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A titan challenged

MEDIA

In L.A., Rupert Murdoch will face angry shareholders who say his News Corp. board continues to tolerate a dubious ethical milieu

October 21, 2011|Meg James and Joe Flint
  • In San Franciso last week, News Corp. CEO Rupert Murdoch spoke at the National Summit on Education Reform. With the phone-hacking scandal still fresh in Britain, he will face pressure to resign at News Corp.'s annual meeting Friday in L.A.
In San Franciso last week, News Corp. CEO Rupert Murdoch spoke at the National… (Justin Sullivan, Getty…)

This was not how media titan Rupert Murdoch envisioned the final chapters of his storied career.

With his family-controlled company engulfed in a phone hacking scandal in Britain, Murdoch's legacy has been sullied and his plan of handing over the reins of News Corp. to his children is in jeopardy.

Murdoch's son James, who just six months ago was seen as the heir apparent to succeed his father as chief executive, could be pressured to resign from senior management. Statements he made to the British Parliament in July about his knowledge of the extent of the eavesdropping have been called into question. In pursuit of juicy scoops, a News Corp.-owned tabloid hacked into cellphone messages left for celebrities, soccer stars, royalty and even crime victims.

On Friday, the 80-year-old Murdoch will face angry shareholders at the company's annual meeting in Los Angeles. Two influential shareholder advisory firms and the nation's largest pension fund, the California Public Employees' Retirement System, are campaigning to remove Murdoch and his two sons, James and Lachlan, from News Corp.'s board. They say Murdoch's handpicked board does not provide proper oversight of a company that has a questionable ethical culture. Some shareholders plan to call for Murdoch's resignation as chairman.

Adding to the drama will be British lawmaker Tom Watson, who flew to Los Angeles from London to challenge Murdoch's leadership.

"This is not just about phone hacking," said the Labor party member who led efforts in Britain to expose the hacking scandal and hopes to speak at the annual meeting. "This company is facing criminal charges for bribing police officers, and potentially their executives will be charged with perjury," he told reporters.

With 47% of the company's voting stock in his or his close allies' hands, Murdoch is not likely to lose control of the conglomerate that owns the Fox broadcast network, Fox News and other cable channels, 20th Century Fox movie studio and a stable of newspapers worldwide, including the Wall Street Journal.

But a significant vote of no confidence by investors could lead to someone other than a Murdoch running News Corp. for the first time in its history. Under one scenario discussed in recent months, President Chase Carey may be elevated to CEO, leaving Murdoch in a diminished role.

"This is not something you want late in your life after building such a great company," said veteran media analyst Harold Vogel. "But now Murdoch must live with this blotch, this stain on his reputation, and it won't be easy to erase."

Since it erupted into front page news this summer, the scandal has been costly for News Corp. It forced the closing of the company's 168-year-old News of the World tabloid, the resignation of key executives and the collapse of a $12-billion deal to buy the remaining shares of British Sky Broadcasting satellite service. It also prompted investigations into the company's conduct by authorities in Britain and the U.S.

If criminal probes find that the company's operatives bribed British police officers for news tips, there could be repercussions in the U.S., including the possibility that News Corp.'s valuable U.S. television licenses would be revoked.

In an embarrassing comeuppance, James and Rupert Murdoch were hauled before members of the British Parliament in July to explain the News of the World's questionable conduct and their knowledge of the alleged misdeeds. James authorized large settlements to hacking victims but maintained that he was not aware that the eavesdropping was widespread until after making those payments. After two former underlings disputed James Murdoch's account, members of Parliament have asked him to return next month for further questioning.

James Murdoch, 38, has overseen News Corp.'s European and Asian operations since 2007. In March, he was promoted to deputy chief operating officer, the third-ranking executive in the company, and was expected to move from London to headquarters in New York.

The scandal has galvanized shareholders, who long have accused Murdoch of running the publicly traded News Corp. as his personal fiefdom, with little accountability to shareholders. The odds are long that disgruntled investors will have the votes to topple the mogul or force out pliant directors. But they are demanding changes.

One investor group plans to call for Murdoch to relinquish his chairman title and be replaced by an independent director. Others want more independent voices added to the board.

In a particularly harsh rebuke of News Corp. management, Institutional Shareholder Services last week said the company's handling of the hacking fiasco "has laid bare a striking lack of stewardship and failure of independence" by its directors. The firm urged investors to vote against 13 of the 15 board members, including Murdoch and his sons.

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