News Corp non-execs need to step up
By Chris Hughes
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
To the independent directors of News Corporation,
Your company is in a grave crisis and you, its independent directors, have a pivotal role to play in taking control of the situation. I realise that your ability to act is ultimately constrained by the fact that the chairman and chief executive, Rupert Murdoch, owns the single largest block of voting shares. But you have a duty to act in the interests of all stock holders. And your own reputations are at stake.
The decision to close the News of the World, the UK Sunday newspaper at the heart of the scandal, makes sense. The brand was probably irreparably damaged, and even before allegations about its conduct surfaced, its financial contribution to News Corp was insignificant. But shutting the title is unlikely to stop the flow of bad news coming out of the investigations now under way, and the growing scrutiny of your handling of the crisis. Your work is just beginning.
The starting point should be how you would act if News Corp wasn’t a quasi-family business. An action plan would contain four key points:
1. Appoint an external law firm to review systems and controls across the entire group. This crisis centres on allegations of phone hacking by the News of the World, something which Murdoch himself describes as “deplorable”. But this saga has been in the public domain for over five years now.
Two internal inquiries into alleged phone hacking have been found wanting and James Murdoch, who oversees News Corp’s international operations, now admits he “did not have a complete picture” when approving out-of-court settlements. That raises serious questions about how News Corp polices itself. Shareholders will legitimately wonder whether failings in systems and controls in UK newspapers occur elsewhere in the group.
In particular, the review should focus on information flow within the organisation, and whether serious issues are being escalated to you as non-executives. BP commissioned former U.S. Secretary of State James Baker to review its corporate safety culture in the wake of the Texas City refinery tragedy. While News Corp has brought in lawyers and law firms to advise and learn lessons from this episode, their focus is still very much on the UK operations, not the group globally.
2. Appoint investment banks to launch a wide-ranging strategic review. The problems that have hit News Corp’s market value originate in UK newspapers, a business that makes a negligible financial contribution to the group. While these have given Murdoch power and influence in Britain, it is hard to see what they have brought News Corp’s outside shareholders.
The investment banks that conduct the review should be told to examine News Corp’s assets on purely commercial grounds. Vanity investments should be sold. There must be no sacred cows.
3. Review governance. Murdoch’s dominance over News Corp has long been blamed for lumbering the shares with a discounted valuation. One way of introducing a counterweight to him would be to split his chairman and chief executive roles and appoint an independent chairman.
True, that’s a predominantly UK governance model. But it is not alien to U.S. corporations – just think of Citi, Bank of America and Pfizer. A new chairman would also review the rest of the board. That may lead to some of you leaving. I appreciate that, realistically, you may balk at this idea. But surely Viet Dinh, who chairs your Nominating and Corporate Governance Committee, could commission an independent report into the effectiveness of the governance and make its findings public.
4. Accelerate succession planning. The assumption has always been that Rupert Murdoch would lead this company all his life. But confidence in the group is being eroded. Think of how any other company would restore confidence — by changing top management. That shouldn’t mean automatically handing over to heir apparent James Murdoch. He has positioned himself as a decisive fixer by announcing the New of the World closure, although it is unclear whether he gave much strategic weight to newspapers anyway. There are other internal candidates, such as Chase Carey, the current deputy chairman, president and chief operating officer. Carey is popular with investors.
These suggestions may seem naïve in a company controlled by a media mogul. As non-execs, you may be tempted to think you are impotent. But it is in the interests of all shareholders, Murdoch included, that the market regains confidence. And if you think you cannot make a difference and nudge Murdoch in the right direction, why did you take the job in the first place?
Regards, a friendly adviser.