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New York Times Braces for Board Battle

Outside shareholders are turning up the heat at the family-controlled publisher.

The Ochs-Sulzberger family managed to cling to their control over the

New York Times

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last year, but they may not be able to keep dissidents off the publisher's board of directors this time around.

Scott Galloway of investment firm Firebrand Partners, with financial backing from activist hedge fund Harbinger Capital Partners, has hired D.F. King, a proxy solicitation firm, to press its case with New York Times shareholders in the lead-up to the company's annual meeting on April 22, according to a source familiar with the matter.

Meanwhile, a consortium of investors including Harbinger -- already the company's largest nonfamily shareholder -- have been adding to their stake. The firm disclosed in a regulatory filing late Monday that it has lifted its ownership in New York Times to 19% of shares outstanding from 16% -- giving it a stake on par with that of the Ochs-Sulzbergers.

Galloway has said in regulatory filings that he plans to nominate himself, along with three others, to represent public shareholders on The Times' board and push the struggling publisher in a new direction.

For its part, the company has nominated its own directors for Class A shareholders in a preliminary proxy filing with the

Securities and Exchange Commission

and hasn't included the Harbinger nominees. It pressed shareholders to spurn overtures from Galloway and his partners.

"Our Board of Directors unanimously recommends a vote for the election of each of our Board's nominees on the enclosed white proxy card and urges you not to sign or return any proxy card that you may receive from Harbinger," said Times chairman Arthur Sulzberger Jr.

Sulzberger's family controls the company through a dual-class share structure. Its members effectively hold all the company's Class B shares, which have the voting power to elect nine of the 13 directors on its board even though they amount to a tiny slice of the company's shares outstanding.

The Class A shares, which are mostly owned by the public, elect just four directors. Such arrangements are common in the media industry, where moguls like to shelter their long-term editorial mission from the short-term whims of Wall Street.

Outsider Influence

Last year, Morgan Stanley Investments fund manager Hassan Elmasry urged shareholders to vote against the company's Class A nominees to its board in support of his campaign to abolish the dual-class structure. Roughly 42% of the public shareholders voted to withhold support, marking an increase from the 30% that voted against the company last year.

The results amounted to a rebuke to the Times from its institutional shareholder base. But the Class B shareholders were unanimous in their support for the company's nine Class B directors, rendering Wall Street's revolt against the company's corporate structure as little more than a symbolic gesture. Last fall, Elmasry gave up and sold his firm's 7.2% stake in the company.

Now, Galloway has picked up where Elmasry left off. While he's not supporting an end to the company's dual-class share structure, he is proposing dramatic changes in the company's strategic direction that likely would include a sale of what he considers noncore assets, like

The Boston Globe


Unlike Elmasry, Galloway's investment group isn't a long-term holder of Times shares. His backer, Harbinger, began accumulating its stake in December. Also, its position in the company is much larger than Elmasry's, and it's growing, suggesting that Galloway and his partners smell blood. Shares of the publisher are up 11.7% so far this year, despite a sharp deterioration in the company's outlook amid a crushing economic downturn for newspapers.

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A spokesman for Galloway declined to comment for this story. A spokeswoman for The New York Times, Catherine Mathis, would not rule out a change in the company's preliminary proxy filing to include the Harbinger nominees.

"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

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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."