News Corp faces charges of alleged corruption and mismanagement from American institutional shareholders including Amalgamated Bank and the Central Laborer’s Pension Fund. The latest allegations are actually a supplement to a lawsuit originally filed against the purchase of a British TV and film company, Shine Group, owned by Rupert Murdoch’s daughter.
The charges include that of nepotism, and failure to take any action even after charges of hacking appeared six years ago.
Nepotism and corruption
The lawsuit was originally filed in May 2011 in Delaware Court of Chancery., where the corporation is registered. Shareholders challenged News Corp’s $615m purchase of Shine Group, owned by Elizabeth Murdoch, whose windfall share of the sale came to $250m. A spokesman for the plaintiffs alleged: “Rupert Murdoch did not even pretend that there was a valid strategic purpose for the Shine deal, as he proudly boasted that its goal was to bring his daughter back into the News Corp fold.
New York lawyers Grant and Eisenhofer and Bernstein Litowitz Berger & Grossman are seeking to block Elisabeth Murdoch’s appointment to the company’s board of directors, and “to put an end to Rupert Murdoch’s use of company assets to serve personal and family agendas, without regard for public shareholders.”
The board is held responsible for promoting cronyism and mentions Rebekah Brooke who was promoted in spite of being the editor when the hacking allegedly took place.
The complaint adds: “Murdoch has treated News Corp like a family candy jar, which he raids whenever his appetite strikes. Ignoring the distinction between public and family business, the board appears to have repeatedly permitted Murdoch to intertwine rampant nepotism in the conduct of company business; use News Corp resources for his own personal and political objectives; and reward himself handsomely with excessive compensation.”
The shareholders claim: “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.”
Hacking Scandal Fallout in the US
The fallout of the hacking scandal is slowly crossing the seas and reaching the US shores where any allegations of hacking will be dealt with a baying of blood. The Federal Communications Commission, which regulates radio and television, will face a stampede of people demanding an investigation into whether News Corp passes the ‘good character’ test required to hold a TV license in the US.
News Corp – with a market cap of $45bn before Monday’s loss of near 8 per cent in share value – has a balance sheet that boasts $60bn of assets of which $14bn is goodwill.
In the US, News Corp owns Fox Studios, 20thth Century Fox, Fox News Channel, National Geographic, Wall street Journal, Harper Collins New York Post, Dow Jones, Fox Television and Fox Sports. In 2010 News Corp made above $20 billion dollars from its revenues in the US alone from production houses, cables ,websites and television channels.
The US division of New Corp is raking in the profits with the next version of James Cameron’s Avatar awaited. The vast majority of shareholders also backed News Corp’s decision to buy the 61pc of BSkyB it doesn’t already own.
Loss and Control of The Board
It’s not often that Murdoch sees billions of dollars wiped from the value of his corporation in a seven-hour New York trading day It is estimated that he lost $7 billion in market value in the last four days.
On the other hand, Prince Alwaleed bin Talal Al Saud and News Corp’s second largest shareholder has expressed full confidence in his ‘friend’s’ ability to weather the storm.
But whoever has bought into News Corp must have been aware of the control that Murdoch and family wield in the business. But more interesting to watch will be whether the pension funds and asset managers invested in News Corp will question the terms where they are given little power to make changes at News Corp. Some of the big shareholders are Vanguard Group, BlackRock and Janus Capital, all institutional investors who are hardly likely to take any stand at this moment.
News Corp has taken some hits lately with the $ 1.58 billion loss-making bid to takeover ITV. And it lost nearly $240 million when New Corp sold Myspace for $35 million for which it had paid $580 million in 2006.
News Corp may also be looking at some tough times ahead with a compensation package for the victims of hacking.
James Murdoch in trouble
James Murdoch's admission that he personally and wrongly approved out-of-court settlements to phone hacking victims at a press conference could put him into legal trouble. James is News International’s chairman. Former British home secretary , Alan Johnson, has said his admission could make him liable to prosecution.
Rupert Murdoch is parked in London doing major damage control in terms of public relations and also to salvage something from his bid to buy BSkyB which has been deferred. The sports and culture minister, Heremy Hunt, has referred the deal to Ofcom, a regulatory body which looks into the media and communications business. Analysts say the deal is as good as dead.