MEDIA & MARKETING:AMONG THE Leveson Inquiry witness statements worth reading is that of Richard Peppiatt, a former reporter at the Daily Starwhose resignation letter poetically cited a "cascade of shit" that he saw pirouetting from the penthouse office of proprietor Richard Desmond, "caking each layer of management, splattering all in between".
Peppiatt begins his statement by dryly describing corporate governance at his former employer as “laissez-faire at best”. But while ethical concerns at Desmond’s Northern Shell media group may or may not be “always subservient to financial ones”, 2011 has brought increasing visibility to the shareholder groups for which ethical concerns are often synonymous with financial ones.
Public companies will ultimately be less able than a single-owner company like Northern Shell to adopt laissez-faire attitudes to corporate governance – because if they do, they may simply find themselves subject to the corporate governance standards of their investors instead.
On Tuesday, News International chairman James Murdoch faced an embarrassing protest vote against his re-election as chairman of BSkyB. With the help of the 39 per cent of BSkyB (and 37 of the voting shares) that is owned by News Corporation, Murdoch was re-elected with just 81.2 per cent of the vote.
To put this number in context, according to Pirc, Europe’s largest independent proxy adviser, only 1 per cent of FTSE 350 executives facing elections this year were opposed by 15 per cent or more of shareholders.
Around a third of independent shareholders voted to remove Murdoch, and around 45 per cent either voted against or abstained.
The protest vote was the culmination of a campaign by Pirc, which advises pension funds and asset managers on corporate governance. It was joined by large shareholders Standard Life Investments and Legal General, as well as by the New York-based proxy adviser Glass Lewis Co.
“We’ve always had an issue with James Murdoch’s chairmanship because he’s clearly not independent,” says Tom Powdrill, Pirc’s head of communications.
“Latterly, the advice we have given has been much more affected by events at News International,” he says. “At best, he fell down on the job by not spotting and rooting out illegal behaviour. We don’t think those kinds of things are acceptable for a chairman of a FTSE 100 company.”
Murdoch’s removal at the hands of independent shareholders, although not impossible, “would have taken an enormous vote” against him, Powdrill notes, given the size of BSkyB’s share block. Oustings like this are extremely unusual, he adds. Indeed, the removal of Leslie Buckley from the board of Independent News Media in June is a rare example of such a showdown.
Buckley’s demise came in the aftermath of the decision of the three INM directors affiliated to major shareholder Denis O’Brien – Buckley, Lucy Gaffney and Paul Connolly – to vote against the approval of its financial report.
Glass Lewis and another powerful proxy adviser, ISS, responded by advising shareholders to vote against Buckley, citing concerns that O’Brien was over-represented on the board. The unseated Buckley accused INM chief executive Gavin O’Reilly of “canvassing company shareholders” to vote against his re-election, which was denied by O’Reilly.
The potential for board factions to harness the power of proxy advisers for their own ends would certainly appear limited, and not just because proxy advisers will record any lobbying that does take place. According to Powdrill, 95 per cent of its recommendations come from “just our own analysis”, although Pirc will seek feedback from boards on its advice.
“Occasionally, individual non-executive directors will get in touch,” he says. But any resulting recommendations have to be objectively based on the UK’s corporate governance code.
The boardroom dramas of BSkyB and INM prompt the question as to whether media groups are more likely than other industries to flout corporate governance standards on the make-up of their boards. Powdrill’s view is that they are. “Quite a few” have “unusual share structures”, such as the Murdoch family’s grip on News Corp or the controlling interest held by chairman Viscount Rothermere – aka Jonathan Harmsworth – in the Daily Mail General Trust. Such dynastic structures place these media groups on the watchlist of corporate governance advisers such as Pirc even before journalistic ethics come into play.
Media groups are also a special case because of their history of attracting the interest of individuals who care more about the cultural influence they can bring than their capacity to generate dividends for other shareholders.
For Powdrill, the parallel inquiries into press behaviour mean BSkyB non-executive directors’ support of the scarred Murdoch is unsustainable. While Leveson and the other inquiries are still at the “prosecution” stage, corporate governance advisers have already reached their verdict: “You have to ask the question, if James had a different surname, would he still be chairman? I think not.”
