The Shifting Balance of Power between Shareholders and the Board: News Corp's Exodus to Delaware and Other Antipodean Tales

NOTE: The research in this Working Paper was subsequently published in the form of the following articles: (i) Jennifer G. Hill, "Subverting Shareholder Rights: Lessons from News Corp's Migration to Delaware", 63 Vand. L. Rev. 1-51 (2010) (available at http://papers.ssrn.com/abstract=1541644) (examining News Corp's shift in domicile from Australia to the United States as a case study, or natural experiment, to assess fundamental differences in traditional shareholder rights in the US, compared to other common law jurisdictions, such as the United Kingdom and Australia. The article also explores the lessons of News Corp's reincorporation for current US reforms increasing shareholder rights, and for the anti-reform claim that if shareholder empowerment were efficient, it would already have existed in the marketplace).

(ii) Jennifer G. Hill, "The Rising Tension Between Shareholder and Director Power in the Common Law World", 2010, 18 Corporate Governance: An International Review, pp. 344-359 (2010) special issue on Shareholder Activism (available at http://papers.ssrn.com/abstract=1582258) (examining key arguments in the US shareholder empowerment debate, and the increasing tension between shareholder and director power in common law jurisdications).

The balance of power between shareholders and the board of directors is a contentious issue in current corporate law debate. It also lay at the heart of a controversy concerning the re-incorporation of News Corporation (News Corp) in Delaware. News Corp has recently been the subject of intense media attention due its successful bid to acquire Dow Jones & Company. Nonetheless, News Corp's move to the US, which paved the way for this victory, was neither smooth nor a fait accompli. Rather, the original 2004 re-incorporation proposal prompted a revolt by a number of institutional investors, on the basis that a move to Delaware would strengthen managerial power vis-a-vis shareholder power. The institutional investors were particularly concerned about the effect of the re-incorporation on shareholder participatory rights, and the ability of the board of directors to adopt anti-takeover mechanisms, such as poison pills, which are not permissible under Australian law. It was this latter concern, which ultimately led a group of institutional investors to commence legal proceedings in the Delaware Chancery Court in UniSuper Ltd v News Corporation (2005 WL 3529317 (Del Ch)).

The News Corp re-incorporation saga highlights a number of important differences between US and Australian corporate law rules relating to shareholder rights, and provides a valuable comparative law counterpoint to the recent US shareholder empowerment debate. Other recent Australian commercial developments discussed in the article show a tension between legal rules designed to enhance shareholder power, and commercial practices designed to readjust power in favor of the board of directors. These developments are interesting because they demonstrate how some Australian companies have tried to create a de facto corporate governance regime, which mimics certain aspects of Delaware law.