Remove Murdochs from 21st Century Fox, says advisory firm

Shareholders in Rupert Murdoch's newly-formed entertainment company 21st Century Fox have been advised to vote against his re-election as chairman – and against the return of his two sons Lachlan and James to the board of directors – by a top proxy advisory firm, ahead of the company's first shareholder meeting next week.

International Shareholder Services was critical of the board's decision in May to implement a poison pill without a shareholder vote. It said any member that had previously been a director to the old News Corp, from which 21st Century Fox was formed, should be voted off the board, as a result.

The film and entertainment giant was separated from the publishing arm of Murdoch's News Corp earlier this year, and the two companies have been listed separately since June.

The companies were split to protect the profits of 21st Century Fox from the burden of News Corp's struggling newspapers and publishing companies.

The poison pill, which makes it difficult for a shareholder to buy more than a 15% stake, has been put in place for one year to prevent a hostile takeover of the family business. If a new investor did manage to buy a stake above this limit, existing shareholders would be able to buy any newly issued shares at half the price of the new shareholder.

The strategy has allowed Murdoch to maintain his 40% of the voting shares in both News Corp and 21st Century Fox at the lower rate, but ISS said the poison pill had shifted the balance of power between the board and the shareholders.

Although it was in favour of a clear out of members who had previously sat on the board of the old News Corp, ISS supported newly-appointed board members, including LVMH next-gen Delphine Arnault.

However, a 21st Century Fox spokesman told Reuters in an email: "ISS proxy analysis is completely out of touch with reality given the incredible value created under the leadership of 21st Century Fox's returning director nominees."

It also said the former News Corp's slow response to the phone hacking scandal at UK newspaper the News of the World in 2011 may concern some 21st Century Fox shareholders.

ISS's recommendations are a change of heart from last year, when it supported the re-election of Murdoch as chairman of the board, even though the storm caused by the phone hacking affaire had already erupted.

The shareholder meeting is scheduled for 18 October.