First Super to sell News Corp on principle

The A$1.7bn Australian superannuation fund plans to divest all investments in the media company due to consistently bad corporate governance.

Scandal-ridden News Corporation has received another blow as Australia superannuation fund First Super revealed plans to divest all holdings in the business due to a lack of corporate governance, according to a company statement. 

Its holdings in the Rupert Murdoch-led business are worth around A$7 million (€5.5 million; $7.4 million) and are managed by a number of undisclosed fund managers with which First Super has a direct mandate. 

We decided to take his advice, which was – if you don’t like the company, don’t invest in it. I have to say that is a pretty extraordinary response, compared to other companies, to improving governance.

Michael O’Connor
First Super co-chair and investment committee chair

The Australian LP had repeatedly submitted proposals that called for News Corp to implement an independent chairperson and more independent directors, but they were ignored. 

The fund said the failure to take on the recommendations “meant that the inadequacies of the company’s governance structure would continue, and the risks that posed for investors were unacceptable.”

“This is the first time we have taken this sort of action,” First Super co-chair and investment committee chair Michael O’Connor told Private Equity International

“Normally we attempt to engage with company management on a constructive basis and we understand that appropriate reform on governance takes a bit of time. But in this case, when there were attempts by a number of institutional shareholders to reform the governance structure and that wasn’t successful at the AGM, and we took into account the comments of the executive chair of the company, it made it very clear they were not interested.”

“We decided to take his advice, which was – if you don’t like the company, don’t invest in it. I have to say that is a pretty extraordinary response, compared to other companies, to improving governance.”

In particular, First Super identified that the “outrageous” salaries received by News Corporation’s top executives were a direct consequence of the poor governance structure. The aggregate cash pay of the company’s top six executives last year was $65.5 million. 

O’Connor said, “Superannuation funds in Australia are continuing to be more active about their investments and holding fund managers and other bodies they invest with to a higher standard. At the end of the day, we are investing on behalf of ordinary working people and we have to be very responsible about what happens to their money.”

The move is in part comparable to that of some US pension funds that have responded to the December shooting massacre at a Connecticut elementary school in the US, in that First Super will divest on principle. The California State Teachers’ Retirement System’s investment committee in January unanimously approved a motion to divest from manufacturers that produce firearms deemed illegal by the state of California, PEI reported earlier. 

The move suggests pension funds are actively implementing corporate governance policies in their portfolios. The decision to divest from firearms manufacturers was inspired, at least in part, by CalSTRS’ existing policy for mitigating environmental, social and geopolitical risks. The policy includes 21 risk factors, including one labeled “Human Health” that requests managers to consider “long-term profitability from business exposure to an industry or company that makes a product which is highly detrimental to human health”.

First Super’s O’Connor commented, “What we are seeing worldwide is a trend and our fund and other superfunds in Australia are watching what is happening with pension funds throughout the world and their approaches to investing on principle and investing and supporting good corporate governance.”