Shareholder advisory firm Institutional Shareholder Services recommended that
New York Times
investors withhold votes for four directors at the publishing giant, citing complaints made public by Morgan Stanley fund manager Hassan Elmasry.
The ISS report, released Thursday, provides ammunition for Elmasry, whose fund holds a 7% stake in the publisher. Elmasry has launched a publicity campaign in favor of
dislodging the company's dual-class share structure, which preserves control in the hands of the Sulzberger family.
The report recommends separating New York Times' chairman and publisher roles, which are both held by Arthur Sulzberger Jr. He beneficially owns about 90% of the company's Class B stock.
"As chairman, Mr. Sulzberger presides over the board of directors; as publisher, he presides over the company's core business," said ISS. "Therefore, he is ultimately accountable to himself, both as chairman and as a Class B shareholder. Neither he nor other members of the management team is accountable to the company's Class A shareowners in any meaningful way."
While Class A shareholders of New York Times make up the vast majority of the company's shareholder base, they can elect only four of the company's directors. The remaining nine board members are elected by holders of the Class B shares, which are mostly owned by the Sulzbergers.
"Shareholders are left with few avenues through which to voice their opinion other than by withholding from Class A directors," ISS said in its report. "While we do not advocate removal of the Class A directors, we believe that a strong message to effect change is necessary."
The company responded to the report with a statement saying it was "disappointed" with its conclusions, but it said ISS' decision not to call for the complete removal of the Class A directors was "recognition of the high quality of our board members."
Criticism of the corporate governance practices at New York Times comes amid a period of uncertainty for newspaper publishers as consumers increasingly turn to the Internet for information. While New York Times has established a strong presence on the Web, it has not been able to monetize its digital assets in a way that makes up for the declines at its traditional print business.
Other newspaper publishers that don't use the dual-class share structure, such as
, have been put up for sale under pressure from impatient shareholders and amid deep cuts in editorial staffing.
New York Times' annual shareholders' meeting is scheduled for April 24. Last year, the Morgan Stanley fund, along with other large institutional holders T. Rowe Price and Private Capital Management, withheld votes for Class A directors. That stance resulted in an abnormally high 30% withhold rate.
"A 30% withhold vote is rare and should have sent a strong message to the board," says the ISS report. "While we recognize that the company has taken certain steps, it is arguable whether such steps were taken in response to shareholder pressure and if it indicates a need for continuation of such pressure."