News Corp and the Murdochs have had a rough couple of months, to say the least. The media conglomerate’s leadership has claimed innocence amidst growing evidence that the hacking of thousands of people’s phones by News of the World was discussed by the paper’s top editors. No matter how much the Rupert and James Murdoch knew of the practice, they are at least partially to blame for the company’s problems thanks to questionable appointments they made to News Corp’s board of directors.
NASDAQ, where the firm’s stock is listed, requires a majority of board members to be independent. Technically, News Corp complies with this requirement. But in reality, six of the nine claimed independent directors have close ties to the company and it’s CEO, according to the New York Times. Among them are three former chairmen of News Corp subsidiaries, a member of the Bancroft family who made a fortune off News Corp’s purchase of Dow Jones, and the godson of Lachlan Murdoch, Rupert Murdoch’s eldest son.
“They have nothing that looks like arms length,” professor of finance Kathleen Hagerty said of News Corp’s board. “If you go to the board of GE, they have people like the president of MIT and CEOs of other major corporations. They have a lot of other things going, so they don’t really owe GE anything.” GE’s wealth of independent directors brings different perspectives to the board, allowing the firm to tap talent and ideas it may not have internally.
News Corp’s board, on the other hand, is stacked with internal directors and people who are indebted to Rupert Murdoch to some extent. That so many are currently or were previously employed by the firm means they are steeped in the News Corp “way”. “They’re not providing much outside perspective,” Hagerty said. On top of that, most directors have something to thank Rupert Murdoch for, whether that be a job, a tidy fortune, or both. “They owe him,” she added, “so it’s a little harder to be honest.”
Poor governance is apparent in the way the company has handled the hacking scandal, Hagerty said. “I don’t know how much attention the phone hacking got at the board level, but the way that they’ve handled it with internal people investigating it suggests poor judgement. They’re not getting enough outside advice,” she said. “If they had somebody else on the board who was a bit more independent, that would have helped them.”
Photo by World Economic Forum.