News Corp deal: a new way to police corporate political spending?

By Alison Frankel
April 22, 2013

On Monday, the directors and officers of Rupert Murdoch’s News Corp agreed to settle a derivative suit accusing them of breaching their duty to shareholders by failing to avert the phone-hacking scandal at the company’s British newspapers. News Corp’s insurers will pay $139 million, in what shareholder lawyers atGrant & Eisenhofer called the largest-ever cash settlement of derivative claims in Delaware Chancery Court. The settlement, which comes as News Corp prepares to split its news and entertainment branches into two publicly traded companies, was produced after several months of mediation that took place while the company’s motion to dismiss was pending before Vice Chancellor John Noble.

The cash portion of the deal (which will be eventually reduced by legal fees paid to G&E, co-lead counsel fromBernstein Litowitz Berger & Grossmann and several other plaintiffs firms that managed to grab a piece of the case) is obviously the big news, but among the many corporate governance enhancements detailed in the memorandum of understanding between News Corp and shareholders, you’ll find what appears to be a historic concession by the company: News Corp has agreed to disclose its campaign and political action committee contributions to shareholders and its lobbying and Super PAC spending to the board. According to two advocates for corporate political transparency, this settlement apparently marks the first time that shareholders have used the vehicle of a derivative suit to obtain enhanced disclosure of corporate political spending. “I think it’s terrific,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington (CREW). “Any way to force companies to disclose spending is good for democracy.”

Earlier this year, you may recall, New York State’s public employee pension fund brought a books-and-records suit against Qualcomm, seeking to force the chipmaker to tell shareholders about its political spending. (Notably, the New York fund, like shareholders in the News Corp case, was represented by Mark Lebovitch of Bernstein Litowitz.) I said at the time that the novel tactic of suing corporations under the Delaware law that grants shareholders the right to request corporate books and records could be a breakthrough in the post-Citizens United effort to force companies to admit their political spending. Qualcomm certainly knuckled under. In February, less than six weeks after the New York fund sued, the previously opaque corporation agreed to disclose online all of its contributions to candidates and parties, as well as donations to Super PACs and trade associations.

News Corp’s newly agreed-upon disclosures aren’t as robust as Qualcomm’s. The company said it would tell shareholders about contributions to all state and local candidates (direct corporation contributions to candidates for federal office are prohibited) and political action committees. It also agreed to disclose all donations to political nonprofits that are specifically earmarked as independent expenditures on behalf of a particular candidate or party and all spending in support of or opposition to ballot measures. But the settlement only requires the company to inform the board, and not shareholders, about Super PAC and trade association contributions over $25,000. Nevertheless, the settlement puts News Corp’s political transparency obligations in black and white, and that’s a real accomplishment for shareholders of such a politically active corporation.

Will other shareholders take advantage of pending derivative suits to obtain additional disclosure of corporate political spending? I hope so. The Securities and Exchange Commission continues to mull beefed-up disclosure requirements, and groups like the Center for Political Accountability continue to push for shareholder resolutions demanding transparency. The center’s director, Bruce Freed, told me that he expects the “proven vehicle” of shareholder resolutions to lead the way in improving transparency in corporate political spending. (Such resolutions, according to CPA, have prompted 120 companies to enhance their disclosures.) Sloan of CREW, however, told me that between the Qualcomm and News Corp settlements, “I think you’ll be seeing people looking at this more and more.”

If you’re among those who contend that shareholders have no need to be informed of political spending approved by officers or directors, either because contributions aren’t material or because they serve the corporation’s interests, you might want to check out the latest work of law professors Lucien Bebchuk of Harvard and Robert Jackson of Columbia. They’ve summarized it at the Harvard Law School blog on corporate governance.

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