News Corp AGM from Crikey

  1. 18,561 Posts.
    Here's a cracking report from Crikey regarding his role at today's AGM.

    Subject: Crikey almost cracks News Corp board (well, if you take the floor vote only)

    Wednesday, October 9, 2002, 3pm (Adelaide time)
    Internet Caf
    Leigh St, Adelaide

    Dear Sole Subscriber,

    The News Corp AGM in Adelaide this morning was an absolute cracker which
    ended up with Crikey having an all in press conference debating Rupert's
    charitable but muddled performance and canvassing the broader issue of
    corporate governance.

    Before we get started, this is what is running on the web about it:
    http://www.theage.com.au/articles/2002/10/09/1034061249271.html

    And you'll get Rupert's address and the proxy vote results from this ASX
    link:
    http://www.asx.com.au/asx/statistics/AnnHeadersForIssuer.jsp?method=get&Ti
    meFrame=past_week&ASXCode=ncp

    What made it so interesting was that my candidacy for the board almost got
    up from the floor with 79 votes in favour and only 86 votes against. This
    was an amazing outcome given Rupert's status as the home town hero and the
    proliferation of executives, relatives and friends he had at the meeting.

    Before deciding whether to call for a formal poll I asked for the proxies
    which turned up the following:

    For: 162 million shares
    Against: 1.127 billion.

    If you strip out Rupert's 624 million shares, I actually got 33 per cent
    of the unaligned votes which was worth more than $1 billion.

    Imagine if I'd actually been allowed to present a platform and if Rupert
    had not recommended against me without giving any reasons in the notice of
    meeting.

    PITCHING TO THE MUMS AND DADS

    This rough treatment opened the way for a detailed speech about corporate
    governance and all the failings that News Corp has in this regard when it
    came to debating my nomination.

    Rupert tried to head this issue off at the pass by departing from
    tradition and actually giving his chairman's address before the formal
    business was discussed.

    There was a good five minutes spent on corporate governance where Rupert
    announced that the chairman of the audit committee, Stanley Schuman, would
    be standing down because he is not deemed independent under new US
    legislation and New York Stock Exchange guidelines.

    He also said the remuneration and nomination committees would be recast.

    His general claim that News Corp has terrific ethics and corporate
    governance simply does not stand up to scrutiny but how's this for
    outrageous spin in his press conference after the meeting:

    "Mr Mayne asked some good questions and recognised all I said about the
    governance of the company. We do what is right and always have."

    Tell me if you think that is correct based on the following points made in
    the speech ahead of the vote on my election:


    * Censoring the platform was unfair as 80,000 shareholders knew nothing
    about me whilst the 150 shareholders in the room would only be able to
    make a decision based on the 5 minutes Rupert had allotted.

    * Why wasn't the $65 million that Shuman's firm Allen & Co collected on
    the Fox Family sale disclosed in the annual report. Afterall, fees to his
    investment bank were disclosed in 1999 and 2000 but not in the past two
    years.

    * Can't we get a credible signing partner auditor. The previous bloke from
    Andersen, Martyn Scivens, signed off on the dodgy 1998 FAI audit and the
    current auditor, Chris Westworth, gave Clutha the all clear in 1994 three
    months before it collapsed.

    * Executive pay is out of control. If the Packers don't take a salary from
    PBL why should the Murdochs hit News Corp for $30 million between them in
    2001-02.

    * Rupert treats the company like a family business and needs to be more
    accountable. For instance, why has News Corp lent Queensland Press, which
    is controlled by Rupert, $170 million with no security and no repayment
    schedule. (We made progress on this as it was the only issue Rupert
    responded to, suggesting it would be repaid by next year.)

    * There needs to be a majority of independent directors and the NEDS
    should control the audit, remuneration and nomination committees.

    * The non-audit fees of $7.6 million paid to Ernst and Young last year and
    more than double this figure to Andersen the previous year were not
    explained in the annual report as they should be.


    The pitch to the mums and dads was to vote for me to send a message to
    Rupert that corporate governance has to be taken more seriously and with
    only 16 per cent of the economic stock he can't treat the people who own
    84 per cent of the company like mushrooms.

    It was important to try to keep things reasonably light-hearted so I
    predicted at the end that I would not be travelling on the corporate jet
    with Rupert back to Sydney which sparked an interjection along the lines
    of "you certainly won't be" from the great man.

    There was no gratuitous plug for Crikey as I spelled out the career with
    News Ltd but only mentioned being a web publisher and corporate governance
    campaigner these days.

    BREAKING NEWS

    If the board election debate was a good start, it just got better
    thereafter.

    The Australian Shareholders Association representative broke his News Corp
    duck and got up on about 4 issues including executive pay, options,
    non-audit fees and the poor attendance of independent director Aatos Erko,
    who fronted 3 of the 5 audit committee meetings and 5 of the seven full
    board meetings.

    Rupert said Erko was crook but shareholders were not happy and it looks
    like the proxy advisory group Corporate Governance International may have
    had some influence here as the average against vote for incumbent
    directors was 11 million shares but the Finland-based Erko copped a very
    hefty 141 million shares against.

    CGI is rumoured to have recommended a vote for Crikey on corporate
    governance grounds and a vote against Erko on truancy grounds. At last it
    appears that some institutional shareholders are challenging companies.
    Crikey's appearance last month at the Australian Equities Conference for
    all Australian industry funds, which manage $50 billion including more
    than $1 billion worth of News Corp shares, may have attracted a few votes
    as that speech dealt with governance issues at News Corp in some depth.

    OPPOSING OPTIONS FOR NON-EXECUTIVE DIRECTORS

    Rupert has been doing this for the past 9 years when it totally goes
    against good corporate governance practices. All the NEDS were getting
    12,000 options over preferred shares and the vote was tight as Rupert was
    not able to vote his controlling stake.

    He was very lax when it came to disclosing the proxy votes and totally
    ballsed it up a couple of times. The figures later revealed to the ASX
    show 472 million votes in favour and 236 million against.

    Rupert disclosed that Australian institutions were broadly 50-50 but US
    institutions were 98 per cent in favour. Because most US institutions hold
    ADRs, they often can't vote the stock so that is why Australian instos
    have relatively more voting power than they should have.

    The vote on the floor of the meeting was an even bigger protest. I
    followed the ASA chap with a call for everyone to send a message that NEDs
    don't get options, using the analogy of a good behaviour bond.

    NEDS are the people protecting the external shareholders, you don't want
    them hamstrung by future balloon payments that might prevent a resignation
    over a matter of principle.

    The vote on the floor of the meeting was 85 votes in favour and either 79
    or 73 against, as Rupert regularly stumbled through the process and
    mis-stated the figures.

    EXECUTIVE OPTIONS

    The options for all the executive directors other than Rupert was also a
    tight run thing with 456 million sharess in favour and 260 million
    against.

    Together they were lining up for about 2.4 million options, 25 per cent of
    which vest each year for the next four years. The executives have 10 years
    to exercise them and there are no performance hurdles at all, which is
    what riled so many Australian shareholders.

    Rupert said options were very important in America and everything issued
    over the past 4 years were underwater. After dragging the stock down 35
    per for the year, the options issues at $11.27 last year are underwater so
    this year the preferred share options are at the knockdown price of $8.02.

    The ASA opposed the options and my only comment was that Peter Chernin's
    pay was cut from $37 million to $34 million for the year and with rumors
    that he could go to Disney and replace Michael Eisnre, we needed something
    with longer term hurdles to hand-cuff him to the company.

    Rupert intimated that Chernin's contract was rock solid in this regard but
    that these things were always a two way street.

    ANSETT YARN

    Rupert seemed to have no idea about the Ansett sale agreement as when I
    asked about the $40 million contingency in the Air New Zealand accounts to
    pay News Corp 10 per cent of the value of the company at some point over
    the next two years as the final payment on the 2000 sale deal, he
    suggested they would get nothing and finance director David Devoe said it
    had been written down to zero.

    But then Lachlan Murdoch chimed in for the only time in the meeting to say
    that the present value of the 10 per cent entitlement was $22 million and
    they did expect to get paid. After booking a $250 million profit on the
    sale a couple of years it just seems outrageous that News Corp could get
    more money out of Air New Zealand after the Ansett debacle cost it $1.3
    billion.

    DEPARTING EXECUTIVES AND DIRECTORS

    Rupert seemed genuinely sad that Chase Carey had bowed out as an executive
    in January but his $21 million package for the year can't have been too
    bad. He said relations remain good and that is why he was remaining on the
    board. Rupert was almost pining for him to return to the fold but clearly
    Carey has ruled this out for now.

    As for former Worldcom chairman Bert Roberts, Rupert lamented his
    departure from the board in August and said he was paid nothing to go.
    Roberts volunteered to go due to the Worldcom scandal. I had two proxies
    equipped with 20 questions to ask and bearded student (Rupert doesn't
    trust anyone with a beard) Tom Gara got up towards the end of the meeting
    and asked about the Worldcom settlement on the AskyB deal earlier this
    year which saw it receive $250 million cash and 121 million preferred News
    Corp shares. CFO David Devoe revealed that Roberts played no part in these
    negotiations and that Worldcom sold these News Corp preferred shares
    straight away.

    SUPERANNUATION EXPOSURES

    Page 49 of the detailed News Corp financial report reveals that the
    company's super funds had a $468 million hole in them as at June 30. I
    mentioned that CNBC had reported this morning that General Motors has
    previously admitted to $US9 billion pension liability black hole and there
    were now rumours it had blown out to $US20 billion.

    Rupert commented that this was before considering the GM health fund and
    then David Devoe chimed it to say the News Corp super funds had not
    deteriorated materially over the past quarter despite the 20 per cent
    decline on Wall Street.

    He said about 75 per cent of employees have defined benefit schemes which
    means News Corp picks up the slack when markets tumble. There was an
    interesting story out of the News Ltd super funds in Australia as company
    secretary Keith Brodie disclosed that they had reduced their News Corp
    holding from 22 million to 2 million shares over the past five years.

    With the stock price hitting a peak of $28 over this period, let's hope
    they got out at the top.

    GEMSTAR LOSSES

    The biggest news item of the day was News Corp seizing management control
    of its troubled Gemstar associate at a board meeting earlier in the
    morning. Rupert claimed this would boost the share price which needs
    plenty of boosting. After taking an $11 billion write-down this year, the
    company is facing a further hit as the 175 million shares are valued at
    $US950 million in the books but are only trading around the $US3 mark or
    $US525 million. If things don't pick up they are looking at another $1
    billion write-off.

    To give Rupert his due, most of the News Corp disasters have been where
    they lacked management control. Italian pay-TV, Germany through Kirsch,
    One.tel and Gemstar are all examples of this. These days they won't invest
    in anything without complete control and based on past experience this is
    probably a wise move.

    RECORD LENGTH

    The News Corp insiders were quite friendly after the meeting although
    there was no chat with any of the Murdochs. Non-executive director Graeme
    Kraehe had a go at me for not doing enough research ahead of last year's
    Brambles meeting but came back this time to say it was a much better
    performance.

    News Ltd CEO John Hartigan and Terry McCrann both shook the hand and said
    g'day whilst company secretary Keith Brodie popped over for a chat and
    remarked that at 91 minutes it was almost certainly the longest News Corp
    annual meeting on record.

    Importantly, that did not include any video time so if you take out 20
    minutes for Rupert's opening address we actually had 70 minutes of debate
    and formal business with four different shareholders contributing.

    As both a proxy and a shareholder (Rupert made me fess up how tiny the
    shareholding was and I exaggerated it from $450 up to $600), I was
    privileged to get two show bags of goodies.

    If you come down to the Union Hotel in Waymouth Street from 5pm this
    afternoon I'll even share some of it with you. We have the two Aussie
    magazines Donna Hay and Inside Out, Moulin Rouge and Planet of the Apes on
    video, Robert Morgan's novel The Truest Pleasure and "Letters to Ann", the
    love story of Matthew Flinders and Ann Chappelle.

    The spread was typically lavish with hot food, beer and wine aplenty and
    after a 20 minute press conference Rupert mingled for about 40 minutes and
    then the convoy of Rollers and BMWs headed back to the corporate jet and
    got the hell out of Adelaide as quicky as possible.

    MEDIA REACTION

    There's been plenty of media reaction. No kidding, but there was an all in
    press conference for Crikey's after Rupert's presser with about 15 hack,
    including all the TVs. Business Sunday did a brief interview and I'm
    catching up with Stateline shortly. Tune in to Virginia Trioli's ABC
    Victoria program at 5.15pm this evening and Lateline have just called
    offering to pay for me to catch a later flight so we can have a live
    corporate governance debate in the Adelaide studio at 9pm Adelaide time
    tonight.

    This was even bigger than the 1999 News Corp AGM when Rupert accepted 16
    questions straight over 40 minutes but the big question is whether he will
    change his ways. Any tilt for the board next year will entirely depend on
    how seriously he embraces corporate governance over the coming months.

 
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