Things could be interesting in Los Angeles on Oct. 21 when News Corp holds its annual shareholders meeting. Advisory firm Institutional Shareholder Services recommended today that stock owners reject 13 of News Corp’s 15 board members, including the three Murdochs: Rupert and his sons James and Lachlan. Joel Klein, who runs News Corp’s Education Division, and Accel Partners’ James Breyer were the only nominees deemed acceptable by ISS. The firm says that while the News Of The World phone-hacking scandal ”is perhaps the most visible and severe example of the failure of board stewardship, it is part of a mosaic of failures of board independence, oversight, and responsiveness to shareholder concerns stretching back at least to 2004, when the company reincorporated from Australia to Delaware.” The report probably won’t affect the outcome of the shareholder vote: Due to News Corp’s dual stock arrangement, the Murdoch family controls about 40% of the voting shares even though it owns just 12% of the equity. Rupert’s ally, Prince Alwaleed bin Talal, controls an additional 7% of the votes.
News Corporation says that it “strongly disagrees” with ISS’ recommendations because the “disproportionate focus” on the scandal is “a disservice to our stockholders.” The company adds that ISS “failed to consider that the Company’s compensation practices reflect its robust performance in FY 2011 driven by its broad, diverse group of businesses across the globe.”
Still, the report is an embarrassment — especially following one out last week from another proxy advisory service, Glass Lewis. It urged News Corp shareholders to withhold their votes from James and Lachlan as well as four other directors: opera singer Natalie Bancroft (her family sold Dow Jones to News Corp in 2007), News Corp CFO David DeVoe, J. Rothschild Capital Management’s Andrew Knight, and former General Counsel Arthur Suskind. The firm says that due to James Murdoch’s “poor oversight” of News International during the NOTW hacking, “we do not believe he is suitable for further service on the Company’s board.” Bancroft has “limited, if any, relevant experience to board service” while the others are too close to management or failed to provide sufficient oversight. Glass Lewis added that News Corp “could have nominated a more suitable candidate” than Breyer to join the board as an independent director. Breyer’s been criticized for his lack of experience in dealing with corporate corruption. Glass Lewis also endorsed a proposal that would require News Corp to have an independent director serve as chairman of the board, taking that job away from CEO Rupert Murdoch.
Glass Lewis had one piece of encouraging news for News Corp, though: The firm gave Murdoch’s company a “D” grade in its assessment of how well News Corp matched executive pay with their performance. That’s up from the “F” grade News Corp received the previous two years.