VOTE NO AT NEWS CORPORATION The Comptroller’s Office recommends that the NYC Funds vote against 9 of 15 directors at News Corporation’s annual meeting scheduled for October 21, 2011. The directors include insiders David Devoe, James Murdoch, Lachlan Murdoch, Rupert Murdoch and Arthur Siskind, and outside directors Natalie Bancroft, Viet Dinh, Roderick Eddington and Andrew Knight. Because News Corp’s dual class share structure effectively insures all directors will be re- elected, the objective is to send a strong message regarding the need to reconstitute the board. We note that the five NYC Pension Funds collectively hold shares valued at $95 million, only a small portion of which – held by BERS, Fire and NYCERS –have voting rights. News Corp Holdings at 10/12/11 close Voting Non-Voting Total BERS $ 155,610 $ 1,906,889 $ 2,062,499 Fire $ 134,235 $ 5,934,008 $ 6,068,243 NYCERS $ 518,985 $ 33,220,307 $ 33,739,292 Police $ - $ 18,326,036 $ 1,071,698 TRS $ - $ 34,913,925 $ 2,041,750 Total $ 808,830 $ 94,301,165 $ 95,109,995 Summary The growing phone hacking scandal and resulting corporate crisis at News Corp. are ultimately the consequence of a weak board that failed to exercise independent oversight of management over an extended period. The board had ample red flags over the past five years regarding improper practices not unlike those in the current scandal, including multiple payouts totaling $655 million to settle litigation alleging hacking, corporate espionage and anticompetitive behavior at a US subsidiary (New York Times, 7/17/11). There is broad consensus among investors that the root of the problem is that the board is dominated by directors with strong ties to Chairman and CEO Rupert Murdoch. Seven of fifteen directors are family members or insiders. In addition, many of the eight outside directors the company classifies as independent also have historical financial ties to the company. Longstanding board independence and oversight concerns are further evidenced by: • egregious executive pay practices, as reflected in a “F” pay rating from independent advisor Glass Lewis in 2009 and 2010, and a “D” for 2011; • pervasive director conflicts of interest; • related party transactions between News Corp. and other entities also controlled by Rupert Murdoch; and • an “F” rating on ESG risk from independent advisor Governance Metrics International, which also recently placed News Corp on its list of 10 riskiest companies. As independent proxy advisor ISS summarized in its October 7 recommendation to vote against 13 of 15 directors at this year’s annual meeting, “While this scandal is perhaps the most visible and severe example of the failure of board stewardship, it is part of a mosaic of failures of board independence, oversight, and responsiveness to shareholder concerns stretching back at least to 2004, when the company reincorporated from Australia to Delaware.” Background on the Scandal News Corp has come under intense media spotlight since July 2011 when its UK newspaper, News of the World, was accused of hacking into a family’s voicemail after their 13-year-old daughter went missing. The company has since been plagued with accusations of various sorts, government investigations in both the UK and US, and lawsuits. These pose significant legal, financial and reputational risks to the company and its shareholders. Over 60 claimants, including members of the Royal family, former British Prime Minister Gordon Brown, celebrities, and families of slain soldiers in Iraq and Afghanistan, have accused the company of hacking into their phone lines. Some of this was purportedly done using private investigators and/or bribing police officers. Both Chairman and CEO Rupert Murdoch and his son, James Murdoch, denied knowledge of phone hacking in testimony before Parliament, although reporters have since testified that James Murdoch knew that hacking was widespread at the company. In his testimony, Rupert Murdoch, the highest ranking individual both in management and on the board, said he was not ultimately responsible for the phone hacking. As ISS observed, “the most striking aspect [of his testimony] may be the inadvertent admission that there is, in fact, little accountability at the top of the company for either the ethical tone or the management of reputational risk.” Numerous lawsuits for breach of fiduciary duty have been filed against the company. A suit filed by the Amalgamated Bank alleges that the Board knew of hacking by its subsidiaries as long as a decade ago. In addition, bowing to public pressure in the UK, the company dropped its bid for British Broadcasting Group (BSkyB), costing the company and shareholders $63 million in breakup fees. The company was also forced to shut down its News of World publication. Investigations have also spread to the U.S. after a former NYPD officer said efforts were made to get phone records of September 11 victims. The FBI is investigating. The U.S. Department of Justice is also investigating possible violation of the Foreign Corrupt Practices Act. Subsidiary, News America Marketing Group, located in San Francisco, is being investigated for anti-trust activities after its competitor, Floorgraphics, accused it of hacking into its computer system. The board’s failure to conduct a fully independent investigation into the allegations has exacerbated investor concerns. Instead, the company established an investigatory committee that is chaired by Joel Klein, a recent addition to the executive team and board who reports to CEO Rupert Murdoch. As a result, Glass Lewis “question[s] the reporting structure of the committee and its lack of independence from the company’s management.” The board has also failed to hold senior executives accountable. Executives left the company after being arrested (at least 9 arrests, including executive editor, Neil Wallis) or through public pressure to quit (such as Chief Executive Rebekah Brooks, who was later arrested). As GMI concluded, “The Board has failed to take strong and decisive action in relation to senior executives over the phone hacking scandal.” Proxy Advisor and Investor Response Reflecting the seriousness of the board independence and oversight concerns, the three US proxy advisors (ISS, Glass Lewis and Egan Jones) are recommending that shareholders vote against multiple director nominees, as is UK-based advisor PIRC (see table below). Because News Corp’s dual class share structure effectively insures that all directors will be re- elected (the Murdochs own 12% of the company, but control 40% of the voting shares and Saudi Prince Alaweed owns another 7% of the voting shares), a growing number of US, European and Australian institutional investors have announced their intent to vote against directors in an effort to maximize pressure on the board. These include the Australian Council of Superannuation Investors (ASCI), which manages over $250 billion in assets, CalSTRS and Hermes. Comptroller’s Office Analysis and Recommendation There are clearly too many directors on the board who are either the children, employees or business associates of Chairman and CEO Rupert Murdoch. Equally if not more troubling are the outside directors on whom investors particularly rely. The compensation committee, comprised solely of “independent” directors, granted excessive CEO compensation. The nominating committee, also comprised solely of “independent” directors, perpetuated a board dominated by insiders and affiliated outsiders. And as a group, the outside directors failed to act independently to challenge management’s questionable business practices despite clear red flags. Given the extensive breakdown of board oversight and specific concerns with individual directors, there are compelling reasons to vote against all fifteen nominees, which is CalSTRS’ approach. However, we recommend a somewhat more targeted approach that focuses opposition on the nine nominees who we believe are either the most problematic insiders or the most culpable (based on tenure, committee roles and/or conflicts) or unqualified outside directors. While we believe the board should be entirely reconstituted under the leadership of an independent chairman, our objective is to send a clear message as to where reform must begin. The five insiders we recommend against include Chairman and CEO Rupert Murdoch, who as the leader of both management and the board bears ultimate responsibility for egregious and longstanding “tone-at-the-top’ and risk management failures; James Murdoch and Lachlan Murdoch, given their familial ties to CEO Rupert Murdoch; Arthur Siskind, senior advisor to Rupert Murdoch and the company’s general counsel from 1991 to 2005, a period that includes incidents of alleged phone hacking; and David Devoe, given his role as CFO. As Glass Lewis notes, “the unique financial information and control over a company’s finances that is typical for a CFO should place the CFO in a position of reporting to and not serving on the board.” The four outsiders we recommend against include Natalie Bancroft, Viet Dinh, Roderick Eddington and Andrew Knight. Ms. Bancroft is a 31-year old opera singer with “limited, if any relevant experience to board service,” as Glass Lewis notes; she was named to the board as part of the acquisition of Dow Jones from the Bancroft family. Mr. Dinh has seven years’ tenure and bears particular responsibility given his role as chair of the nominating committee and member of the compensation committee. Mr. Knight is a former executive and the longest serving