you can construct a case why the individual remaining in post is good for the business, and thus shareholders. And when you consider that this will be the third time that James Murdoch has been awarded such latitude (appointment as CEO and appointment as chair previously) you realise how familiar the arguments for letting it happen are.

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.

News Corp news

News Corp's AGM is approaching rapidly - it takes places this time next week - but what can we expect this year? Last year there were very large votes against a number of directors, with James Murdoch topping the unpopularity poll with a large majority of non-Murdoch shareholders voting against him. This year will inevitably be different as ISS, inexplicably, has recommended supporting the re-election of ALL board members. This comes after the DCMS committee report, Ofcom 'fit and proper' decision etc. I'm a bit gobsmacked that ISS doesn't think that this might raise questions about Murdoch Junior's suitability for the board.

Therefore perhaps this time around we ought to focus attention on the shareholder resolutions filed at the meeting - one seeking an independent chair (and thus also a split in Murdoch Senior's roles) and one seeking to abolish the dual class share structure which currently shields the company from minority shareholder accountability. We already know that both ISS and Glass Lewis, the two big advisers, have backed the resolutions, which suggests that they will get significant votes in favour. I reckon anything over 20% will be fairly good going given the way the deck is stacked.

There are also some rumblings about the FCPA, which is a potential threat to the company that hasn't yet been realised. This is all tied up with the payments made by News International journos to cops and others for info.On the face of it these payments were made to commercially benefit the company (since they elicited info which sold newspapers), so it does look like News Corp could indeed be on the hook. But the other question that has surfaced is whether the auditors (Ernst & Young) should shoulder any blame. (There's more going on here which I will blog about at a later date).

And fairly soon after News Corp we have the BSkyB AGM (1st Nov I think), where James Murdoch faces re-election as a NED (though no longer a chair, of course). He has been severely criticised by the broadcasting regulator, with a veiled suggestion that a decision might have been different on 'fit and proper' had he remained as chair. No surprise, but I think he should have left the board entirely, and I hope shareholders vote against his re-election, but, knowing the timidity of the asset management industry, I expect he'll get through fairly easily this year.

I'll post up more info on both AGMs as I get it.