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Post Leadership
Posted at 03:30 PM ET, 05/01/2012

What the News Corp. board needs to do now, following report’s critique of Murdoch’s leadership


With the leadership of News Corporation Chairman and CEO Rupert Murdoch the subject of a U.K. parliamentary report, new questions arise as to how the News Corp. board will respond. (KEVIN LAMARQUE - REUTERS)

On Tuesday, News Corp. followed up on its response to a U.K. parliamentary committee report that called Chief Executive Rupert Murdoch “not a fit person to exercise the stewardship of a major international company.” In a statement, the company noted that “hard truths have emerged from the Select Committee Report,” but said that it regrets the report’s analysis “was followed by some commentary that we, and indeed several members of the committee, consider unjustified and highly partisan.”

The response follows an explosive report, issued Tuesday, that also accuses former company executives of misleading parliament. It concluded that “if at all relevant times Rupert Murdoch did not take steps to become fully informed about phone-hacking, he turned a blind eye and exhibited willful blindness to what was going on in his companies and publications.” Such a culture, the report said, “permeated from the top” and “speaks volumes about the lack of effective corporate governance at News Corporation and News International.” Among other things, it called out Murdoch’s son, Deputy Chief Operating Officer James Murdoch, for displaying a “lack of curiosity” and “willful ignorance” during his time running News International, the unit that included the now-closed News of the World, where the phone-hacking occurred.

Votes by Britain’s Culture, Media and Sport Committee — the panel overseeing the report — split on party lines, with four Conservatives voting against the final assessment of Murdoch. Six Labour and Liberal Democrat members of parliament supported it.

Still, the report would be “devastating, period, to any CEO,” says Charles Elson, the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, in a phone interview with me. No matter how partisan some may feel the report to be, Elson says, it is still the board’s fiduciary responsibility to review it and respond appropriately in the best interest of shareholders. “Like it or not, it’s still a governmental body,” he says. “You may respond that it’s partisan, but…it’s still not a place you’d want to be.”

In an ordinary public company, Elson says, the board would need to “seriously consider making a management change.” Yet that appears less likely to happen at News Corp. — not only because of the company’s response to report to date, but because News Corp. has a dual-class share structure, which gives Murdoch an enormous amount of control. His family, according to recent reports, has a nearly 40-percent stake in the company’s much more powerful B shares. In dual-class companies with such control, says Elson, if a board did try to make a management change, the board could get replaced. “That’s extraordinary.”

Meanwhile, there is yet another inquiry underway — this one through Ofcom, the U.K. communications regulator. Following the phone-hacking scandal, Ofcom is looking into whether News Corp. (the partial owner of British Sky Broadcasting Group, or BSkyB) is still “fit and proper” to hold a broadcasting license. The Wall Street Journal calls the possibility of losing the license for the lucrative BSkyB “perhaps the biggest remaining risk to News Corp.” And it is unclear what impact the report could have on Ofcom’s inquiry.

At the very least, it is highly unusual for a government committee to cast a formal opinion on the leadership of a CEO, accuse him or her of “willful blindness,” criticize the culture he or she led, and question the corporate governance of the board he or she chairs.

The members of News Corp.’s board (many of whom, if not explicitly tied to the company, are indirectly so) may face an exceedingly complex task — Elson, for one, says “this would be a pretty tough board to be on these days.” But what is clear is that they should take the committee’s findings to heart, and this means being prepared to do whatever it takes to act in the best interests of the company’s shareholders, to improve governance and to recast the organization’s culture.

More from On Leadership:

Rupert Murdoch’s botched apology

How to completely destroy an employee’s work life

Leadership rankings for federal agencies

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By  |  03:30 PM ET, 05/01/2012

Tags:  news corp., rupert murdoch

 
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