Media giant News Corp. and an international group of institutional shareholders have settled a lawsuit concerning the company's poison pill takeover defense, according to an April 6 announcement by lawyers representing the shareholders. Groups such as the Connecticut Retirement Plans and Trust Funds and the Australian Council of Super Investors (ACSI), argued that the media company broke a promise to shareholders when it decided in August 2005 to extend its poison pill for another two years. In 2004, management, which sought-after shareholder approval to incorporate in Delaware, pledged that the company would refrain from activating a pill for more than 12 months without the prior approval of shareholders.

The settlement is great news on several fronts.

First, the New Corp. board will live up to its pledge to allow shareholders to decide if the pill stays in place. Many shareholders had relied upon this promise in voting on the company's proposal to switch its legal domicile from Australia to Delaware.

Second, the Delaware Court's decision to allow this lawsuit to proceed will make every board think twice before it seeks to back out of governance policies/guidelines that it has adopted in the past. The bulk of the governance reforms that have been adopted over the past several years, including dozens of policies calling for votes on future rights plans (poison pills), are found in these documents. If boards decide to ignore these policies, shareholders must resort to protracted battles to add similar provisions to the formal governing documents--the bylaws and the charter. Such a process would promote confrontation.

The significant collaboration by the Australian pension fund community and its international counterparts to hold News Corp. to its promise is probably one of the best examples to date of collective action by a broad range of global investors. In 2005, ISS recommended withholding votes on all the director nominees for a breach of trust with shareholders on the poison pill policy.

The settlement provides hope that New Corp. may be ready to improve its governance practices. We hope to see News Corp. follow up on this action by adopting more shareholder-friendly policies and practices. Please email us your thoughts about the News Corp. settlement at blog@issproxy.com.