April 24 (Bloomberg) -- New York Times Co. shareholders, led by Morgan Stanley, withheld 42 percent of their votes from directors to protest the Sulzberger family's control over the company.

An average of 52.5 million of the 124.2 million shares voted declined to support the directors' re-election, the company announced on its Web site following the annual shareholder meeting in New York.

The withhold tally compared with 28 percent at last year's meeting, which marked the beginning of a yearlong campaign by Morgan Stanley. The firm and it supporters, concerned about falling profits and a slumping share price, complained that New York Times' two classes of stock give shareholders too little say in the company. Chairman and Publisher Arthur Sulzberger Jr. should give up one of his roles, they said.

The vote ``is a clear mandate for meaningful change,'' Morgan Stanley said in a statement. ``The withhold vote this year is significantly higher than last year and is an emphatic call for accountability.''

The Sulzberger and Ochs families own Class B shares, which allow them to appoint nine of the company's 13 directors. Class A shareholders voted on the remaining four today.

Class A shares of New York Times, which owns the namesake newspaper and Boston Globe, fell 21 cents to $23.77 at 4 p.m. in New York Stock Exchange composite trading.

`Won't Bend'

``We understand shareholder frustration as reflected in today's vote,'' Sulzberger said in a statement released after the meeting. ``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.''

Shares of New York Times have fallen 48 percent in three years. Net income fell 3 percent in 2004 and 13 percent in 2005, and the company posted a $543 million loss in 2006 after writing down the value of its New England publications. In the first quarter of 2007, profit dropped 32 percent.

``Rather than dismantling the dual-class structure, shareholders may be pushing instead for changes at the board and among top executives,'' said Robert McCormick, vice president at Glass Lewis & Co., a shareholder advisory firm in San Francisco. ``A more reasonable expectation is that New York Times separates the roles of publisher and chairman.''

The vote brought to a head a campaign by Hassan Elmasry, managing director of Morgan Stanley Investment Management. He first made his complaints public in April last year, sending a letter to the New York Times board criticizing its reliance on two classes of stock to maintain family control.

Last Year's Vote

Morgan Stanley, with 7.1 percent of the company, convinced T. Rowe Price Group Inc. and Private Capital Management to withhold their votes last year. The three holders combined now have about 31 percent of the Class A shares.

Shareholder advisory firms Glass Lewis and Institutional Shareholder Services joined the dissidents this year, helping increase the withhold tally.

Private Capital Management spokesman Chad Atkins didn't return calls for comment today. Yesterday he declined to discuss how the firm would vote. Neither would T. Rowe Price spokesman Brian Lewbart nor Steve Frankel, a spokesman for Elmasry.

Sulzberger said his family is ``firmly and unanimously committed'' to the company's two classes of shares.

`Full Knowledge'

``Anyone who purchased New York Times Company stock did so with full knowledge and understanding of how the company was structured,'' Sulzberger said in a speech at the meeting.

Filling the role of chairman and publisher ``allows me to balance the financial and journalistic needs of this institution,'' Sulzberger said.

Sulzberger defended the company's spending, which had been criticized by Elmasry. The $410 million purchase of About.com in 2005 helped buoy revenue growth and the company's $500 million investment on a new headquarters is now worth more than $1 billion, Sulzberger said.

Directors up for re-election by Class A shareholders today were Raul Cesan, Commercial Worldwide LLC managing partner; former Federal Communications Commission Chairman William Kennard; former Gillette Co. Chief Executive Officer James Kilts and Verizon Communications Inc. Chief Financial Officer Doreen Toben.

Dow Jones & Co., Washington Post Co. and McClatchy Co. also have two classes of stock.

Washington Post Chief Executive Officer Donald Graham defended the dual-class structure in an opinion piece yesterday in the Wall Street Journal. Supporting Morgan Stanley's campaign against the New York Times ``is to run crazy risks with the future'' of the New York Times newspaper, Graham wrote.

Supporting Shareholders

New York Times won support from Emigrant Bancorp, which bought its 4.4 percent stake in the fourth quarter and will vote for the directors, said John Hart, vice chairman of New York Private Bank & Trust, Emigrant's parent company.

Thyra Zerhusen, the Chicago-based manager of the $635 million ABN Amro Mid-Cap Fund, which owns 1.04 million shares, said she supports management.

``I did not buy the stock expecting the dual-class structure would be eliminated,'' Zerhusen said.

The Sulzbergers have controlled the New York Times for more than 110 years. Arthur Sulzberger Jr.'s great grandfather, Arthur Ochs, bought the New York Times in 1896.

``The Sulzbergers as a family are united, and if they're united about anything, it's that they're not going to let some folks at Morgan Stanley push them around,'' said Alex Jones, author of ``The Trust: The Private and Powerful Family Behind The New York Times.''

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net

Last Updated: April 24, 2007 16:10 EDT