N.Y. Times Control Challenged
Some Shareholders Want End to Two Classes of Stock

By Brooke A. Masters
Washington Post Staff Writer
Wednesday, April 19, 2006

NEW YORK, April 18 -- Disgruntled large investors withheld their votes Tuesday from the New York Times Co. slate of directors to protest a structure that keeps control of the board in the hands of the Sulzberger family.

Times Co.'s share price has dropped by more than 50 percent since its peak in 2002 and, according to the company's proxy report, has lagged well behind its peer group for the past five years.

On Tuesday, an average of 28 percent of the 129.3 million shares voted at the company's annual meeting withheld approval from each of four directors elected by holders of publicly traded Class A common stock, according to company spokeswoman Catherine J. Mathis. The other nine directors are elected by family-controlled Class B shares, even though their stake in the company is less than 1 percent.

The company's fourth-largest shareholder, Morgan Stanley Investment Management, which holds 5.6 percent of the Class A shares, issued a public statement calling for the elimination of the dual-class system.

Hassan Elmasry, portfolio manager for Morgan Stanley's Global Franchise investment program, said in a statement that the two classes of stock should be combined to "provide equal rights, voting power and representation for all shareholders." The statement said, "This will ensure that the company's owners are able to hold the Board and management accountable for the company's performance."

Other large investors, including Vanguard Group Inc., Fidelity Investments and T. Rowe Price Group Inc., declined to say how they voted.

Mathis declined to comment further.

Company Chairman Arthur Ochs Sulzberger Jr. has drawn increasing criticism for building a new headquarters and for investing in such things as the Boston Red Sox and the Internet company About.com. At the same time, the flagship newspaper has endured a series of controversies over its failure to stop junior reporter Jayson Blair from plagiarizing and for its discredited coverage of Iraq's weapons capabilities.

The company also has been criticized for pay increases it gave top executives while its stock performance has been lackluster. Sulzberger received cash and stock compensation of more than $2.4 million, plus options valued at $765,000, in 2005. The $3.2 million total was an increase of more than 14 percent over 2004.

He succeeded his father, Arthur Ochs Sulzberger, as chairman in 1997. His great-grandfather, Adolph S. Ochs, bought a controlling interest in the Times in 1896.

Of 10 research analysts who follow the New York Times Co., seven recommend holding it, one recommends selling it and two recommend buying the stock, according to Zacks Investment Research.

The New York Times is the third major media company to be challenged by activist shareholders in the past year. Time Warner Inc. faced off with corporate raider Carl C. Icahn over its handling of its AOL Internet subsidiary in February, and investors, led by Private Capital Management, forced the sale of Knight Ridder Co. in March. Private Capital Management is the New York Times Co.'s largest public shareholder. Its spokesman did not return a phone call yesterday.

Dual-class voting systems are not uncommon in media companies, where they were often viewed as a way to fight off takeovers and preserve editorial independence. The Washington Post Co., Dow Jones & Co. and Rupert Murdoch's News Corp. all give additional weight to family-controlled shares.

But dual-class systems have been under fire in recent years. Reader's Digest Co. dismantled its system in 2002 after pressure from large shareholders. Institutional Shareholder Services Inc., which advises pension funds and mutual funds on proxy issues, generally opposes two-class systems as "extremely disenfranchising from a shareholder perspective" and supports shareholder proposals to eliminate them, said Cheryl Gustitus, a spokeswoman.

"Dual-class structures today are really problematic," said Charles M. Elson, director of Weinberg Center for Corporate Governance at the University of Delaware. "Combine that with performance issues and pay issues, and bingo, you've got the recipe for dissent."

Washington Post Co. spokeswoman Rima Calderon said the company is not aware of any efforts to withhold votes from directors or change The Post's governance structure.

The New York Stock Exchange allows companies with dual-ownership structures to list their stock on the exchange but bars them from issuing additional stock in a second class that would dilute the voting power of public stock holdings.

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