When Rupert Murdoch sat down with his board on Tuesday for the first time since a phone hacking scandal overseas plunged his company into turmoil, he was surrounded by a lot of familiar, friendly faces.
The meeting, held on the studio lot of 20th Century Fox and timed to coincide with News Corporation’s quarterly earnings announcement on Wednesday, included many people with deep and longstanding ties to Mr. Murdoch, his company and his family.
One is a former Goldman Sachspresident who helped News Corporation broker mega-deals. Another is godfather to one of Mr. Murdoch’s grandchildren. Another ran Mr. Murdoch’s Australian subsidiary, News Limited.
And those are just some of News Corporation’s directors who are designated as independent — chosen because they comply with regulations intended to ensure that companies maintain a layer of objective oversight.
A perceived absence of true independence has long been a sore spot for those who criticize the News Corporation board as too deferential to Mr. Murdoch. Last week, in a rare attempt to mollify shareholders, News Corporation decided not to add Mr. Murdoch’s daughter Elisabeth to the board. It was widely expected she would join the board after the company bought Shine, her television production company, for about $675 million earlier this year.
News Corporation considers nine of its 16 directors independent, in keeping with Nasdaq rules requiring a majority of board members with limited company ties. Yet many of them owe their careers to Mr. Murdoch. Others made millions of dollars making him richer. Those include:
Mr. Dinh has brought on some of the biggest names in white-collar criminal defense to advise him and the other independent directors on the matter, hiring Mary Jo White, the former United States attorney for the Southern District of New York, and former Attorney General Michael B. Mukasey.
News Corporation’s board is hardly the only one in corporate America that is stacked with independent directors who have close relationships with the companies that shareholders have elected them to serve. But corporate governance experts said that the long history between News Corporation and many of its independent directors is a glaring example of how chumminess in the boardroom can allow and even contribute to mismanagement.
“I keep watching this and thinking that they don’t realize we can see them,” said Lucy P. Marcus, chief executive of Marcus Venture Consulting who writes about corporate governance issues for The Harvard Business Review blog network. “The reason we have corporate governance is not because it’s a nice thing to do. It’s because if you actually have a robust board, it can be beneficial. I don’t think News Corp. would be in the same trouble that they are in now if they had an independent board.”
To overhaul the News Corporation board or any other corporate board, the rules governing who is eligible to serve as a director would need to change. Right now News Corporation is in full compliance of the rules set by Nasdaq, the exchange on which its stock is traded, and federal law.
Nasdaq’s rules state broadly that independent directors cannot have a relationship that “would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.” Specifically, Nasdaq excludes anyone who was employed the company in the previous three years. The rules do allow, however, for former employees collecting retirement benefits to serve as independent directors.
Some News Corporation shareholders have already started to press the issue. Wespath Investment Management, a division of the board of pension and health benefits for the United Methodist Church and owner of about 1.1 million News Corporation Class A shares, wrote to the board last week objecting to, among other things, its seeming lack of independence.
“As shareholders interested in preserving the long-term value of the company, it is important that the board of directors act quickly to improve its governance standards,” the letter said.