Rupert Murdoch, Sons Reelected to News Corp. Board

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Rupert Murdoch and his sons James and Lachlan were reelected the News Corp. board of directors today amid the fallout from a hacking scandal at its UK newspapers.

"News Corporation announced that all Directors were elected, the advisory vote was in favor of executive compensation, and the other management proposals were approved," according to a news release. "The floor proposal regarding an independent Chair of the Board was not approved."

Results from the vote are expected to be filed with the Security and Exchange Commission next week, the release said.

At the News Corp. annual meeting in Los Angeles on Friday, shareholders had time on the floor to voice their opinions in favor of new board oversight for the media conglomerate.

Representatives from the Christian Brothers Investment Service, the Church Commissioners of England and the California Public Employees' Retirement System (Calpers) made the requests in front on the meeting floor.

"It is an investment risk to have a weak board with a conflicted chairman," Julie Tanner assistant director of socially responsible investing for Christian Brothers Investment Services, said. The organization manages about $4 billion for Catholic institutions.

Rupert Murdoch was both courteous and combative, telling one disgruntled investor: "I hate to call you a liar but I don't believe you."

Tom Watson, a member of Britain's Parliament in the Labour Party who has led investigations into the phone-hacking allegations, attended the meeting by obtaining a shareholder proxy.

Watson said he hoped Murdoch "would respond to some of the independent investors, readers and customers" in the U.K. and "put this right."

Murdoch reiterated his regret over the hacking scandal.

Murdoch said he wanted "to reaffirm the seriousness of what is going on in London as well as putting the controversy in context" though "there is simply no excuse for such unethical behaviors." He said the company has been under both "understandable scrutiny and unfair attack."

The Murdoch family owns 40 percent of the company, though some shareholders have urged others not to re-elect Rupert Murdoch, founder, chairman and CEO, and his sons who sit on the 15-person board.

Murdoch's son, James, oversees the company's operations in Europe and Asia. Lachlan Murdoch, Rupert's first son, is "frictionless, affable, constant" which makes "in the eyes of many Murdoch-philes, not Murdoch enough" according to author Michael Wolff in his book, The Man Who Owns the News.

Wolff wrote that "unlike Lachlan, James is like his father, News Corp. people believe. Or at least he tries to be."

The company has been under investigation regarding phone-hacking scandal allegations against its former tabloid newspaper in London, News of the World, which closed on July 7 in the media spotlight.

Before the meeting, the company announced it would pay the family of Milly Dowler, a murdered British teen whose phone was hacked by News of the World, $3.2 million and donate $1.6 million to charities of the family's choosing.

A statement from the Dowler family on Friday stated, "Nothing that has been agreed will ever bring back Milly or undo the traumas of her disappearance and the horrendous murder trial earlier this year. The only way that a fitting tribute could be agreed was to ensure that a very substantial donation to charity was made in Milly's memory. We hope that projects will be undertaken so that some good can come from this," the Financial Times reported.

Though the News of the World closure was at financial cost to the company, Murdoch said it was the "right thing to do" which is "why we have devoted so many resources to get to the heart of this matter." He said the company is fully cooperating with the Metropolitan police in London and other authorities.

Proxy advisory firm Institutional Shareholder Services (ISS), whose clients are investors including pension and mutual funds, recommended that shareholders vote against the re-election of 13 News Corp. board members.

ISS said in its report: "The company's phone hacking scandal, which began its public denouement in July 2011, has laid bare a striking lack of stewardship and failure of independence by a board whose inability to set a strong tone-at-the-top about unethical business practices has now resulted in enormous costs."

ISS also made negative recommendations against certain members of the News Corp. board in 2005, 2008 and 2009.

In response, News Corp. issued a note to stockholders on Oct. 11 defending the 15 directors, re-elected annually, and the other proposals in the company's proxy statement for 2011.

News Corp. said ISS' "disproportionate focus on the News of the World matter is misguided."

"Our litigation exposure to the News of the World matter could affect News Corporation's results of operations and financial condition, and we are taking this matter very seriously," News Corp. stated to shareholders. "However, our broad, diverse group of businesses across the globe is extremely strong today."

According to published reports last weekend, The California State Teachers' Retirement System (CalSTRS) as well as Calpers have called for the Murdoch family to step down from the board.

"Given the lack of independent directors, effective board leadership is even more important to provide proper oversight to the company and management," the Sunday Telegraph quoted CalSTRS, which owns more than 6 million News Corp. shares, as saying. It wanted the whole News Corp. board replaced, including Rupert Murdoch and his sons James and Lachlan.

Glass Lewis & Co., another proxy advisory firm, said shareholders should vote against James and Lachlan Murdoch and four other directors, adding that the company needs a more independent board.

Britain's Local Authority Pension Fund Forum also asked that Rupert and James leave.

Last week, Hermes Equity Ownership Services, an advisory service for Britain's largest pension fund, said it plans to vote against re-electing Rupert Murdoch, Arthur Siskind and Andrew Knight, due to concerns regarding their independence, reported Reuters.

A spokeswoman for News Corp. and a spokesman for ISS declined to comment.

Despite the clamor, David Joyce, analyst with Miller Tabak + Co., said it was "highly likely" shareholders would re-elect Rupert Murdoch.

"His sons James and Lachlan are more of a question mark," Joyce said.

He said pension fund investors typically speak up and vote against questionable corporate governance practices. He said the majority of media companies have dual-class share structure, in this case which gives the Murdochs greater voting rights.

Joyce said voting against the family will not make "a tremendous amount of difference" because of the family's financial ownership in the company.

"And there is a deep bench of quality executives and managers, like Chase Carey, that help drive the economics of the business," Joyce said.

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