What Did Starboard Value Gain by Picking a Fight Over Voting Rights With News Corp?

Last month, Starboard Value lost a proxy fight with News Corp NWSA, in which Starboard had proposed collapsing the media giant’s two share classes into one and giving each share in the company a single vote.

The proxy process encourages investor vigilance and creates a marketplace for good governance practices. Proxy outcomes give a temperature read of shareholder sentiment on corporate governance practices, when looked at in aggregate. Share structures that limit shareholder voice and obscure the proxy signal undermine the ability of this market to function well.

Equal voting rights are an issue at the heart of shareholder democracy. While Starboard lost the battle, its fight with News Corp may be a longer game that builds on the predictable shareholder discontent when boards fail to act on a majority-vote outcome.

One Share, One Vote Faces an Inherent Obstacle: Insider Voting Control

It seemed like an exercise in futility: The New York-based activist took on the outsize voting power of the Murdoch family with the legal equivalent of a foam sword—an advisory shareholder resolution.

As it happens, similar shareholder proposals, targeted at companies with unequal control rights baked into their capital structures, were voted at Alphabet GOOGL, Ford F, and Meta Platforms META in 2024 and at Lions Gate Entertainment LGF.A at the end of 2023. The difference for News Corp was that Starboard Value waged a formal proxy fight, circumventing the SEC’s 14a-8 (shareholder resolution) channel. Proxy fights are more commonly used to propose alternate nominees in a contest for board seats, which Starboard Value itself has done on several occasions over the years.

Immediately following the Nov. 20 vote, News Corp claimed victory: “convincingly defeating” the proposal. The company’s 8-K filing followed a day later with the official results, showing that only 35% of voted shares supported the motion.

The company’s present capital structure hands the aging Rupert Murdoch and his fractious prodigy—collectively the Murdoch Family Trust—41% of the voting power for a 14% stake in the company. This outsize influence is wielded via a share structure where only one class, Class B shares, can vote. Except on specific issues, like whether to liquidate the company, News Corp’s Class A shares have no voting rights: minority—or broad market—shareholders are simply along for the ride. Class B shareholders get one vote each. Although technically a minority, a 41% bloc of votes would almost always prevail in a corporate proxy fight.

Companies Outgrow the Need for Proxy Protections

The board’s proxy opposition statement ranged from something like “this is the way it’s always been” to “we should trust in the vision of our founder.”

But companies outgrow their need for proxy protections. News Corp is not newly listed and so can’t really claim to be a growth company whose founder’s vision needs shielding from the short-termism of the market for corporate control. In fact, it is presently undergoing a bumpy transition of power, which seems to support the need to dial back inside-family control. The potential for instability that often attends a changing of the guard within family dynasties directly challenges the News Corp board’s opposition to Starboard Value’s proposal.

No wonder then, that all proxy advisors polled in the news, including Morningstar Sustainalytics’ Stewardship Services, recommended a vote in support of recapitalization as a good governance measure. Moreover, when we dig into the numbers, we see that News Corp’s claim to victory is not as solid as its 8-K seems to indicate. We estimate that at least 64% of broad market shareholders (that is, not counting the 77.6 million Murdoch Family Trust shares) voted in support of the motion. Twice before—in 2015 and 2016—shareholder motions for a one-share, one-vote capital structure at News Corp were supported by a majority of nonaffiliated shareholders.

Unequal Voting Rights Stifle Investor Voice

In a forthcoming report, Morningstar Sustainalytics’ ESG Voting Policy Overlay team takes a deep dive into the actual impacts of unequal voting rights on vote outcomes in the 2024 proxy season. We find that this arrangement consistently overstates support for management on compensation votes and understates support for shareholders’ governance and sustainability proposals. It also limits how often shareholders get to vote to approve compensation arrangements—with insiders’ preference for a triennial vote typically winning out over the market preference for annual approval of pay practices. And, under more stringent enforcement of shareholder resolution resubmission thresholds, dual-class share structures may give insiders significant protection from shareholder resolutions via the 14a-8 process.

Investors Prefer Equal Voting Rights

Whereas some of the largest asset managers dialed back their support for sustainability in 2023 and likely again in 2024, BlackRock, Vanguard, Fidelity, and State Street unanimously supported the four aforementioned one-share, one-vote recapitalization resolutions.

In fact, the principle has broad support among investors. The Council of Institutional Investors, which represents US pension funds, foundations, and endowments, endorses the principle of one share, one vote. And a global collective of investors with USD 4 trillion in managed assets have formed the Investor Coalition for Equal Voting Rights to more formally advocate for reasonable sunsetting, post-IPO, of multiclass voting arrangements that entrench insider control. The acceptable grace period is generally considered to be seven years or less.

While Starboard Value lost the battle, its fight with News Corp may be a longer game that builds on the predictable shareholder discontent when boards fail to act on a majority vote outcome. Systemically, the result may grow the momentum of the investor movement for equal voting rights. Tactically, this case maps an alternate route to the proxy ballot for traditional shareholder proponents.