Some institutional shareholders of News Corp. are steaming mad over perceived board failures in corporate oversight revealed by the phone hacking scandal, but they are virtually powerless to compel any change.
That's because of the company's dual-class stock structure and the controlling shares held by Chairman and CEO K. Rupert Murdoch and his family.
“There is very little shareholders can do” to strengthen the News Corp. corporate governance, said Charles M. Elson, professor of finance and legal studies at the University of Delaware, Newark, and director of its John L. Weinberg Center for Corporate Governance.
Under News Corp.'s corporate governance structure, the 1.8 billion class A shares have no vote; only the 798 million class B shares have voting power. The Murdoch Family Trust, Reno, Nev., owns 38.4% of the class B shares.
Paul Hodgson, Portland, Maine-based managing director and chief communications officer of GovernanceMetrics International Inc., said, “While shareholders are free to suffer from a drop in the stock price because of the scandal, they really cannot do anything but sell the stock. They have no control over the board or the CEO.”
Still, some institutions are not taking it sitting down.
Anne Simpson, senior portfolio manager-global equities, at the $241.3 billion Sacramento-based California Public Employees' Retirement System, said in a statement, “News Corp. does not have one-share/one-vote. This is a corruption of the governance system. Power should reflect capital at risk. CalPERS sees the voting structure in a company as critical. The situation is very serious and we're considering our options. We don't intend to be spectators — we're owners.”
Others are taking a legal path in directing their anger over the apparent directors' breaches of fiduciary duty revealed in the News of the World newspaper phone hacking scandal.
The $700 million Massachusetts Laborers' Pension and Annuity Funds, Burlington, filed suit July 15 against Mr. Murdoch and the other News Corp. directors, seeking corporate governance reforms along with recovery of millions in losses caused by a breakdown of internal controls and the company's directors' breaches of fiduciary duty revealed by the scandal.
Michael W. Stocker, partner with the law firm Labaton Sucharow LLP, New York, said, “The bottom line here is Rupert Murdoch has turned board independence into a joke, and shareholders are paying the price.”