UK Shareholder Activist Body Urges News Corp to Overhaul Board Structure

According to the UK’s leading shareholder activist body, it is imperative for News Corp to overhaul its board structure in the wake of its phone hacking scandal.

(October 6, 2011) — Following News Corporations’s phone hacking scandal, local authority pension funds have urged the firm to overhaul its board structure.

The Local Authority Pension Fund Forum (LAPFF), whose 54 members have combined assets of £100 billion, has issued a voting alert to its members this week on News Corp. “Having undertaken extensive research into the phone-hacking scandal, and having engaged with News Corp directly, LAPFF has reached the view that board change is necessary. The Forum believes that lead director Rod Eddington is well placed to take this process further,” according to a news release on the firm’s website.

The statement by LAPFF continued: “The Forum believes that the News Corp board must take responsibility for the hacking scandal and that this would be best achieved by a change to its existing membership and structure. LAPFF believes that James Murdoch’s continued presence on the News Corp board is causing significant reputational damage to the company and is no longer in shareholders’ interest. The Forum has therefore recommended that its members oppose James Murdoch’s election.”

Additionally, LAPFF said it wishes to see a separation of powers at the head of the company, and the appointment of an independent chair. The Forum has recommended that its members oppose the election of Rupert Murdoch, who currently holds the combined roles of chair and chief executive.

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“News Corp and its shareholders desperately want to draw a line under this scandal, but that will only be possible if the board accepts the need to demonstrate real accountability,” stated Forum chairman Ian Greenwood. “That requires a change in the structure and the make-up of the board. Whilst these are difficult issues for the company to address, we believe that to secure News Corp’s long-term future such reform is necessary.”

In September, pension funds and other News Corp shareholders brought fresh charges against the media firm stemming from its phone-hacking scandal. The shareholders — including the New Orleans Employees’ Retirement System and Central Laborers Pension Fund — stated that the “still unfolding hacking scandal is just a continuation of the board’s malfeasance.” Shareholders highlighted cases involving several News Corp US subsidiaries which suggested that hacking, privacy breaches, and anticompetitive practices were not restricted to the newspaper division.

In July, the Massachusetts Laborers’ Pension and Annuity Funds (Mass. Labor) filed a lawsuit against Rupert Murdoch and the other directors of media giant News Corporation, adding to the list of shareholders suing the company for failure to act in the wake of the recent phone hacking scandal.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

The Bank of England has unleashed £75 billion of emergency support in an effort to lessen tensions threatening the UK's recovery, yet Aon Hewitt predicts the move of QE2 will only exacerbate pension funding problems.

(October 6, 2011) — The Bank of England has unleashed £75 billion of emergency funding in order to aid in recovery of the UK’s economy while protecting Britain’s economy from the euro zone debt crisis.

In a move dubbed QE2, the UK’s Monetary Policy Committee (MPC) voted to boost the Bank’s quantitative easing (QE) program from £200 billion to £275 billion while holding interest rates at 0.5%.

“The pace of global expansion has slackened, especially in the United Kingdom’s main export markets,” the Bank said in a news release. “Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.”

In response to the Bank of England launching QE2, Colin Robertson, Global Head of Asset Allocation at Aon Hewitt, revealed a negative outlook for pension funds, telling aiCIO:

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“While it is understandable that the Bank of England has opted for a second round of Quantitative Easing in the context of other measures available, there will be a major unintended consequence of this action.”

He continued: “Already under stress from historic lows in gilt yields, the UK’s pension funds would undoubtedly find that, by depressing yields even further, QE2 only exacerbates pension funding problems. This stands to place even more of a burden on UK companies already buckling under the weight of the pension promise, with implications for employment and hence the economy.”

Mohamed El-Erian, CEO and co-CIO of the Pacific Investment Management Co. (PIMCO), made similarly negative predictions about the implementation of QE2 in the US. In March, El-Erian asserted that the cost of the Federal Reserve’s actions was starting to outweigh the benefits. In an interview with CNBC, El-Erian said the central bank should calculate how it can exit from its multi-trillion dollar QE2 program. Federal Reserve Bank of St. Louis President James Bullard has said the central bank is “determined” to get monetary policy back to normal, confirming that policymakers could subtly adjust its plan by backing off early from QE2.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742