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Despite pressure, Murdoch has iron grip on media empire

By Agence France-Presse
Tuesday, May 1, 2012 23:12 EDT
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n chief executive Rupert Murdoch. Image via AFP.
 
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WASHINGTON — Rupert Murdoch faces stepped up pressure over control of News Corp. following a blistering report from British lawmakers on a hacking scandal but his grip on the firm is not in immediate danger, analysts say.

That is because Murdoch holds the reins of the New York-based global media group through a stock structure which gives him and family members most of the voting shares in News Corp.

“It’s impossible for shareholders to oust the management of the company,” said Columbia University law professor Robert Jackson, who studies corporate governance and ethics.

Jackson said the dual-class stock structure is used in many media companies because they “don’t want to face shareholder challenges every time they miss earnings.”

The structure is often employed at media firms such as The New York Times, to prevent activist shareholders from influencing editorial policies, but also at some tech firms such as Google to allow founders to keep control.

Still, Jackson said Murdoch could face tough questions from the News Corp. board of directors, which has an obligation to protect the interests of shareholders.

“If there is one fundamental principle of American corporate law, it is an obligation for the board to protect shareholders,” Jackson said.

Jacob Frenkel, a Maryland securities lawyer who handles corporate governance issues, said the technical issues of shareholder votes may be eclipsed by the impact of the scandal on the company’s reputation.

“These findings are troublesome from a corporate governance perspective and it is reasonable to expect that as a result of the internal investigation the company is doing that there will be a significant overhaul to the governance systems and policies at News Corp.,” Frenkel said.

But that time may not have arrived yet, Frenkel and Jackson say.

The focus on Murdoch comes as the British Parliament’s influential culture committee said the group had misled lawmakers and that the 81-year-old tycoon and his son James should take corporate responsibility.

Murdoch shut the News of the World in July 2011 as the phone-hacking scandal exploded with revelations that the tabloid had accessed the voicemails of a murdered schoolgirl.

Frenkel said that because the parliamentary findings were split along partisan lines “it causes a reader to question the underlying motivation of the report.”

More important, said Frenkel, will be the results of the company’s internal probe and legal advice to the board.

Jackson said the board, which includes directors such as Spanish former prime minister Jose Maria Aznar and former US antitrust prosecutor Joel Klein, must already be considering the possibility of a future without Rupert Murdoch.

“I think we are still some time away from the board having to make some decisions on this,” said Jackson.

“My sense is this is a board that is absolutely capable of making a hard decision but I don’t think we are at that point yet.”

James Post of the Boston University School of Management said he expects some activist shareholders and institutions to press for Murdoch’s removal, even if the moves are unsuccessful.

“The Murdoch family interests have a bevy of governance devices to ensure their continued power,” Post said. “The long-term course of News Corp. may be determined more by family feud than corporate governance.”

The parliamentary report said Murdoch is not fit to run the media empire and that he engaged in willful neglect during the scandal.

News Corp. said the comments were “unjustified and highly partisan” and pointed out that the committee itself was split on whether to include the remarks.

Phone hacking at the News of the World came to the fore in the trial of its royal correspondent Clive Goodman and Glenn Mulcaire, a private investigator, who were jailed in 2007 for illegally accessing voicemails.

Scotland Yard reopened an investigation in January 2011 and more than 40 people have been arrested. News International has paid millions of pounds in compensation to hacking victims.

Agence France-Presse
Agence France-Presse
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