Brian Toohey scored himself quite a coup in the Saturday AFR
when he landed the story about a global coalition of super funds
getting together to sue News Corp and its directors in the Delaware
courts over the notorious “poison pill” arrangement. Check out this
comprehensive story from The New York Times.

It
was actually the international newsletter Global Proxy Watch which
broke the story on Friday afternoon. You can tell the importance of the
issue in global corporate governance terms by the treatment the
Boston-based newsletter gives the story here.

Add
to that the resignation of conflicted non-executive director and
long-time News Corp adviser Stanley Shuman and a recommendation by the
powerful global proxy adviser Institutional Shareholders Services to
vote against a pay rise for directors and the re-election of four
directors at the forthcoming AGM in New York and you have the biggest
challenge to Rupert Murdoch’s authority in the 52 year history of the
company.

All four directors facing a vote on October 21 are
conflicted. Two of them, Chase Carey and Peter Chernin, are current
News Corp directors and the other two, Rod Eddington and Andrew Knight,
are former executives who have been enriched by Rupert but now somehow
claim they are independent. American AGMs don’t get to vote “against” a
director, you can only tick the “withheld” box to mount a protest and
these four will face an unprecedented rejection from News Corp
shareholders who have never before voted an incumbent director back in
with less than 90% support.

However, the real pressure from the
Delaware legal action here is on the so-called independents on the
boards who are now getting personally sued, many of them for the first
time in their careers as professional directors.

The resignation
of Shuman probably reflects the fact that his company, Allen & Co,
has been working on the peace deal with Malone that would earn it huge
fees if successfully executed. However, some other patently affiliated
or conflicted directors such as Ken Cowley, who ran News Ltd from 1980
until 1996, are still in there, approving everything Rupert wants.
Cowley should resign too and increase to three the number of vacancies
for genuine independents, which Rupert simply won’t be able to find
whilst his board is getting sued over the poison pill scandal.

While
Rupert might very well be prepared to stare down the institutions and
take them on in court, the rest of his board won’t be so keen,
particularly the four who face big protest votes. Would someone like
new Ansell chairman and News Corp director Peter Barnes risk signing
off on a sweetheart peace deal with Rupert’s friend-turned-foe John
Malone knowing that his personal assets could be on the line in a
subsequent court action?

Meanwhile, it is most amusing to have Greg Baxter, the former James Hardie spinner who now handles PR for News Ltd, publicly blasting
the very same funds that he was personally involved with, making the
broken promises ahead of last year’s vote on the move to America.

As
usual, the News Corp papers were pathetic in their coverage of this
issue and we can’t wait to see what Terry McCrann and Bryan Frith will
say. They could start by reading Alan Kohler’s editorial on Inside Business yesterday.

Crikey
is booked to fly to New York next week in what should be an
unprecedented News Corp AGM with rockets going off all over the place.
Whilst Rupert might be confident he can win the legal battle, what does
he tell his own shareholders when some of his previous biggest backers,
John Malone and this group of 15 institutions, have turned against him?

How
can he possibly defend the poison pill when it has only served to
deflate the share price. Rupert’s annual report address opens with the
claim that, “I am very pleased to report to you that fiscal 2005 was,
by virtually any measure, the best year in News Corporation’s 52-year
history.”

Er, not in shareholder returns Rupert.

Peter Fray

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