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Oct 02, 2011

Leading by example

‘Must do better’ is Janet Dignan’s verdict on governance standards at two of the world’s highest-profile media companies

Two old men (74 and 80), both media moguls, neither renowned for ethical standards. Both accused of criminality. Both busy men. Indeed, one has a country to run, the other a world to influence, mostly via newspapers and television channels.  

So we’re talking about Rupert Murdoch and Silvio Berlusconi. Much has been made of Murdoch’s papers’ trivialization of news, with help from semi-naked ladies and celebrity gossip. But serious financial comment focuses on his companies’ failures in corporate governance. And there’s been much hand-wringing about their senior managements’ close ties with members of government.

Berlusconi, on the other hand, doesn’t just have ties with the Italian government, he is the government. Well, the prime minister, anyway, so he has unbreakable ties with at least one senior member of the Italian government. And his peccadillos – naked women on the TV and in his bed – are an easy match for anything that appears in the Murdoch press.

Of course, there are numerous differences between the two men. But let’s look at how they run their businesses, the strengths and weaknesses of corporate governance at Mediaset and News Corp, just to get things in perspective. One difference between the two is that Berlusconi lives and runs his businesses in Italy, a truly wonderful country in so many ways (food, wine, landscape, art, architecture, history) but not one renowned for its adherence to high standards of incorruptibility in government or media. Further, although many would argue that Berlusconi has broken the law, he’s in the happy position of being above it – or at least having immunity from it – by virtue of the fact that he runs the country.

Murdoch, on the other hand, runs News Corporation, a family-dominated multinational media empire whose board is described by Paul Hodgson, senior research associate at GMI Ratings, as ‘almost the epitome of dysfunctional’. Many dislike Murdoch’s level of influence over public opinion and politicians but that very level of influence has given him the protection he’s needed.

IR magazine has now analyzed corporate governance at the two companies to see how they compare, by reference to our own de minimis standards (see below). Neither fares well, yet both have been free of shareholder action for change. The reason for that is simple: given the nature of control by the owners, resistance would be futile. The only unanswerable question is why anyone would want to own their stock.


IR magazine
’s de minimis corporate governance standards

- Corporate objective (CO): to optimize returns to shareowners
- Corporate disclosure (CD): accurate, adequate and timely, with an accessible IRO or equivalent, able to speak for senior management
- Voting rights (VR): one share, one vote for each ordinary share, with provision for in absentia voting. No dual classes of shareholders
- Corporate boards (CB): accountable to shareholders; at least 50 percent independent directors who should dominate audit, remuneration and audit committees; up for reelection on a regular basis
- CEO/chairman (CC): two different people
- Governance codes (GC): followed

Mediaset News Corporation
X CO: Multiple objectives X CO: Multiple objectives
CD: Tick-ish. Financial info provided on a timely basis. Names of IR people given on website but without telephone numbers: Simone Sole, head of IR; Sara Bersan, IRO; Massimiliano Cominelli, IRO; and Rossella Radice, IR assistant CD: News Corp provides financial information on a timely basis and this year said it would disclose its 2011 political donations in January 2012. The company lists three New York-based IR contacts on its website, with their direct phone numbers: Reed Nolte, senior vice president of IR; Joe Dorrego, vice president of IR; and Tsalem Mueller
VR: Technical tick: Mediaset does adhere to one share, one vote. But 38.98 percent of the shares are held by Fininvest (Silvio Berlusconi’s holding company) and 3.79 percent are held by Mediaset itself, so a vote against the board is, to all intents and purposes, meaningless. (And note: Fininvest itself has three Berlusconis on its board, out of a total of eight board members) X VR: News Corp has a dual-class voting structure, which means that, although the Murdoch family only owns 12 percent of the total shares outstanding, it has 39.7 percent of the voting shares
X CB: 15 directors, two called Berlusconi; eight executive, eight non-executive, only four of whom are described as independent X CB: There are 17 directors, three of them Murdochs. Nine are described as independent but include ex-Spanish prime minister José María Aznar, who was 50 percent owner of a consulting firm that worked for News Corp until 2006, and Rod Eddington, ex-chairman of Australian airline Ansett, which News Corp held a stake in until 2000
CC: Fedele Confalonieri is executive chairman; Giuliano Andreani is CEO. (But note: Pier Silvio Berlusconi, the prime minister’s son, is deputy executive chairman and is on the three-strong executive committee) X CC: Rupert Murdoch holds both positions and has done since the company’s formation in 1979
GC: Technical tick. Claims to be in line with the Borsa Italiana governance code X GC: GMI (which now encompasses ratings of predecessor firm the Corporate Library) currently rates News Corp’s governance ‘F’, its lowest grade. But as Nell Minow, co-founder of the Corporate Library, says, this is ‘only because there’s no lower grade to give’


This article appeared in the October print edition of IR magazine.

Janet Dignan

Janet Dignan is a graduate of Otago University in New Zealand, where she read philosophy. From 1979 to1982 she was head of information at Linklaters, with responsibility for internal and external information resources for its offices in London, Hong...
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