News Corp faces down protest vote from CalPERS and CalSTRS?

Despite two of America’s largest pension funds, CalPERS and CalSTRS, calling for changes to the board of News Corp at the upcoming annual general meeting on Friday, Rupert Murdoch’s iron grip on the company means their efforts will likely amount to little more than a protest vote.

Murdoch effectively controls almost 40 per cent of the News Corp B-class shares that have voting rights, leaving institutional investors little leverage in their push for governance reform at the media giant.

The next highest shareholding of these vital B-class shares is a 7 per cent stake owned by the Saudi Arabian Prince, Al-Waleed Bin Talal.

No other shareholder has more than 2 per cent of the remaining B-class shares.

There has been a groundswell of opposition to the re-election of the board as the crucial AGM, to be held in Los Angeles on Friday, looms.

Amongst those voicing their opposition have been a number of shareholder advisory services, including Hermes Equity Ownership Services; Glass Lewis & Co, which advises institutions holding $15 trillion in investments; and Institutional Shareholder Services, an MSCI subsidiary that claims to have more than 1700 clients.

It is understood from people familiar with the push for governance reform at News Corp that a protest vote that captures a 9 per cent slice of these voting shares would be deemed a success.

In an emailed response to questions, CalSTRS’ director of corporate governance, Anne Sheehan (pictured), said the fund wants an end to the duel listing share arrangement, which sees A-class shareholders unable to exercise their right to vote.

“CalSTRS wants to do away with dual-class shares that entrench the Murdoch family; the fund wants the board to develop policies and procedures that ensure more independent board members,” Sheehan said.

“CalSTRS also wants to see compensation practices that align more closely to company performance.”

CalSTRS owns 6.1 million A-class shares and 35,200 B-class shares.

There are approximately 798.5 million B-class shares, with the dual-listing status effectively denying voting rights to 70 per cent of shareholders.

Under its corporate governance policies, CalSTRS states that boards should be constituted of two-thirds independent members. The News Corp board has just over a majority.

“CalSTRS has a higher standard for determining independence than the current NASDAQ listing requirement,” Sheehan said.

“CalSTRS believes that independent directors should have no other relationship with the company than for his or her directorship.”

The fund, which represents teachers in California, has withdrawn support for the entire News Corp board, saying the Murdoch family is over-represented considering their economic interest in the company.

In recent years News Corp has come under scrutiny for family-linked deals, which include the $600 million acquisition of Shine, the television production company of Murdoch’s daughter Elizabeth.

For his role as chairman and chief executive officer of the $41.44 billion company, Murdoch received an annual base salary of $8.1 million, plus a $12.5 million bonus for the 2011 fiscal year that ended in June.

CalPERS released a statement saying it would withhold its vote from non-independent directors James and Lachlan Murdoch, Arthur Siskind and Andrew Knight.

In keeping with its push for an independent chair of the company CalPERS also said it would withhold its vote for Rupert Murdoch.

In its statement CalPERS said it would attend the AGM and vote in support of a floor resolution requesting an independent chairman of the board.

“CalPERS expects the board to continue its efforts to rejuvenate the News Corporation board with new independent directors, and we will continue to engage with the company on this point,” CalPERS said.

Sheehan says the CalSTRS was a long term investor and would continue to engage with the company, even if its push for board change was ignored.

In a filing to the Securities Exchange Commission, News Corp defended its performance in 2011, urging shareholders to support its proposed items.

“Despite the world economy struggling with uncertainty, News Corporation reported a strong performance for fiscal 2011,” the company said.

“Revenues rose 2 per cent to $33.4 billion, while operating profit rose 23 per cent to $4.85 billion.

The company also said its operating profit increased by 12 per cent year on year.

In its statement, News Corp also described the focus on the News of the World phone hacking scandal was “disproportionate” and said the company had performed strongly compared to other large media competitors.