Every angle on News Corp in 2003

By Stephen Mayne

May 10, 2019

Crikey's subscriber only sealed sections have covered every angle of the 2003 News Corp AGM over the last few days and we've brought it all together here in one special summary for easy reading.

Every angle on the history making News Corp AGM

Sealed Section - October 15

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.


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 and his Independent Directors

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:



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".

Friendly jousting

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.

History and retirement

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".

Nepotism and one vote one value

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".

Pay TV and Super League

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".

The newspaper training gorund

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.

The press conference

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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Is this a corporate governance coming of age?

Sealed Section - October 16

Whilst the defeat of News Corp's executive options scheme yesterday was both historic and symbolic, it does not suggest that corporate governance is coming of age in Australia.

All it shows is that the market has taken a strong position on the specific issue of options. The market is working most efficiently on options but these are on the nose and easy to measure. Gerry Harvey learnt this the hard way a few weeks back and now Rupert has copped it in the neck. Even the Southcorp options package for John Ballard attracted a 17 per cent no vote on Tuesday and the Boral scheme today was only passed 60-40 on the floor.

(Incidentally, it is worth remembering that if Harvey Norman had been allowed to reprice those 14 million options, the seven lucky executives would today be more than $10 million in front because the company's share price has soared in recent weeks. Thank god he was rolled as well.)

But there is still heaps of poor governance being tolerated, especially in the listed property trust and stapled security sectors. And why aren't any of these big talking fund managers bleating about the way Westfield Holdings is continuing to rip excessive fees out of Westfield Trust.

IFSA boss Richard Gilbert was quoted in The Fin Review today warning about "close scrutiny" being applied at AGMs: "It shouldn't come as news that fund managers have taken a strong stand on options," he said.

Unfortunately, this "close scrutiny" does not extend to actually turning up at a meeting and saying something as Crikey and our alibis were the only people putting serious pressure on Murdoch yesterday.

Gilbert also repeated the claim that fund managers are voting 90 per cent of the time which we simply don't believe.

Fund managers have been voting against News Corp options for the past few years but Crikey thinks it is the superannuation funds, not the fund managers, that have given the issue extra focus.

The Australian Council of Superannuation Investors (ACSI) was formed last year and their first campaign was Patrick Corp which saw Chris Corrigan cop a 40 per cent no vote in January despite his 1 million $14 options being out of the money at the time. They've only just come into the money with Patrick shares soaring almost 10 per cent to $14.16 over the past two weeks.

And if these fund managers are so tough, how on earth did John "Bruvva" Ducker get elected chairman of Hills Motorway with 99 per cent of the vote yesterday. Have they forgotten Aristocrat already?

Speaking of director votes, poor old Lachlan Murdoch copped one of the larger protest votes yesterday as 689.8 million proxies were lodged in favour and a surprisingly high 63.45 million against his re-election. This is the second highest against vote a News Corp director has ever received and when Lachlan was last re-elected in 2000 he only had 2.6 million votes against.

If the brothers are competing for the affection of shareholders, James will be telling Lachlan today that only 1.01 million shares were voted against his election last year. Hmmm, wonder if the BskyB shareholders will be so supportive in a few weeks?

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Rupert should have seen this coming

Sealed Section - October 16

Rupert Murdoch's claim that he was surprised by the revolt beggars belief, especially given the Patrick Corp and Harvey Norman precedents. Doesn't his Australian-based company secretary read the newspapers?

Let's go back and look at the voting results for the executive options resolutions at the last 5 News Corp AGMs to demonstrate this emerging resistance:

1999: For 1,275m (inc Rupert's 626m), Against 13.26m (98.9% in favour)

2000: Less generous issue: For 504.7m, Against 114.5m. (81% in favour and 619.2m voted)

Second more generous issue: For 392.7m, Against 253.4m (60.8% in favour and 646.1m voted)

2001: For 501.7m, Against 134.3m (78.9% in favour and 636m voted)

2002: For 456.5m Against 260.8m (63.6% in favour and 717.3m voted)

2003: withdrawn

Other resolutions had 760 million shares voted in 2003 so it is likely that the vote was something like 350m in favour and 410m against. It is an important development that more and more institutions are voting but yesterday's result still saw only about half of the non-Murdoch shares votes, which is a record.

Rupert's claim that American institutions were strongly in favour is also dubious as we are getting feedback that several large American shareholders voted against the options. If Rupert was serious about transparency he would reveal the votes.

And it would be good if more institutions went on the record about their votes. So far, we only know, courtesy of The Fin Review, that Colonial voted against the options.

US law makes it compulsory for institutions to reveal how they vote from January 1 next year. We should be following suit as part of CLERP 9.

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How the media covered Rupert's rolling

Sealed Section - October 16

Today's coverage of the News Corp AGM illustrates that, just like Rupert's board, there is little independence in News Ltd papers and, contrary to Rupert's claims, there is limited diversity in Australian newspapers.

Anthony Keane headed the News Ltd coverage in Australia with his up-beat story appearing in the Herald Sun under the headline 'News tips a record', in The Courier-Mail as 'News Corp record profit tipped' and in The Daily Telegraph as 'News confident of double-digit growth'.

Keane's coverage of the AGM can only be described as extremely positive with its focus firmly set on the prospect of record profits, higher dividends and a very good outlook.

In the last few pars of the story was the news that the meeting was not all smooth sailing, complete with a quote from a seemingly kind and understanding Rupert, "I'm surprised people didn't tell us there was this feeling, because we are very, very conscious of shareholder mood."

News Limited - Anthony Keane

Over at Fairfax Wendy Frew's coverage was the antithesis of News Corp's with Frew describing Rupert's backdown as extraordinary, but like Keane, Frew's story also demonstrated the lack of media diversity in Australia's media. Frew, who was in Adelaide for the meeting, saw her story reproduced from coast to coast.

In the SMH it ran under the headline 'Murdoch caves in on options', over at The West Australian it was 'Murdoch forced to drop fat options plan' and in The Age as 'Murdoch stared down over options'.

Fairfax - Wendy Frew's News Corp AGM story

The Herald Sun's Terry McCrann also toed the official News Limited line with his coverage by downplaying the biggest story to come out of the meeting.

Buried towards the end of his column, after extensive praise of the man who has made him a millionaire, McCrann had to admit, "the 'hot' story out of the meeting itself, was the way Murdoch got rolled on the executive director options."

But in a poor attempt to qualify this statement McCrann said it was "both significant and insignificant at the same time."

The News Ltd coverage becomes even more sycophantic in light of this UBS note:

"Rupert Murdoch, in a polished performance, delivered a fairly up-beat AGM presentation. Whilst there was little by way of new information, the company re-iterated full year EBIT guidance of high single to low double digit growth."

According to UBS, News's news on News's growth was not really new after all and therefore not really news.

However, Jane Schulze managed to stand out from other News Limited journos with her coverage in The Australian. Using somewhat softer language than her Fairfax competitor, Schulze still lead with Rupert's "historic rebuke from local institutional investors" before she moved onto the more palatable subject of News's earnings growth.

However, unlike the Murdoch tabloids, at least The Oz was prepared to run a picture of Rupert and his board colleagues looking a little grim after their first defeat at the hands of shareholders in 50 years.

In contrast to the experience of Schulze, who is accustomed to writing on the media and News Ltd in particular, The Fin Review has no dedicated media reporter and it showed in their coverage of the AGM.

Why on earth wasn't Neil Chenoweth at the meeting? Afterall, he's literally written the book on Murdoch. Instead, Katrina Nicholas managed this clanger: “The options had an exercise price of $9.89, below the $12.50 closing price of News Corp ordinary shares yesterday.”

The options were actually over preferred non-voting shares which closed at $10.31 yesterday. This means the The Fin Review has splashed the paper telling its readers that Rupert got rolled on options that were already $8 million in the money when they were in fact only $1.3 million in the money.

We look forward to reading the correction tomorrow.

Getting old?

Fairfax did manage to have some fun with the aging Rupert and get in a few jibes. News that Rupert is a little hard of hearing these days made it to page four in the SMH and the front page of business in The Age

SMH's CBD column also commented on Murdoch looking fit and sprightly "although hard of hearing."

Naturally, the News Ltd papers would never suggest the dear leader was going deaf.

Overseas papers

The UK papers all seized on Rupert's throw-away comment on retirement despite his suggestion at the meeting that the media treat his jokes for what they were. Clearly the Reuters correspondent didn't agree as he lead his story with the retirement line and it ran all over the world.

Even Rupert's own UK papers were not as disciplined as their Australian counterparts. Also there was no mention of the options package being rolled in the New York Post. Col Allan is a loyal lapdog.

The Guardian - Murdoch delays retirement 'forever'

The Telegraph - Murdoch puts off retirement plans 'forever'

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All hail the Sun King

Sealed Section - October 16

A South Australian media watcher writes:

“The News Corp AGM is one of the highlights for the hard working journos at The Advertiser in Adelaide as it is the only chance they get to catch a glimpse of their fearless leader.

Such is the desire to be seen toiling away at their desks, staff go to extraordinary lengths to be in the building on AGM day. Telephone interviews are very popular.

The Chief of Staff for the 'Tiser, Sam Weir, mustn't have cross referenced his holiday diary with the AGM as he was supposed to be sunning himself far away from the King William St headquarters on the day the Dirty Digger came to town.

But that didn't deter young Sam - he fronted for what he called an "administration day".

He sat, and he sat, and he looked busy in his best suit and tie. Alas, Rupert gave the news floor a wide berth and Sam was left all dressed up with no royal audience.

He left muttering something about mothballing the suit until next year.

Maybe - if he survives that long.”

CRIKEY: It is always interesting to see which News Corp executives and editors are seen prowling around the AGM. As expected, a rather pensive looking Phil Gardner, the new editor of The Sunday Mail since Monday, was inculcated into the AGM culture of deference. The only interstate editor appeared to be Brett McCarthy from The Sunday Mail in Perth. Murdoch's spindoctor for the past 5 years, larrikin Aussie farm boy Andrew Butcher, still appears yet to break his AGM duck as Les Hoffman was registering all the media, Janet Fife-Yeomans was the listed contact and investor relations boss Gary Ginsberg handled the press conference. Terry McCrann was flown over as usual but we don't think he made it onto the 12-seater Challenger 500 executive jet. Rupert appears to have two jets as last year he brought the 40-seater 737 executive jet, which is similar to what Greg Norman and the PM travel around in. He'll be firing up the Challenger after a cocktail party at the Sydney headquarters tonight.

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