Company

News Corporation

Code

NWS

Meeting

AGM

Date

October 16, 2012

Time

10am (LA Time)

Venue

Zantuck Theatre, Fox Studios, Los Angeles

Monitor

Stephen Mayne

Item 1

Election of directors

Resolution

Re-election of 12 existing directors and election of 2 new directors

ASA Vote

Against James Murdoch, Lachlan Murdoch, Viet Dinh, in favour of rest

Summary of ASA Position

In its 2011 News Corp Voting Intentions, ASA proposed the removal of 5 directors on the following grounds:

• Lachlan Murdoch: removal will partially address Murdoch family over-representation and also deal with an obvious conflict in that Mr Murdoch is CEO of Ten Network Holdings Ltd, a national television network in Australia which competes with News Corp's interests in Sky News, Foxtel and Fox Sports.
• James Murdoch: management is already over-represented with five of the 15 positions on the board and Mr Murdoch needs to be held to account for poor oversight of the phone-hacking scandal as the executive ultimately responsible for The News Of The World since early 2008.
• Andrew Knight: spent four years running News Corp's UK operations up until 1994 and has served as a non-executive director ever since. At 71 and after 20 years of board service, can no longer be considered independent and has clearly failed to contain excessive executive salaries as chairman of the remuneration committee since its inception almost a decade ago.
• Arthur Siskind: has been a loyal foot soldier to the Murdoch family ever since advising News Corp on the purchase of a newspaper in San Antonio, Texas, in 1973. Retired as group general counsel in 2004 and now, aged 72, is the oldest non-executive director seeking re-election and should retire to make way for a new genuinely independent director.
• Viet Dinh: is portrayed as the lead independent board spokesman on governance issues and has chaired the "nominating and governance committee" since 2005. Given the atrocious governance at News Corp and the failure to replenish the board with genuinely independent directors, Mr Dinh should be held especially accountable in the eyes of non-Murdoch shareholders seeking protection from the indulgences of the controlling family. His independence is also compromised by his acceptance of any offer from Lachlan Murdoch to be godfather to one of his children.

In terms of the 10 largest “Against” votes at last year’s AGM, this is how the directors ranked:

James Murdoch: 232 million
Lachlan Murdoch: 224 million
Natalie Bancroft:  222.2 million
Andrew Knight: 214 million
Arthur Siskind: 200.5 million
David Devoe: 150.6 million
Sir Rod Eddington: 111.4 million
Viet Dinh: 94.8 million
Rupert Murdoch: 91.8 million
John Thornton: 82.4 million

The ASA recommendations were very much in line with broader News Corp shareholder sentiment and we are pleased Andrew Knight and Arthur Siskind have heeded the message from a clear majority of the voting independent Class B shareholders and will not seek re-election at the 2012 AGM.

Additionally, the forthcoming departure of John Thornton means that News Corp will have farewelled 5 long serving directors in the space of 13 months, whilst appointing 3 new independent directors: James Breyer, Elaine Chao and Alvaro Uribe.

The slow march to the ideal situation – a clear majority of independent non-executive directors and an independent chair – was significantly expedited by the declaration in the 2012 proxy statement that News Corp intends to have a super-majority (ie more than 75%) of independent directors of both companies after the proposed publishing demerger in 2012. This represents significant progress, although we note that the Murdoch family will influence the selection process of this group of new directors as has occurred over the company’s 60 year history under the leadership of Rupert Murdoch.

ASA’s reasons for opposing the presence of Lachlan and James Murdoch on the News Corp board have not changed from last year. The Murdoch family continues to be over-represented, Lachlan Murdoch has conflicting interests in Australia and James Murdoch’s should have been held accountable for the UK governance problems and stood down from the board.

Viet Dinh’s emotional outburst at the 2011 AGM when queried about being god-father to Lachlan Murdoch’s son – plus the ongoing failure of News Corp to embrace governance reform of its capital structure – continue to raise questions about his position as chair of the Governance and Nomination Committee. ASA believes he should depart the board.

Whilst management does appear to be over-represented on the board with 5 representatives – Rupert and James Murdoch, Chase Carey, David Devoe and Joel Klein – ASA is only advocating the removal of James Murdoch. The company has a strong and experienced management team led by Chase Carey and David Devoe and the recent addition of Joel Klein is supportable given his particular strengths in legal issues and oversight of the Management & Standards Committee responsible for dealing with the UK issues.

Rupert Murdoch is the longest serving CEO of a listed company anywhere in the world, yet News Corp continues to perform strongly in financial terms and we don’t propose his removal from the board. However, the board itself should appoint an independent chairman to ensure the founding family and management team uphold some basic governance standards.

A small example was the conduct of Rupert Murdoch at the 2011 AGM where he repeatedly refused to disclose the proxy position - at one stage even describing them as “private”. Truth be known, he was hiding the biggest protest votes in News Corp’s history from his own shareholders. A reasonable independent chair would have disclosed the votes to the meeting and we trust the independent directors will insist on better disclosure at the forthcoming AGM.

Item 2

Ratification of Auditor

Resolution

Re-appointment of Ernst & Young

ASA Vote

For

Summary of ASA Position

Non-audit fees are not substantial, so we support the reappointment of Ernst & Young.

Item 3

American “say on pay”

Resolution

Advisory Vote on Executive Compensation

ASA Vote

Against

Summary of ASA Position

It is hard not to forget this exchange between the ASA News Corp monitor and Rupert Murdoch at the 2010 AGM in New York:

ASA Monitor: CGI Glass Lewis, the proxy advisory firm, has their list of the 25 most egregious or overpaid executives in the S&P500, they rank you at number 18. The 18th most egregious or overpaid or at least hard to justify...

Rupert Murdoch: who is this?

ASA Monitor: CGI Glass Lewis, one of the two big proxy advisory firms. They tell shareholders how to vote their stock. Warren Buffett gets by on $US100,000 a year; you're a multi-billionaire. Why do you need to be paid such a huge sum that is actually rated as of one of the most over-the-top payments in corporate America?

Rupert Murdoch: I have a fraction of Mr Buffett's wealth, and Mr Buffett doesn't have to do that, he only has to sell a few shares every year to have many many billions to play with.

It is important to put the full extent of the Murdoch family’s remuneration from News Corp on the public record for shareholders to consider. Below is a summary of the key numbers at the top of the company over the past 13 years when the Murdoch men have extracted an exorbitant $US360 million in largely cash benefits from shareholders.

When you consider that the family owns shares worth about $US7 billion, such largesse is even harder to justify.

Equivalent billionaires from Mr Murdoch’s country of birth - such as James Packer, Kerry Stokes and Andrew Forrest – all lead public companies for nil or negligible pay, demonstrating a similar philosophy to Mr Buffett.

In light of the poor governance Mr Murdoch imposes on his minority shareholders, it is disappointing the founding family does not attempt to build some goodwill by labouring for more modest rewards.

Summary of executive pay at News Corp over past 13 years

2011-12
Rupert Murdoch $30.02m
Chase Carey $24.76m
Roger Ailes $21.06m
James Murdoch $16.84m
David Devoe $10.77m

Murdoch men received $46.86m or 45.3% of top 5 pay
Top 5 received $103.45m

2010-11
Rupert Murdoch $33.3m
Chase Carey $30.15m
David Devoe $18.24m
Roger Ailes $15.55m
James Murdoch $US11.9m

Murdochs received $45.2m or 41.4% of top 5 pay
Total top 5: $109.14m

2009-10
Chase Carey $26m
Rupert Murdoch $22.72m
Roger Ailes $13.96m
James Murdoch $10.3m
David Devoe $7.13m

Total top 5: $80.11m
Murdochs received $33.02m or 41.2% of top 5 pay

2008-09

Roger Ailes: $23.68m
Peter Chernin: $22.22m
Rupert Murdoch: $19.88m
James Murdoch: $9.2m
David Devoe: $7.8m

Total top 5: $82.78m
Murdochs received $29.08m or 35.13% of top 5 pay

2007-08

Peter Chernin: $28.8m
Rupert Murdoch: $27.55m
Roger Ailes: $19.9m
James Murdoch: $10.97m
David Devoe: $9.73m

Total top 5: $96.95m
Murdochs received $39.77m or 41% of top 5 pay

2006-07

Peter Chernin: $33.98m
Rupert Murdoch: $32.14m
David Devoe: $11.73m
Roger Ailes: $10.89m
Lawrence Jacobs: $4.08m

Total top 5: $92.82m 
Rupert Murdoch received $32.14m or 34.6% of top 5 pay

2005-06

Peter Chernin: $42.53m
Rupert Murdoch: $25.9m
Roger Ailes: $15.77m
David Devoe: $12.73m
Lawrence Jacobs: $5.02m

Total top 5: $101.95
Rupert Murdoch received $25.9m or 25.4% of top 5 pay

2004-05

Peter Chernin: $28.25m
Rupert Murdoch: $23.64m
David Devoe: $8.63m
Lachlan Murdoch: $7.97m
Arthur Siskind: $6.97m

Total top 5: $75.46m
Rupert Murdoch received $31.61m or 41.8% of top 5 pay

2003-04

Rupert Murdoch: $20.65m
Peter Chernin: $18.58m
Roger Ailes: $7.73m
David Devoe: $6.14m
Chase Carey: $5.297m

Total top 5: $58.39m
Rupert Murdoch received $20.65m or 35.36% of top 5 pay.
James and Lachlan Murdoch together received $5.8m but weren't in top 5

2002-03

Peter Chernin: $17.34m
Rupert Murdoch: $14.1m
David Devoe: $10m
Roger Ailes: $8.754m
Sandy Grushow: $4.9m (then head of Fox Entertainment) 

Total top 5: $55.1
Rupert Murdoch received $14.1m or 25.6% of top 5
James and Lachlan Murdoch together received $5.2m but weren't in top 5

2001-02

Peter Chernin: $17.89m
Chase Carey: $10.78m 
Rupert Murdoch: $9.21
David Devoe: $4.74m
Arthur Siskind: $3.91m

Total top 5: $31m
Rupert received $9.21m or 29.7% of total top 5 pay
James and Lachlan Murdoch together received $4.48m but weren't in top 5

2000-01

Peter Chernin: $20.13m
Mitch Stern: $8.54m (then head of Fox Television network)
Rupert Murdoch: $7.58m
Roger Ailes: $5.82m
Chase Carey: $5.65m

Total top 5: $47.72m
Rupert Murdoch received $7.58m or 15.9% of total top 5
James and Lachlan Murdoch together received $5.66m but weren't in top 5

1999-2000

Peter Chernin: $11.85m
Rupert Murdoch: $6.53m
Bill Mechanic: $5.84m
Chase Carey: $4.16m
David Devoe: $3.63m

Total top 5 pay: $32m
Rupert Murdoch received $6.53m or 20.4% of total top 5 pay
Lachlan Murdoch wasn't in top 5 but received $3.14m

Having digested all of this, ASA is firmly opposed to the remuneration report and anticipates a majority of the independent shareholders will vote against, as occurred last year.

Item 4

Stockholder proposal

Resolution

Adopt a policy to have an independent chairman

ASA Vote

For

Summary of ASA Position

ASA supports Rupert Murdoch continuing as CEO whilst he remains in good health but cannot accept the argument that he should also be chairman of the board. Mr Murdoch’s old Geelong Grammar school friend, Richard Searby QC, was chairman of News Corp from 1981 until 1991 when he was summarily removed.  The correct structure has operated in the past and should be resurrected forthwith. Now that Mr Murdoch has committed to having a super majority of independent directors on both companies after the 2013 publishing demerger, it should not be a big step to install an independent chairman of the head stock. However, seeing as Mr Murdoch won’t be CEO of the publishing arm, it is appropriate that he take up the role of non-executive chair of that company.

Item 5

Shareholder resolution

Resolution

Adopt Simple Majority Vote

ASA Vote

For

Summary of ASA Position

The News Corp board is opposed but similar proposals at other US listed companies have received strong support from independent shareholders seeking a more democratic voting structure.

Item 6

Stockholder Proposal

Resolution

Eliminate Dual Class Structure

ASA Vote

For

Summary of ASA Position

ASA’s News Corp monitor submitted a similar Stockholder Proposal in 2007 which was supported by approximately 60% of the independent shareholders at the time. Five years later the board is once again resisting a sensible proposal to unwind the profoundly undemocratic situation where almost 70% of the News Corp shares on issue don’t have voting rights. This allows the Murdoch family to control 40% of the votes and just 13% of the total shares and fosters a culture of dominance, ill-discipline and entrenchment imposed by the founding family. The board’s unanimous defence of the structure cites the need for management stability, financing flexibility and retention of key employees.

These are weak arguments.

“Management stability” could also be characterised as a “job for life”, something Rupert Murdoch has enjoyed for the past 60 years as CEO of News Corp. And sometimes it would be good to have some “management accountability”, something the gerrymander has prevented from occurring after the News of the World scandal and failed acquisitions such as paying $US5.5 billion for Dow Jones in 2007. With this voting structure in place, someone as fanatically dynastic as Rupert Murdoch is able to thumb his nose at all principles of shareholder accountability, as was evidenced in his tweet shortly before the AGM suggesting those with complaints should simply sell.

Similarly, the flipside of “financing flexibility” is ill-disciplined issuance of non-voting stock to finance acquisitions, something which has been a hallmark of News Corp’s growth since the non-voting shares first became available as a takeover currency courtesy of ASX’s failure to uphold its democratic principles in 1994.

As for retaining key employees, there is no reason why senior executives can’t be issued voting stock. In a company capitalised at more than $US50 billion, it is laughable to suggest executive incentives could ever reach a level that would be material to voting control of the company.

When you consider Rupert Murdoch’s life long support for democratic principles ahead of dictatorship in government affairs, it is deeply disappointing that he deploys dictatorial tactics and gerrymandered voting structures to entrench his control at News Corporation, when he should be big enough to stand before shareholders and command support based on his record of achievement.