ncp, every angle agm

  1. 280 Posts.

    By Stephen Mayne
    Owner of 11 News Corp shares

    Hindley Street Net café, 3pm

    History was made at the News Corporation AGM in Adelaide today when the most powerful man in the world was rolled by his own shareholders on a proposal to issue his top executives $30 million worth of share options.

    This is the most dramatic rebuff by independent shareholders in recent Australian corporate memory.

    Rupert Murdoch did not disclose the size of the no vote but said it was dominated by Australian institutions whereas American shareholders were more supportive of a proposal to issue six executives the following options to buy non-voting preferred shares at $9.89 a pop.

    - Proposed Hughes Electronics boss Chase Carey: 500,000
    - Chief operating officer Peter Chernin: 1,000,000
    - Finance director David De Voe: 500,000
    - Younger son James Murdoch: 275,000
    - Older son Lachlan Murdoch: 375,000
    - General Counsel Arthur Siskind: 500,000

    The preferred shares closed at $10.40 last night so the six executives were already $1.58 million in front on the options before they were issued and there were no performance hurdles - a fact that riled Australian institutions who now regard hurdles as non-negotiable.

    Rupert Murdoch has been issuing in the money options to executives for the last three years and has faced no votes of between 30 and 40 per cent.

    In fact, at the moment there are 257 million options outstanding over non-voting shares and in 2002-03 3.446 million were exercised at an average price of $5.74 a share giving the lucky owners a combined paper profit of $16 million.

    The fact that a majority voted no this time says that Australian institutions and News Corp shareholders such as Colonial, AMP and the Queensland Investment Corporation have come of age.

    The two Australian proxy advisory services, CGI and SIRIS, are believed to have advised clients to vote the scheme down and they did precisely that. It was always going to be the most contentious vote of the AGM season but a defeat really is a shock.

    There was an issue as to whether Rupert could have voted the 626 million shares he controls through Cruden but because he was technically able to join the options scheme it was decided he shouldn't vote them. Besides, his two sons were benefiting so it would not have been appropriate to vote them.

    There was stunned silence at the meeting when Rupert revealed that he'd been rolled on an issue at News Corporation for the first time in 50 years. But after declaring resolution 5 had been withdrawn he then soldiered straight on to the next resolution dealing with a $1.2 million increase in the maximum fees payable to non-executive directors.

    After the Australian Shareholders' Association (ASA) got up to support the increase, Crikey stepped forward to put some perspective on what had just happened and told the meeting this was a historic day and that the rolling of Rupert was a coming age for corporate governance and Australian institutions.

    We asked for more details on the vote but Rupert declined and, as usual, declined to tell the meeting the proxy votes on any of the resolutions.

    The voting results are now up on the ASX website here:

    This year Rupert placed his 626 million shares in the discretionary section, so the for and against figures give a good indication of the non-Rupert voting - with all four directors up for re-election receiving about 94 per cent of this vote.


    Rupert was attempting to confine debate to each resolution so Crikey then asked whether directors would be getting a pay rise, especially the new supposedly independent chairmen of the audit, remuneration and nomination committees.

    Rupert told us to wait for next year's annual report and that this would be a matter for the newly constituted remuneration committee. Why no disclosure immediately?

    The only other formal business, which was dealt with at the start of the 72 minute meeting, was the re-election of 4 directors. Rupert gave a 15 minute address before this, which included a couple of minutes explaining how seriously the company took corporate governance. There are now no executives on any of the new board committees but, despite Rupert's claims, this does not make them independent.

    Crikey gave a 3-4 minute spiel about the board composition when we first moved to re-elect Lachlan Murdoch but Rupert moved to shut down debate as he wanted all general questions delayed until the formal business had been dealt with.

    But we persisted and made the following points:

    * News Corp only has 2 or 3 genuinely independent directors on a 16-man board (70-year old retired Finnish paper executive and nominal independent Aatos Erko has just resigned due to ill-health), being former Southcorp CEO Graeme Kraehe, 71-year-old American Tom Perkins and former Phillip Morris chairman Geoffrey Bible who probably doesn't qualify due to his close personal friendship with Rupert.

    * If News Corp was serious about corporate governance the independents, and especially the chairs of the new board committees would have turned up at the AGM. The four directors up for re-election included Lachlan Murdoch, fellow executive Arthur Siskind, Rupert's long-time investment banker Stanley Schuman and Tom Perkins.

    You'd think the only independent up for election would show up but Perkins was nowhere to be seen. The new Business Council of Australian AGM guidelines state that board committee chairs should be available to answer questions at AGM. It was therefore unfortunate that nomination and corporate governance committee chair Geoffrey Bible failed to show up as did Andrew Knight the new chair of the remuneration committee which presumably approved the 80 per cent salary increase for the three Murdoch executive directors to a record $28 million last year.

    We also made the point that former executives should not be treated as independent directors and Knight was unsuitable to chair the remuneration committee given he'd made an estimated $80 million from Rupert's extraordinary generosity with share options back in the days when Knight was the key door opener into Maggie Thatcher's office.

    Rupert responded by saying that News was looking for "at least two new directors" and would strive to find "the very best people in the world".


    We had a friendly little joust leading into this debate when Crikey revealed he held proxies over $10 million worth of shares "and 11 mill, sorry 11 shares".

    Rupert jokingly said he would allow one question for each 5 shares and I then said this should include the proxies, prompting an instant "no" from Rupert.

    Once all the formal business was dealt with we had a record 12 different shareholders get up and ask questions.

    One lady blamed STAR TV for causing crime and civil unrest in the Himalayan state of Bhutan and a visiting journalist from the Launceston Examiner, Michael Lowe, wanted to know why the dividend was so low and what Rupert thought about media diversity in Australia.

    Lowe did not disclose he scribbles for John B Fairfax's Rural Press but he has been a News shareholder for 20 years.

    The dividend question was raised several times and we finally got a concession from Rupert that he would consider lifting it this year if profit projections are met. Yippee, could this be the end of the miserly 3c a year regime which has remained in place regardless of whether News makes $2 billion or loses $12 billion.

    Crikey suspects Rupert keeps dividends to a minimum because he'd have to pay tax on them and therefore prefers tax-free capital gains because Cruden's shareholding dates back to September 1953.

    Incidentally, Rupert claimed that anyone who invested 85 pounds when News shares were first available would now be sitting on $6 million worth of shares.

    It would be interesting to compare this with Frank Lowy's Westfield claim that a $1000 investment in 1961 is today worth more than $150 million if you reinvested all the dividends.


    Whilst Lowy put out a special book marking Westfield's 40th birthday and had a gala dinner at The Westin in Sydney attended by the PM and four Premiers, Rupert noted that 50 years had just elapsed since he took control of the Adelaide News in 1953 but he wasn't even aware of the milestone until someone in Australia (presumably that Mark Day column) pointed it out.

    There's no time for milestones or history at News Corp as Rupert told shareholders that he was driven by worrying about "operations for the next 50 years".

    This was one of several comments by Rupert alluding to his longevity and intentions to stay in the job forever. When Crikey asked a question about the $891 million unfunded staff superannuation scheme and how much was set aside for his own retirement, he wryly observed that "I probably won't have any because I will be carried out".

    Asked about any retirement plans in the press conferences after the meeting, the slightly hard of hearing 72-year-old declared "absolutely not".


    The superannuation question was the first raised by Crikey in the general question period and the last contribution to the meeting after this dealt with the James Murdoch nepotism issue at BSkyB and Rupert's unique two-tiered voting system.

    It was disappointing James was a no-show given the current controversy about Rupert's desire to parachute him into the CEO's chair at BSkyB. Crikey cited all the figures about the Murdochs only having a 6 per cent economic interest in BSkyB which was a $30 billion company that needed an experienced CEO, not someone who'd never worked in Britain and only had 3-years experience running STAR TV in Hong Kong.

    Rupert was coy and simply said the board was considering candidates and James "would either be confirmed or rejected by the board". Amazingly, he claimed the decision "had nothing to do with any one shareholding (er, doesn't News' 35 per cent stake have a big impact?) and I have nothing further to say.

    Later at the press conference he claimed James had turned around arguably the most difficult pay-TV situation in the world. STAR didn't quite get the boosterism afforded to the new Italian pay-TV monopoly (a "shining jewel" before long and profitable in 18 months) but Rupert was full of praise for James whilst also pointing out Lachlan ran divisions that produced 60 per cent of the total profits.

    On the second question of one vote one value Crikey got a laugh by declaring even Joh Bjelke Petersen would be proud of a system where 70 per cent of the shares on issue couldn't vote.

    The non-voting stock started at less than 30 per cent of the total almost 10 years ago but Rupert has been dumping his own holdings and issuing truckloads of new non-voting shares to fund an array of takeovers.

    If the Hughes Electronics takeover is approved the non-voting stock will rise from 62 per cent to almost 70 per cent of the total.

    Crikey asked that we return to one-vote one value but Rupert said this wouldn't happen any time soon as the system had "created terrific value" because of "permanence of management" (ie the Murdochs can expand without losing voting control).

    Rupert also claimed that almost every major media company outside Australia had a similar structure.

    On the same theme, Adelaide PR socialite Di Carroll, asked that we return to the pre-1991 model when News Corp had an independent chairman, albeit Rupert's old Geelong Grammar school mate Richard Searby QC.

    The Murdochs and Searbys have since fallen out and Rupert politely declared he had no plans to change the current system with him as executive chairman. And what about this: "I consider myself to be independent and responsible to shareholders and I have no plans to change that, unfortunately."

    How can Rupert Murdoch be independent of Rupert Murdoch? This is the point, Rupert should not be able to make this decision and would not be able to if News had one vote one value that left Rupert as the second largest shareholder after John Malone's Liberty Media with 15 per cent.

    Rupert told the meeting, Liberty would be taking up another pile of non-voting shares tomorrow and that Malone could never join the board due to conflicts but he believed News Corp was the most under-valued media company in the world. With an 18 per cent non-voting stake worth $12 billion he would say that.

    Rupert got mildly annoyed with the whole corporate governance debate, talking about the "many hours" they'd spent sorting through the committee issues and eventually he told any malcontents that "if you are not satisfied then look for something better".


    Other highlights of the meeting included Rupert lamenting the "botched" introduction of pay-TV in Australia but expressing confidence the conversion to digital will finally make Foxtel profitable.

    The 25 per cent stake is in the books at $217 million and the 50 per cent NRL stake, a by-product of the need to deliver content to Foxtel, is valued at $160 million. News Corp has sunk an estimated $700 million cash into both ventures.

    Asked in a classic Dorothy Dixer if he felt the ABC got too much from the taxpayer, Rupert got plenty of laughs when he said words to the effect: "From what I can tell yes they are vastly overfunded".


    Older executives who lament the day that television replaced newspapers as News Corp's biggest division would have been delighted to hear Rupert emphatically ruling out ever selling his Australian and UK papers or the New York Post. Did he ever say that about New Zealand? He excitedly claimed the New York Post was close to becoming the biggest selling paper in The Big Apple and once these figures were confirmed by formal audits the advertising dollars and eventual profits would flow from this perennial loss-maker now run by former Daily Telegraph editor Col Allan.

    Rupert then explained that newspapers were a great executive training ground and he had old Aussie print men (ie Les Hinton in England) in senior positions around the globe. Rupert reckons newspapers create executives "full of competitive spirit" and trains them to be "sensitive to public taste". Hmmm, Les Hinton must enjoy the page 3 girl bonanza in the UK.


    There were about 50 journalists who stayed for the post-AGM press conference where there was only tepid questioning on the options defeat and nepotism.

    We even had Bloomberg wanting predictions on the US dollar but Rupert said he didn't know because "I only know what I read on Bloomberg, sorry!"

    He was pretty cheeky throughout the morning but at one point told the press he hoped they would treat some of his AGM comments as jokes, which is what they were.

    About 15 journalists got questions in over about 20 minutes at the press conference but Rupert is so hard of hearing he had to ask for most of them to be repeated.

    The Australian's Jane Schulze is generally pretty independent but her second question got a bit grovelly: "Is it the case that there will be no need for major acquisitions over the next 10 years because the template is so perfect it is hard to improve?"

    Jane's colleague and fellow South Australian Michael McGuire lobbed a question about sporting rights and probably laments the fact The Oz closed down his excellent weekly "sports business" page.

    Rupert pointed out that NBA basketball had already left free-to-air for cable and this could happen with other US sports which would be "extremely controversial". He said "football" (not sure if this was gridiron or English soccer) was producing "wonderful revenues" but News would probably only continue with baseball if it paid a lower price.

    The cost of sports rights would keep falling unless some new entrant came along and paid over the odds to build a business, a bit like what Fox did in the 1990s as it built the fourth network.

    Crikey had planned a question about Fox News but Rupert managed to lodge his tongue in his cheek and gloat about the wonderful "fair and balanced" offering.

    The plane leaves in one hour so we'd better wind this up but it will be very interesting to see how the News Ltd papers report the egg all over Rupert's face over the executive options.

    Will they quote him talking about "some sort of crazy misunderstanding" as Rupert claimed to be genuinely surprised and moaned that the Australian shareholders hadn't raised it with the company before hand. Hmmm, might be time for News to hire an Australian-based investor relations manager. Garry Ginsberg can't do the whole thing from New York as the Australian investors feel he is too remote.

    The simplest solution is to stop issuing in the money options without hurdles but Rupert gave a stern lecture about his determination to meet the market and hire the best people in the world.

    Ironically, the press conference wrapped up rather quickly after Michael Pascoe cheekily asked Rupert if he regarded both his sons as qualifying for this "best in the world" category.

    Naturally, Rupert agreed but then it was off to the South Australian State Library for the ceremonial opening of the new newspaper reading room funded by this great South Australian company that took over the world.


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