Australian pension funds and governance groups have criticised the share voting powers that allow Rupert Murdoch to control News Corp, as a secret legal case over the future control of the company is heard in the US state of Nevada.
The push to untangle News Corp’s structure, which allocates different voting rights according to share type, is being driven by agitators trying to loosen the billionaire’s grip over the media empire and stop that influence being passed to his heirs.
Murdoch has been in Nevada for hearings this week, after seeking to change the terms of a family trust to ensure that his eldest son, Lachlan, remains in charge of the company’s stack of newspapers and television networks, including the Wall Street Journal and Fox News.
The proceedings prompted the US hedge fund Starboard Value to propose a resolution to eliminate News Corp’s dual class share structure, arguing that the political disagreement in the family “could be paralyzing to the strategic direction” of News Corp, according to The New York Times.
Dual structures are commonly used by company founders to retain control of a business even when they have a minority shareholding, with Murdoch holding 40% of voting rights via a 14% shareholding.
Debby Blakey, the chief executive of the A$86bn Hesta superannuation fund, told Guardian Australia that “one share, one vote” was fundamental to good corporate governance.
She said the fund’s “engagement, voting and advocacy activities continue to reflect this belief”.
“Hesta remains committed to engaging with companies and using our shareholder votes to drive change that helps create long-term investment value for our members,” Blakey told Guardian Australia.
The Australian Council of Superannuation Investors said it also supported a “one share, one vote” capital structure.
“Voting is a fundamental shareholder right and one of the key ways for shareholders to ensure accountability at listed companies,” ACSI said.
While challenging News Corp’s dual share structure has become a semi-regular event, reform advocates including Hesta have previously come close to dismantling the system that gives Murdoch his voting authority.
The Starboard resolution is non-binding and it is unclear whether it will trigger a shareholder vote at News Corp’s next annual general meeting.
News Corp told shareholders in response to the proposed resolution that the company had thrived under the current structure which allowed it to respond to major changes in consumer behaviour.
“The board believes that the company’s dual-class capital structure promotes stability and has facilitated the successful implementation of News Corp’s transformational strategy and long-term outperformance for all News Corp stockholders,” the company said.
How do the Murdochs retain power?
The Murdoch family’s hold over News Corp stems from a share structure consisting of voting and non-voting shares that gives the family a dominant voice over how the business is run.
Starboard’s bid to eliminate the dual structure, and with it the Murdochs’ control, would require the overwhelming support of the remaining shareholders to reach a majority.
In 2016, agitators including Hesta fell just short after delivering a 49.5% vote to eliminate the dual class system.
The push by Starboard comes as Murdoch’s other adult children – James, Elisabeth and Prudence – oppose the move to change the terms of an irrevocable family trust to give Lachlan full control.
While the three would still receive equal shares of profits, the changes would prevent them from exerting influence over how the companies are run in a move designed to retain the company’s conservative voice.
The proceedings and most of the court files are confidential.
What do other billionaires do?
Mark Zuckerberg controls 61% of Meta Platforms via a 14% shareholding in the social media company that operates the Facebook and Instagram platforms, according to company disclosures.
Meta has a two-tiered system that gives shareholders one vote per “class A” share, and 10 votes per “class B” share. The billionaire chief executive owns more than 99% of class B shares.
Google has a similar structure that gives founders Larry Page and Sergey Brin a controlling 51% of voting rights of parent company Alphabet via a 12% shareholding.
Given Murdoch holds less than half of the voting rights, it is possible to change News Corp’s structure if agitators can gather an overwhelming protest vote. Doing so at Meta and Google can’t happen unless the founders support the changes.
Elon Musk said in January he wanted greater voting control at Tesla, but a dual structure would have needed to be implemented when the electric vehicle maker conducted its initial public offering in 2010, as per US rules.
Is the dual system common?
Several European countries, including Sweden, have long allowed dual, or differentiated, voting rights, while Australia does not.
Historically, differentiated voting rights have been used by media companies to ensure long-held practices could withstand the whims of large shareholders who might want to dilute editorial independence or cash in on assets for short-term financial gains.
For example, Starboard has previously argued that News Corp could unlock value by selling some of its assets; although the Murdoch family may view this as shortsighted.
Several large media companies, including Paramount Global, Comcast and The New York Times Company, have dual structures in place, while the existence of super voting stock in tech companies is a more modern trend.
There is growing pressure on stock exchanges to allow companies to list with weighted voting rights to stop companies, especially in the technology sector, from moving overseas.
The UK, Hong Kong and Singapore have all allowed forms of weighted voting rights in recent years to entice companies on to their bourses.
A spokesperson for the ASX said the Australian exchange was “open to considering their use in the future” in consultation with the market and corporate regulator.
“We appreciate there are diverse views on dual class shares from a range of stakeholders, including both company founders and investors, and it’s important to consider all views to ensure we continue to enable a fair and dynamic market in Australia,” the spokesperson said.
One of Australia’s most successful tech companies, Atlassian, is domiciled and listed in the US with a dual structure that allows its founders, Mike Cannon-Brookes and Scott Farquhar, to hold 87% of voting power.