Almost cracking the News Corp board in 2002

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.

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 Insurance 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 hacks, including all the TVs. Business Sunday did a brief interview and I'm catching up with Lateline 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.

Copyright © 2022 The Mayne Report. All rights reserved

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