News Fires Back at Critics

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News Corp. fired a return shot at an investor advisery group critical of its management and compensation structure, filing a proxy statement Tuesday with the Securities and Exchange Commission defending its top managers and their handling of the News of the World phone hacking scandal.
On Monday, Institutional Shareholder Services (ISS) urged shareholders to oust 13 of News Corp.'s 15 member board of directors, including chairman and CEO Rupert Murdoch and his sons James (COO) and Lachlan at News' upcoming annual meeting of shareholders on Oct. 21.
ISS said that News Corp. showed "a striking lack of stewardship and failure of independence by a board," regarding the News of the World scandal, according to a statement.
Only two board members received a passing grade from ISS - former New York City Public Schools chancellor Joel Klein and venture capitalist James Breyer - but that was mainly because Klein has only served on the board since January and Breyer is a new nominee.
News Corp fired back on Tuesday, pointing out in the proxy that the company has reported strong financial performance - revenue was up 2% and operating profit rose 23% in fiscal 2011 - despite global economic turmoil. News Corp shareholders also enjoy some of the strongest returns among media investors - the company's Total Shareholder Return was 49.47% compared to 32.96% for Comcast, 21.85% for Disney, 37.39% for CBS and -5.34% for Dish Network.
News also said ISS' focus on the News of the World scandal was disproportionate. Although the company said its litigation exposure around NOTW could affect News' operations and financial condition, the company is taking the matter seriously.
"The drivers of our businesses are intact, our position is strong and our future is promising," News said in the proxy statement.
News also defended Murdoch's compensation package, adding that it is overwhelmingly skewed towards performance-based, or at-risk (71% vs. 29% fixed). The company noted that last year vice chairman and chief operating officer Chase Carey modified his employment agreement, reducing his annual fixed salary by 50% and his annual incentive target by 20% and increasing his performance-based long-term incentive target by a corresponding amount. According to its August proxy statement, Murdoch received total compensation of $33.3 million, a 46.7% increase from the $22.7 million he received in fiscal 2010. Carey received $30.2 million in total compensation in fiscal 2011, up 16.2% from the $26 million he received in the prior year.
Over a period of years reporters and editors at News of the World were accused of hacking into private voice mail accounts of celebrities and private citizens alike, including the cell phone account of a murdered 13-year-old girl. News Corp. shut down the paper in July, after 168 years of publication. Later that month, Rupert and James Murdoch testified before British Parliament claiming no prior knowledge of the phone hacking practices. The media giant has fully cooperated with the government investigation surrounding the scandal.
"News Corp. has already taken decisive actions to hold people accountable and will take all prudent steps designed to prevent something like this from ever occurring again," the company said in the proxy.