New York Times Braces for Board Battle

"The Harbinger candidates are still under review, and in fact, our nominating and governance committee is planning to meet with each one of them," says Mathis. "We needed to file the preliminary proxy with the SEC in order to get the review process under way."

Mathis says the company's executives have met with Galloway twice to hear his views on its strategies. She says they also have met with or talked to every one of the company's top 50 shareholders within the last year.

Proxy Controversy

The company's refusal so far to include board nominees from its largest public shareholder in its proxy follows standard practice in corporate America, but it also evokes a recent controversy at the SEC over proxy access for shareholders.

Shareholder advocates argue that in at least some cases, public companies should be required to include competing nominees and other proposals from shareholders on their proxies. Otherwise, shareholders are left with little recourse to exercise their rights as owners, unless they can afford to hire a proxy solicitation firm.

"Anyone doing a proxy contest has to pay all the staggeringly expensive costs involved in sending their own proxy to all their company's shareholders," says Nell Minnow, a corporate governance analyst with The Corporate Library. "Public companies have to provide a list of shareholders to shareholders who request one, but they can provide it in whatever form they want. If they want to give it to you on index cards, they can, so shareholders are at a big disadvantage."

For the time being, the SEC has said it will allow companies to exclude proxy access proposals from shareholders.

For its part, Galloway's crew represents an imperfect harbinger for the expansion of shareholder rights at New York Times. He has a mixed record at best in delivering shareholder value in previous proxy fights, and Harbinger has a flawed record of its own when it comes to corporate governance. Meanwhile, New York Times has argued for proxy access for shareholders in the pages of its own flagship newspaper.

"As owners, shareholders should be able to nominate directors to a company's board when current representatives are failing in their fiduciary duties," wrote Gretchen Morgenson, a columnist with The New York Times, in October.

"A 2006 decision by the United States Court of Appeals for the Second Circuit in a case that the American Federation of State, County and Municipal Employees pension fund brought against American International Group(AIG Quote) opened the door to this," she added. "It essentially granted investors the right to submit proposals related to director elections that all shareholders could vote on. Before this decision, investors could only nominate corporate directors by mounting an arduous and expensive proxy battle."

Gary Lutin, an investment banker who runs a corporate governance forum, says proxy access would do little to help shareholders exercise ownership rights.

"The concept of proxy access sounds like fairness, but it really doesn't have much attraction to anyone who's actually familiar with the realities of getting a dissident director elected," says Lutin. "All it does is save the nominator a few hundred dollars on the first round of communication, and if someone considers that important, he's probably going to be in for some very ugly surprises when he has to respond to management's regulatory and propaganda challenges."

Minnow credits New York Times with recently becoming the first public company with a dual-class share structure to adopt a majority vote standard, which requires any of its nominees to the board to receive support from at least 50% of the vote at its annual meeting. That makes it easier for the company's shareholders to effectively withhold support from a director.

"They've already been influenced," says Minnow. "Being a dissident shareholder is often about losing the battle and winning the war. The issue is not whether a dissident nominee goes on the board or not. The issue is whether they can influence the board by bringing its shortcomings to people's attention."