October 2, 2022

DealBook: Murdoch’s Board Stands By as Scandal Widens

Rupert Murdoch's News Corporation has been under fire since a phone hacking scandal erupted in Britain.Facundo Arrizabalaga/European Pressphoto AgencyRupert Murdoch’s News Corporation has been under fire since a phone hacking scandal erupted in Britain.

The board of the News Corporation might as well be named “Friends of Rupert.”

The independent directors — who have a fiduciary responsibility to the company’s shareholders — have remained silent amid the widening scandal at Rupert Murdoch’s media empire.

Despite multiple arrests stemming from the phone hacking accusations so far, not one independent board member has made a statement denouncing the company’s dubious activities. Not one has publicly called for the resignation of top officials at the company. And not one has pushed for an outside investigation, although the company has started its own.

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“This is a board that qualifies for an ‘F’ in every category,” Nell Minow, a member of the board of GovernanceMetrics International and founder of the Corporate Library, a governance firm, said without any hesitation. “It is the ultimate crony board.”

A spokeswoman for the News Corporation declined to comment.

Given the Murdochs’ tight rule over the company, crossing the family might seem futile. In reality, its directors serve at the pleasure of Mr. Murdoch, since the company was purposely set up with a dual-class stock structure that gives him 38 percent of the votes. (The New York Times Company also has two classes of shares.) Legally at least, the News Corporation directors are supposed to serve the interests of all shareholders.

Of the 16 board members, nine are technically considered independent. But few would truly qualify under any definition of good corporate governance.

One supposed independent voice, Kenneth Cowley, is a former News Corporation executive who has been on the board since 1979. Natalie Bancroft, an opera singer, was named to the board when the company acquired Dow Jones, mainly as a way to way to placate its former owners, the Bancrofts. Incidentally, the News Corporation picked Ms. Bancroft.

That’s not to say the company board doesn’t include some heavyweights — if they ever decide to use their muscle. There’s John Thornton, the former president of Goldman Sachs; José Maria Aznar, the former prime minister of Spain; Viet Dinh, a professor at Georgetown University and former assistant attorney general under President George W. Bush who helped draw up the Patriot Act; Sir Roderick Ian Eddington, the former chief executive of British Airways; and Thomas J. Perkins, the billionaire venture capitalist who co-founded Kleiner Perkins Caufield Byers.

But those directors, too, have not criticized management — even Mr. Perkins, who knows a thing or two about phone hacking. In 2006, he stepped down from the board of Hewlett-Packard during a “pretexting” scandal in which the company secretly obtained the telephone records of reporters. At the time of his resignation from H.P., Mr. Perkins wrote to the board, “I resigned solely to protest the questionable ethics and the dubious legality of the chairman’s methods.”

So it is somewhat surprising that Mr. Perkins defended the News Corporation top management in an interview with The New York Times on Monday.

Fred Tannenbaum, a lawyer at Gould Ratner who specializes in governance issues related to family-run companies, said, “You have to expect that the directors are carefully reading their D.O. policies,” referring to the insurance policies that companies take out to protect directors and officers from civil and criminal lawsuits. He said that the News Corporation board “allowed the fox to guard the chickens.” Yes, the pun, he said, was intended.

Governance experts say that the board should at the very least develop, if not publicly articulate, a succession plan. As James Murdoch seems to have been increasingly pushed to the sidelines, speculation is emerging that the board may ultimately name Chase Carey chief executive.

The meekness of the company’s directors has been questioned by shareholders before.

“The fact that the board has been so passive despite years of misconduct is a testament to how lacking in independence its members are from the Murdoch family. This has led to a ‘Murdoch discount’ in the marketplace,” a small group of shareholders wrote in a lawsuit earlier this year. The investors are suing to block Mr. Murdoch from acquiring Shine, a production company run by Mr. Murdoch’s daughter, Elizabeth, who is now a News Corporation board observer and, before the recent scandal, was expected to formally join the board.

It is hard to argue with the shareholders about the “Murdoch discount.” Over the last five years, the company’s stock has fallen precipitously after a series of strategic missteps that appeared to be more about indulging Mr. Murdoch’s personal interests than helping the company.

The acquisition of Dow Jones is, mathematically at least, an unmitigated disaster. The News Corporation has written off $2.8 billion of the acquisition, or nearly half the value of the deal. For a brief moment, Mr. Murdoch’s acquisition of MySpace seemed genius — then it didn’t. He paid $580 million in 2005 and sold it last month for slightly more than $30 million.

The stock continues its decline today. As the scandal has unfolded, shares of the company have dropped 7 percent in the last month.

In an effort to placate shareholders, the company announced on Monday that it had named Lord Grabiner, a commercial lawyer, to head an “independent” committee to address the myriad government investigations.

But there should be an asterisk next to the word “independent.” Lord Grabiner will report to Joel Klein, the former assistant attorney general in the United States Justice Department. Despite that solid credential, Mr. Klein is now an employee and director of the company. Mr. Klein, in turn, will report to Mr. Dinh, the “independent director.” And there’s one more footnote: the committee’s only mandate is to deal with the newspapers in Britain, not the rest of the company.

Somewhat sadly, the News Corporation has a history of setting up independent committees that do little more than provide cover for Mr. Murdoch.

When it acquired Dow Jones, it pledged to create an editorial oversight committee to keep Mr. Murdoch from trying to install his own people at The Wall Street Journal. However, within a year of the takeover, Mr. Mudoch had negotiated a hefty payout for the paper’s top editor, Marcus Brauchli, in exchange for his resignation. Mr. Murdoch then tapped his own editor, a longtime friend from the News Corporation.

It’s no secret that buying shares of the company is a direct bet on Mr. Murdoch. After all, he controls it lock, stock and barrel.

But the role of the board — even for a company controlled by a family dynasty — is to provide a modicum of oversight. Now is the time for its directors to try to be “Friends of Investors.”

Article source: http://feeds.nytimes.com/click.phdo?i=b67d77488b531980ac4f149571573ae3

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