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Despite criticism Rupert Murdoch isn’t adapting his management style. At 80 years old, he continues to control his media empire with a tight grip. After all, his company, News Corp, although publicly traded, features a dual class share structure that allows Mr. Murdoch to effectively control director elections and other matters that are subject to shareholder vote, even though he does not own a majority of the company’s outstanding shares. By contrast, according to research from GMI, the corporate governance research firm, 92% of all major U.S. companies have adopted a simpler system of one class of common shares.
In practice, this means that even as public sentiment turns against Murdoch and investors raise questions about the company’s governance structure, Murdoch is able to practically guarantee seats for himself and his children on the company’s board.
At the company’s 2011 annual meeting of shareholders, which took place in Los Angeles last Friday, Mr. Murdoch told shareholders “We cannot just be a profitable company. We must be a principled company.”
In the wake of a series of scandals at News Corp, many investors have been saying the same thing. But, critics have also complained about the company’s governance structure, a message that Mr. Murdoch continues to dismiss. Critics have long complained that News Corp’s board may be unable to effectively challenge Mr. Murdoch and provide sufficient independent oversight. The company’s board currently includes five company executives and two Murdoch family members. Only seven of the company’s 16 directors lack longstanding ties to the company or the Murdoch family. Furthermore, the only two independent directors with media industry experience have both worked for News Corp companies during their careers. These two media-industry experts are 70 and 75 years old, respectively. From a corporate governance perspective, the fact that News Corp has not appointed an independent chairman to act as a counterweight to Mr. Murdoch in the boardroom is seen as a governance weakness.
At the meeting in Los Angeles, Julie Tanner, assistant director of socially responsible investing for Christian Brothers Investment Services, proposed that the company establish an independent chairman. “This pervasive and value-destroying scandal requires stronger independent leadership on the board,” she said, referring to the recent phone hacking scandal at News of the World, a now-defunct News Corp subsidiary.
In a recent blog post, corporate governance expert Ric Marshall explained that News Corp's board seems to be designed to "on the one hand [provide] a modicum of respectability and formal compliance to this enormously powerful public corporation, while at the same time insuring absolute and consummate allegiance to Mr. Murdoch and his personal and familial interests."
Facing opposition from Murdoch and the company’s management, however, a shareholder proposal calling the company to adopt an independent chairman was rejected. The company’s management after all, has support from Saudi Prince Walid bin Talal, the company’s next largest shareholder after Mr. Murdoch. "I think Rupert and James Murdoch came very forcefully and strongly and will resolve and clear this mess very quickly and I respect that,” Mr. bin Talal, who owns 7% of the company’s voting shares, said in July.
Public companies, especially companies with complex global operations, usually look to corporate governance mechanisms to help them protect shareholder value. Murdoch as said he wants News Corp to be a “principled” company, but has also declined to create a more open and transparent governance structure. Minority shareholders will no doubt continue to complain that when it comes to corporate governance News Corp is far from fair and balanced.
