Subverting Shareholder Rights: Lessons from News Corp.'s Migration to Delaware
Hill, Jennifer G., Vanderbilt Law Review
This Article critically analyzes News Corp.'s reincorporation in Delaware against the backdrop of two major contemporary corporate governance debates relating to shareholder empowerment and convergence theory. Legal scholars opposing greater shareholder power often argue that the lack of shareholder participatory rights under U.S. law provides evidence that such rights are neither desired nor valued by investors. Also, an underlying assumption of convergence theory is that a unified "Anglo-American" model of shareholder protection exists, suggesting that shareholder rights are similarly restricted throughout the common law world.
This Article challenges both these assumptions by means of a detailed case study of News Corp.'s migration from Australia to Delaware. News Corp.'s original reincorporation proposal prompted a revolt by a number of institutional investors, who argued that a move to Delaware would strengthen managerial power and reduce shareholder rights. The institutional investors were particularly concerned about the effect of the move on the ability of the board of directors to adopt anti-takeover mechanisms, such as poison pills, which are not generally permissible under Australian law.
This Article places News Corp.'s reincorporation in Delaware within the framework of contemporary corporate governance theory and debate. It also uses the reincorporation to highlight a number of significant, but underappreciated, differences between U.S. corporate law and the law of other common law jurisdictions. Specifically, this Article shows how News Corp.'s migration from Australia to Delaware effectively subverted shareholder rights. The News Corp. reincorporation, in sum, has significant implications for Delaware law generally, and for current shareholder empowerment developments in the United States.
[I]f there are sufficient basic similarities to make a comparison possible, there are, equally, sufficient differences to make it fruitful.
- L.C.B. Gower1
Convergence theory and shareholder empowerment represent two major debates in contemporary corporate governance. A pervasive underlying assumption in these debates is that a high level of corporate governance homogeneity exists within the common law world in relation to shareholder rights. This Article challenges that assumption through a detailed case study of the decision by News Corporation ("News Corp.") to move from Australia to Delaware. As events surrounding News Corp.'s reincorporation illustrate, although there are undoubtedly basic similarities between corporate law in the United States and in other common law jurisdictions, there are also fascinating, but underappreciated, differences.
In late 2007, News Corp. became the subject of intense media attention when it successfully acquired Dow Jones & Company ("Dow Jones"), publisher of the Wall Street Journal, and brought it under the aegis of News Corp.'s $70 billion global media empire.2 Nonetheless, News Corp.'s migration to the United States from Australia, which paved the way for this victory - a victory that appears increasingly Pyrrhic3 in the light of the global financial crisis'4 - was neither smooth nor a fait accompli. Rather, the original 2004 reincorporation proposal prompted a revolt by a number of institutional investors concerned that the move to Delaware would significantly diminish shareholder rights. The institutional investors attempted to respond to this threat by demanding that News Corp. make certain concessions preserving existing shareholder rights under Australian corporate law. As this Article demonstrates, however, the protection embodied in these concessions was later effectively subverted by a variety of means.
The News Corp. reincorporation saga highlights some important differences between current U.S. and Australian corporate law regimes. Specifically, the reincorporation shows how shareholder rights were reduced as a result of these differences. …