May 1, 2012 at 7:19 PM ET
A stinging report by a British House of Commons committee concluding that Rupert Murdoch is “not fit” to run a major international company provides powerful new ammunition for shareholders suing News Corp. in the United States and for big institutional investors demanding changes in the media giant’s management, analysts say.
It also comes at a perilous time for the U.S.-based company. Law enforcement sources have confirmed to NBC News that the U.S. Justice Department is conducting a wide-ranging investigation into Murdoch’s media empire, looking into allegations of bribes paid to officials in Russia and China as well as Scotland Yard police officers in the United Kingdom.
“I think there will be a shareholder revolt over this,” said Julie Tanner, an assistant director of Christian Brothers Investment Service, an investment advisory firm for Catholic Church institutions, referring to the report by the House of Commons Culture, Media and Sport Committee. Christian Brothers has filed a shareholder resolution calling on News Corp. to shake up its management and appoint a new independent chairman.
“Our principal concern at News Corp. has been to ensure that it has robust governance policies and practices in place, and that effective action is taken to root out wrongdoing,” Tom Powdrill, chief of communications for the Local Authority Pension Fund Forum (LAPFF), the British pension fund consortium, said in an email to NBC News on Tuesday. “Clearly, today’s report reflects the fact that News Corp. has been deficient on both counts in the past.”
As chairman and chief executive officer of News Corp, the 81-year-old Murdoch is among the highest-paid executives in the world, receiving total compensation of $33.3 million last year, including a $12.5 million bonus. He has successfully beaten back similar resolutions in past years, thanks in part to his and his family’s ownership of 40 percent of the voting stock of the media giant. (He also benefited from the solid support of Saudi Prince Al-Waleed bin Talal, the Riyadh based media tycoon who owns an estimated 7 percent of News Corp. The prince did not respond to a request for comment Tuesday. )
But the blistering report by the House of Commons committee could change the equation and potentially spur the board’s directors -- including such prominent figures as Joel Klein, the former chancellor of the New York City Schools -- to demonstrate their independence by distancing themselves from Murdoch, some analysts say.
“The biggest impact of the report is going to be on the shareholder resolutions and it could threaten the Murdoch family control of the company,” said Andrew Schwartzman, a Washington, D.C.,-based media lawyer and the longtime policy director for The Media Access Project, a public interest group that has sought to curb the power of big media firms.
But Murdoch has shown no inclination to step down as head of News Corp. — a company whose diverse interests in the United States include the Wall Street Journal, the Fox cable network and the 20th Century Fox movie studio.
In a memo to News Corp. employees Tuesday afternoon, Murdoch acknowledged what he described as “past mistakes” over the phone hacking allegations and promised “a more robust global compliance structure” around the world.
“To that end, News Corporation continues to cooperate with all inquiries relating to voice mail interception and improper payments to public officials,” Murdoch wrote in the memo, an apparent reference to the Justice Department investigations into potential violations of U.S. anti-bribery law.
At the same time, Murdoch insisted, “Our business has never been stronger.” And, in a separate statement, the company criticized the inclusion of passages in the report -- clearly the ones referring to Murdoch -- as “unjustified and highly partisan.” (The personal criticism of Murdoch -- including language that he “turned a blind eye” to allegations of widespread phone hacking and gave testimony that was “barely credible”-- was adopted by six of the committees 11 members. Voting for the harsh language were five members of the Labor Party and one member of the Liberal Democratic Party, over the opposition of members from Prime Minister David Cameron’s Conservative Party.)
Beyond the shareholder resolutions, the company is also facing civil actions in the United States.
Mark Lewis, a British lawyer who has been active in suing News Corp. in Britain and collecting damage awards on behalf of hacking victims, told NBC News this week that he has identified at least one American victim of phone hacking who alleges that his phone was hacked in the United States. Lewis says he has teamed up with U.S. lawyers and plans to file a U.S. lawsuit on behalf of the client — whom he declined to identify -- in the next couple of weeks.
Another U.S. lawsuit, filed last year by several large labor union shareholders, alleges that Murdoch has run News Corp “as his own personal fiefdom” and misused company assets “to advance the selfish business interests of his family”—including paying $615 million to purchase a television and film production company owned by his daughter. The company has moved to dismiss the complaint as without merit, but a Delaware judge is set to hear oral arguments on whether the suit should proceed later this month.
Schwartzman and other media analysts said Tuesday it is far from clear what direct impact the House of Commons report will have on many of these matters or on other potential problems the company may face.
It would be exceedingly difficult, for example, for a rival media firm to challenge Fox News’s broadcast licenses at the Federal Communications Commission. A federal law enacted in 1996 says such challenges to broadcast licenses can only succeed if it could be demonstrated that the broadcaster committed “misconduct” while running the station in question, not wrongdoing by the broadcaster’s corporate owners in other lines of business.
The British report, moreover, has no legal standing in the U.S., although some experts say it could spur British regulators to challenge News Corp’s stake in B Sky B, the huge British pay television firm that has been a major cash cow for the firm.
But the broader impact, they say, could be in diminishing the power and influence of Murdoch himself. The stinging language in the report’s conclusions seems to echo many of the sharpest critiques leveled by News Corp.’s dissident shareholders.
After blasting Murdoch for “willful blindness to what was going in his companies,” the report stated: “This culture, we consider, permeated from the top throughout the organization and speaks volumes about the lack of corporate governance at News Corporation. We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of a major international company.”