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RI analysis: institutional investors, ESG and News Corp.

Time for institutions to step up engagement?

With News Corp.’s UK media operations currently at the eye of a storm as a result of the current phone hacking scandal, what is the stance of institutional investors in dealing with environmental, social and governance (ESG) issues at the company?
Although the scandal has only just really taken off, it actually dates back to 2002 – having come to light in 2006. The News of the World’s royal correspondent Clive Goodman and private investigator Glenn Mulcaire were jailed in 2007.
With advertisers pulling out, there is now a financial as well as a moral dimension to the affair.
Indeed, the Co-operative Group – parent of UN Principles for Responsible Investment signatory Co-operative Asset Management – has said it will suspend advertising with the paper.
Niall O’Shea, Head of Responsible Investing at Co-operative Asset Management, told RI in an interview: “We’re appalled and we’ll be engaging with the company if we feel they’re not handling it correctly.
“We’re monitoring this from both an ethical perspective and a business perspective.”
“I think engagement should have been going on since the story broke,” said Louise Rouse, Director of Engagement at campaign group Fair Pensions. “The warning signs were written off and not taken as signs of systemic neglect. There should have been early engagement from the investor community on this.”
“Two men have already been jailed because of hacking at the News of the World and the saga has been rumbling on for years,” she added. “Is this another example of the investment community avoiding engagement on corporate governance issues and waiting for a crisis to unfold before they will act?”

Although News Corp. – the world’s third-largest media conglomerate – is controlled by media baron Rupert Murdoch via a family trust with a 38.4% holding, it is listed on the NASDAQ. Saudi Arabia’s Prince Alwaleed has a stake of some 7%. Its shares fell 3.6% yesterday – knocking $1.7bn off its stock market value.Among the largest institutional shareholders on its register, according to NASDAQ, include Norges Bank with a $35m stake, the Teachers Retirement System of Texas ($30.6m), CalPERS ($27.5m), IBM Retirement Fund ($22.5m) and APG, the Dutch asset manager ($9.4m).

A twist on the story is that News Corp.’s bid to take over the part of UK satellite broadcaster BSkyB that it does not already own was already facing opposition. Rouse said institutions would need to assure themselves the deal was in the long term interests of their beneficiaries.
She said Fair Pensions would like to see UK investors making public statements on the scandal. It would be “very disappointing” if there were no conversations happening right now between the company and its investors.
Tom Powdrill, spokesman for proxy firm PIRC, said: “Shareholders need to get on the front foot on this. They will be worrying what more is there to come out.”
Rouse and Powdrill both likened the situation to the BP crisis last year – where a catastrophic event was magnified by the company’s inability to get hold of the situation.
At News Corp.’s most recent shareholder meeting, in October 2010, a shareholder proposal called on the company to set up a human rights committee. It was tabled by campaigner Jing Zhao, who has targeted media companies over their involvement in China.
This proposal was voted against by Norges, APG and the Ontario Teachers’ Pension Plan, according to the funds’ voting records.
At BSkyB, domestic investors have voted on governance concerns. Railpen, for example, voted against the company’s remuneration report and made a series of abstentions at its most recent AGM.
The Universities Superannuation Scheme, abstaining on remuneration, said: “We have concerns regarding the alignment of pay with performance and would welcome greater disclosure.” And it also flagged up concerns about political expenditure and an “insufficient balance of independent representation on the Board”. Dutch pensions giant PGGM voted against two BSkyB directors over length of tenure.