News Corp. Dual Class Structure Comes Under Attack

News Brief

By Cydney Posner

Undoubtedly, News Corp. will come under attack for manifold reasons, but here's one charge that may signal the beginning of a more widespread trend. In this article, Calpers attacks News Corp. share structure, the Financial Times reports that CalPERS, the California Public Employees' Retirement System, an influential player on the corporate governance scene, has "taken aim at the dual-class share structure that preserves Rupert Murdoch's family power at News Corp." Apparently, the Murdochs own about 12% of the equity of News Corp., but, because of the two-tier structure, they control almost 40% of the voting rights. According to the article, the CalPERS corporate governance chief characterized the structure as "a corruption of the governance system," maintaining that "[p]ower should reflect capital at risk. Calpers sees the voting structure in a company as critical. The situation is very serious and we're considering our options. We don't intend to be spectators – we're owners….Dual-class voting is one way to pervert the alignment of ownership and control." Apparently, CalPERS owns almost 7 million shares of News Corp., worth about $110 million, while the company has a market cap of almost $42 billion. The article observes that, while CalPERS' position in favor of one share/one vote is not a new one, it has not previously submitted any shareholder proposals to address the issue. CalPERS may not be alone in raising this issue, particularly with respect to its implications for board independence. The article notes that one large global fund manager with a holding in News Corp. "said Mr. Murdoch's performance at a British parliamentary committee on Tuesday highlighted a common flaw in U.S. governance models, where an octogenarian chairman and chief executive officer holds an effectively controlling bloc of voting shares. The dilemma for News Corp.'s board is how to establish its independence, the fund manager said. ‘Where the founder is still in control, as at News Corp., it is hard to see him running the board as a hands-off chairman or letting an independent chairman in to run strategy and the board. And the worst of all worlds would be to bring in a puppet chairman.' "

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