No doubt this will be the first of many News Corp shareholders filing claims in Delaware Chancery Court because the Big Media giant is incorporated in that state. The accusations focus on colossal corporate governance failures surrounding the ongoing British phone-hacking scandal that led to the closing this past week of the company’s News of the World tabloid and saw one of its former editors arrested and many execs accused including heir apparant James Murdoch. Shareholders led by Amalgamated Bank along with several municipal and union pension funds charge that News Corp’s board of directors failed to exercise proper oversight and take sufficient action since news of the hackings first surfaced more than five years ago. The new claims are part of an amended complaint filed by the shareholders, who in May 2011 challenged News Corp’s acquisition earlier this year of UK film and TV production company Shine Group Ltd — the deal created a $250 million windfall for Elisabeth Murdoch, daughter of News Corp. chairman and CEO Rupert Murdoch, who has been trying to gain a seat on News Corp’s board for his daughter.
“News Corp.’s behavior has become an egregious collection of nepotism and corporate governance failures, with a board completely unwilling to provide even the slightest level of adult supervision,” said Jay Eisenhofer, co-managing director of Grant & Eisenhofer and co-lead counsel to shareholders, along with Bernstein Litowitz. “The result has been a piling on of questionable deals, a waste of corporate resources, a starring role in a blockbuster scandal, and a gigantic public relations disaster. It is way past time that the News Corp board step in and initiate serious changes to the company’s corporate governance.”
The new allegations include News Corp’s lack of disclosure over the phone hackings and questions as to whether the board and Rupert Murdoch were previously complicit in the hacks as part of the paper’s zeal for sensational stories. The shareholder group accuses News Corp’s board of failing to exercise proper oversight and take sufficient action since news of the hacking first surfaced. “These revelations should not have taken years to uncover and stop,” shareholders argue in their complaint. “[They] show a culture run amok within News Corp and a board that provides no effective review or oversight… It is inconceivable that Murdoch and his fellow board members would not have been aware of the illicit newsgathering practices. And yet, the board took no real action to investigate the allegations until July 7, 2011, when Murdoch selected two of his co-directors to deal with the imbroglio.”
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, shareholders allege. “The amended complaint documents a seemingly endless stream of self-dealing and disregard for corporate governance by News Corp’s board of directors,” said Mark Lebovitch of Bernstein Litowitz. “The latest revelations serve as the final straw for News Corp shareholders, who are now fighting to keep another Murdoch family member from joining the board and perpetuating the culture that has made News Corp a family fiefdom for so long.”