Should big investors be fleeing Murdoch?
Following the proceedings of the News Corp annual general meeting, one canâ€™t help but think of the proverbial definition of insanity: doing the same thing over and over again and expecting a different result.
Iâ€™m not talking about Rupert Murdoch. Heâ€™s been doing the same thing for years and always getting the result he wanted. He comes away from yet another AGM with the dual roles of CEO and chairman firmly in hand. Also, the dual voting stock structure remains so that, though Rupert Murdoch and his family own approximately 12 percent of the shares, they hold 40 percent of the voting power. In essence, Rupert Murdoch and his family control the decisions and destiny of the company relatively unchallenged. Both Rupert Murdoch and News Corp board member Viet Dinh made abundantly clear during the board meeting that this was not going to change. Though the company has gone through the motions of appointing new independent directors, the choices suggest a not-so-subtle sense of humor: One of the new independent directors is the former president of Colombia, Alvaro Uribe, who was embroiled in a wiretapping scandal of his own.
No, what makes me think of this definition of insanity is the behavior of investors. For the past couple of years, a growing number of institutional investors have expressed concerns over Rupert Murdochâ€™s holding the role of CEO and chairman and the dual voting stock. Several of the largest and most well-regarded investors in the world have challenged the structure of the company and its corporate governance â€“ and have been completely disregarded. This year California Public Employeesâ€™ Retirement System (CalPERS) and the California State Teachersâ€™ Retirement System (CalSTRS), joined by the Florida State Board of Administration, UK pension fund Hermes, and several other large institutions, put forward resolutions, and spoke up at the AGM about dual shares and in support of appointing an independent chairman. These suggestions were unceremoniously swatted away.
In most cases institutional investors at this level of clout and voting power would be able to have some sway. Often they are the only ones who have real power to effect change in organizations. In this case, with the dual share structure, their concerns are easily ignored with little or no negative repercussions, except for some bad press and tsk-tsking.
There is no doubt that News Corp has been profitable â€“ the shares have risen 40 percent this year, bringing an impressive return on the institutionsâ€™ investment. But it raises a larger question about principle: If the institutions cannot effect change at News Corp, and they feel strongly about the issues they raise about corporate governance â€“ and by extension, about ethical concerns about the organizationâ€™s behavior â€“ what is to be done? Is it time for them to decide that principle and long-term concerns over the stability of the company trump short-term profit?
Iâ€™m reminded of a conversation I had with the Dean of St. John the Divine, the Very Rev. Jim Kowalski, for â€œIn the Boardroom with Lucy Marcus.â€ I asked him if he felt the Church of England should withdraw its investment in News Corp. As he noted, â€œAt the end of the day, someone has to be willing, we have to be willing, to stand up and say â€˜Iâ€™m not going to do business like thatâ€™.â€ The Church of England withdrew its investment in August.
So the ball is in the court of the institutional investors. Is it time for them to vote with their feet and withdraw their money? Is it time for them to invest it instead in the dozens of companies Iâ€™ve met with in the past year whose boards are striving to be independent, responsive and responsible? Murdoch himself seems to think so, tweeting â€œâ€¦ any shareholders with complaints should take profits and sell!â€