Paper Tigers: NYTCO Shareholders Rebel, Want Structural Changes

A surprisingly large number of New York Times Co. shareholders withheld their votes in the annual election of the company's 13-member board of directors on Tuesday to protest the company's dual-share structure, which allows the Ochs-Sulzberger family to maintain a management monopoly.

Forty-two percent of shareholders withheld their vote--a big increase from last year's election boycott, when 28% withheld their ballots. Despite the growing dissent, the Ochs-Sulzbergers seem determined to hold on to the existing share structure, which allows them to elect nine board members, versus just four for regular shareholders.

In an official statement from NYTCO, chairman Arthur Sulzberger Jr. said he sympathized with shareholders dissatisfied with NYTCO's lagging stock price. But he promised it could be remedied without leveling the share structure, thereby giving regular shareholders an equal voice in management elections. "We understand shareholder frustration as reflected in today's vote. At the same time, many shareholders have expressed to us that we are pursuing the key actions needed to improve performance and returns to shareholders," said Sulzberger.

From a high of $26.25 in February, NYTCO stock sunk to just above $23.83 by close of business Tuesday, a 9.2% drop. The stock's performance won't be helped by the company's weak first-quarter results, released last Thursday. They showed print ad revenue declining 3.4%, compared to the same period last year, as total profit fell 9.9% to $54.5 million. Internet revenue rose 21.6%--but this marks a slowdown from total annual growth of 39% in 2006.

The vote boycott followed almost two years of public criticism of NYTCO management by Hassan Elmasry, a Morgan Stanley Investment Management fund manager based in London. He has advocated boycotts both last year and this year as a way for shareholders to register their dissatisfaction. Morgan Stanley owns about 7% of NYTCO's "Class A" shares, which confer less voting power than the "Class B" shares owned by the Ochs-Sulzbergers. The Ochs-Sulzbergers own about 89% of the Class B shares and 19% of the Class A shares.

Elmasry also suggested in a letter to the NYTCO board that the dual-class share structure was being abused "to entrench [Ochs-Sulzberger] family control and employment." In February, the Ochs-Sulzbergers retaliated by withdrawing their personal investments from Morgan Stanley management.

This year, Elmasry was joined by Institutional Shareholder Services, which advises organizations that hold stock in major companies. In a letter to clients released earlier this month, ISS wrote: "Shareholders are left with few avenues through which to voice their opinion other than by withholding from Class A directors."

ISS was careful to note that it did not advocate the removal of any of the Class A directors. Members of the Ochs-Sulzberger family, however, were fair game. ISS pointedly observed that Michael Golden, NYTCO vice-chairman and a family cousin, "is among the most highly compensated executive officers of the company," yet isn't accountable to NYTCO shareholders.

Brushing aside his family's role in Tuesday's boycott, Sulzberger focused on its approval of the four directors elected by Class A shareholders following the annual meeting: "Institutional Shareholder Services, a proxy governance firm, said in a recent report that it did not advocate removal of the Class A nominees, and we are very pleased that our directors have agreed to remain on the Board."

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