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Jun 27, 2004

Corporate governance stalks News Corp

Freddy Kreuger looks at the latest outbreak of the corporate governance plague at News Corp.

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Freddy Kreuger looks at the latest outbreak of the corporate governance plague at News Corp.

Stop the presses, hold the rhetoric and go to an ad break. There’s a plague of corporate governance loose at News Corporation and even Rupert Murdoch has been infected. Badly Call the medics, summonsed the troops. An explanation is needed.

Go to the videotape and take a look at the symptoms. If you were writing a HarperCollins thriller or an episode of 24 or briefing agent Mulder in the X Files, there’d be enough evidence to close the deal or call in Agent Scully.

The most recent and compelling evidence. News Corp has a majority of independent, sorry, non executive directors on its board. Oh mea culpa me, this is serious. Just look at the case history.

Last week it was Chase Carey, News Corp board member and Direct TV boss got rid of his News Corp options (and I bet at no loss to him) and took up 1.88 million, mostly in the money options in Direct TV which he runs for News, the 34 % owners. This was done after shareholder concerns were raised over possible conflicts of interest where Chase at News Corp options and was running Direct TV, in which News was a minority shareholder.

Then the week before, Murdoch and two other key News Corp executives were forced off three key board committees on the BSkyB board in London after shareholder pressure. Rupe is chairman of Sky and son James is CEO. Shareholder concern has been festering for months.
And, last year Rupe pulled that controversial executive options issue after it was beaten up by local institutions at the News AGM in Adelaide in October.

And now, Rupe is copping something of a caning from institutions over plans to move to the US.

Although a surprise US court ruling last week might make it difficult for News and the other US media giants to grow with doubt cast on a key regulatory change. So in the space of nine months or so, a number of examples of Rupert Murdoch listening to shareholders other than his family.

That is a ‘man bites dog’ news story. Well, sorry for the OTT (Over The Top) approach, but what else are we to make of a dramatic development in corporate governance? News Corporation has a majority of independent directors on the board. Hold the presses.

Wait on, Wait on. There’s a catch, as there always is with Rupe. It all depends on your definition of ‘independent’.

All this arises from the announcement late Friday from news that John Thornton, a former Goldman Sachs President and now an academic in Beijing, had been appointed to the News board, and as a result the 15 member board had a majority of independent directors.

His presence on the board and continuing advisory role with Goldman Sachs will no doubt strengthen the links in Australia between News and its long time boosters, Goldman Sachs-JB Were.

And, further the key board committees, audit, nominating and corporate governance, and compensation have been restructured, with independents being appointed as members and chairs. But look carefully, and questions of ‘how independent’ arise.

Take the other changes. Rod Eddington for example, CEO of British Airways becomes chairman of the vital audit committee, retires from the nominating and corporate governance committee and remains on the compensation committee.

Rod’s a very busy man in London and BA is a very very difficult business to run. But then he’s got experience in this area. Wasn’t Rod CEO of Ansett for a while and a member of the News board? Another director, loyal Rupert foot-solider Ken Cowley, a former News Ltd boss in Australia, was chairman of Ansett.

Ken’s down on the News Corp website as chairman of Independent Newspapers in NZ, which News Corp own a controlling interest.
Rod reported to Ken as an Ansett employee and a News insider.

Andrew Knight, a member of the audit committee and chairman of the compensation committee is down on the board as an investment banker. But he’s a former senior News International executive in London who made about $80 million out of his options.

Geoffrey Bible is down as chairman Wagga Enterprises, but he’s a former CEO of Philip Morris where Rupert sat on the board for many years. Another News director, Peter Barnes, is a former President of Philip Morris and Bible understudy. He’s described as chairman of the Australian Winemakers Federation.

Murdoch has been a director for Philip Morris. Bible was Philip Morris boss while Murdoch was a director. Bible went onto the News board in 1998.

So the audit committee has Rod Eddington as chairman, Peter Barnes as a new member and Andrew Knight and Thomas Perkins, a big time venture capitalist in the US.

So two of the four members have employment links to News Corp in their past, while a third Barnes, is linked through being employed at Philip Morris when Murdoch was a director. There is independence and independents.

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