More pressure has been piled on the News Corp board following a recommendation by Institutional Shareowner Services (ISS) that investors vote against 13 of the company’s 15 board members.
The directors targeted by ISS include chairman and CEO Rupert Murdoch and his son James Murdoch, who chairs the scandal-hit British newspaper division of News Corp.
‘The company’s phone-hacking scandal, which began its public denouement in July 2011, has laid bare a striking lack of stewardship and failure of independence by a board whose inability to set a strong tone at the top about unethical business practices has now resulted in enormous costs,’ ISS notes in its report.
The report follows a call last week from UK pension funds, which urged shareholders to vote against the two Murdochs at this month’s annual meeting.
The Local Authority Pension Fund Forum, whose members have combined assets of £100 bn ($157 bn), said changes were needed to draw a line under the phone-hacking scandal and add more independence to the board.
Proxy adviser Glass Lewis has also called for greater independence in the News Corp boardroom and advised investors to vote against six directors, including James Murdoch.
‘It’s well deserved,’ says corporate governance expert and GovernanceMetrics International board member Nell Minow. ‘I have often said the only reason our company gave News Corp an F [for corporate governance] is that there was no lower grade.’
Questions about News Corp’s board go back to when it went public and promised shareholders not to adopt a poison pill provision without seeking approval ‒ and then did exactly that less than a year later.
The furor over the phone-hacking scandal, carried out by UK tabloid the News of the World, led News Corp to seek additional outside help from PR and IR firms. After a short search, the media giant brought in Sard Verbinnen & Co in an attempt to contain the fallout among investors.
Despite the growing campaign against the Murdochs and other News Corp directors, they are unlikely to be unseated due to the voting power held by the Murdoch family, which controls around 40 per cent of News Corp’s voting shares.
Directors could turn on Murdochs
But the intensifying pressure on the company could make directors think twice about backing the Murdochs, according to Minow.
‘There’s one thing more important than control,’ she says. ‘And that’s when these directors sit down and talk with their lawyers.’ As government investigations mount, they may decide their own safety requires them to turn on Murdoch, she explains.
News Corp ‘strongly disagrees’ with ISS’ recommendation, according to a report in the Wall Street Journal.
‘The company takes the issues surrounding the News of the Worldseriously and is working hard to resolve them. But ISS’ disproportionate focus on these issues is misguided and a disservice to our stockholders,’ says News Corp in a statement, according to the WSJ.
[Article by Erik Sherman, Inside Investor Relations]