News Corp’s response to concerns about the company’s approach to corporate governance shows that shareholder concern in this area needs to be taken increasingly seriously. Francis Wilkins reports
News Corporation’s recent turnaround in response to concerns about the company’s corporate governance provisions provides further evidence of the significance of governance issues to the way companies conduct themselves.
Two key corporate governance bodies, the Australian Council of Superannuation Investors (ACSI), which advises small funds, and Corporate Governance International (CGI), which advises major institutional investors, raised concerns that Rupert Murdoch’s plans to relocate the company to the US would weaken minority shareholders’ rights.
Specifically, the organisations voiced concerns — subsequently shared by the US corporate governance advisory agency, the Institutional Shareholder Services (ISS) — that the Murdoch clan might either increase their 29 per cent stake to full control or sell that stake to another group without making a similar offer to existing shareholders. The corporate governance bodies were also worried that News Corp might delist from the Australian Stock Exchange (ASX) and issue “super voting” shares without shareholder approval in order to shore up the Murdoch position.
Recently, the governance bodies called on News to adopt shareholder protection provisions from the Corporations Act 2001 and the ASX listing rules over those of the New York Stock Exchange and the incorporation rules of Delaware. (It is Delaware’s flexible corporate governance provisions, among other things, that prompt so many companies to incorporate there).
With solid shareholder support necessary for News to make the move to the US, it quickly became clear the company would need to make changes to its proposed US constitution. Approval of the move requires 75 per cent by value of shareholder votes cast and 50 per cent by number of votes cast. News Corp promised shareholders, however, that they had no need to worry about its delisting from the ASX or any of the other concerns raised by the funds managers.
The company’s response and reworking of its relocation plans seems to have gone down well with the advisory groups. Murdoch has promised the family would not sell shares to a third party without a takeover bid if that party were to end up with a more than 20 per cent stake; News Corp will have a full foreign listing on the ASX; and super voting shares will not be issued without approval of the shareholders. Shareholders with a greater than 20 per cent stake will also be able to call an extraordinary general meeting. ACSI and CGI will be advising institutional investors on whether to back the new plan at a meeting on 26 October.
Of course, News’ proposed re-incorporation was always going to be controversial, but it appears that on this issue at least, Murdoch may have got the institutional investors on side.
In the US, however, ISS looks set to raise the stakes a little. The advisory body is backing the new plan and has advised clients to support it. The caveat is that ISS has also called for News Corp to improve its corporate governance regime still further, and if the company fails to do so then ISS will push for board directors not to be elected next year. The organisation is concerned about board independence and has indicated it will use its considerable muscle to ensure the issue is addressed. ISS also wants a more transparent succession planning process for the company.
So, far from being able to rest easy regarding News Corp’s relationship with its institutional investors, the company will likely be looking at what steps it will need to take to ramp up its corporate governance program to meet their concerns in the short to medium term. For other corporate players, it’s a case study of the extent to which shareholder concerns regarding corporate governance can affect a company’s business strategy and goals.