Investors vent their anger against Murdoch

12th July 2011

The share price fall was exacerbated yesterday with revelations alleging that two other UK newspapers in the News Corp stable – the Sunday Times and The Sun had been involved in illicitly obtaining information about Prime Minister Gordon Brown and his family.

The bid from BSkyB was referred to the Competition Commission yesterday by Business and Media Secretary Jeremy Hunt. The takeover was increasingly becoming a sideshow as investors demanded answers about corporate governance within the wider News Corp group. Shares fell by 7 per cent in New York on Monday.

As the Telegraph reports, the suit was filed in the state of Delaware by three groups – the Amalgamated Bank, the Central Laborers' Pension Fund and the New Orleans Employees Retirement System, and accused News Corp's senior executives and board of failing to tackle the phone hacking sooner.

"These revelations should not have taken years to uncover and stop. These revelations show a culture run amok within News Corp and a board that provides no effective review or oversight," the suit said.

The Amalgamated Bank complaint is actually an amended version of one filed in March over the purchase of the Shine Group. 

Then, the bank's suit suggested a New Corp decision to buy Rupert Murdoch's daughter Elizabeth Murdoch's UK TV production company Shine for $675m was nepotism.

Here on the BBC Tom Geoghegan considers what the implications may be for the US operations in some detail. He notes that a lobby group called Citizens for Responsibility and Ethics in Washington (Crew) has called on the House of Representatives and Senate to investigate whether journalists working for News International have hacked into the voicemail of Americans.

"If Mr Murdoch's employees can be so brazen as to target the British prime minister, then it is not unreasonable to believe they also might hack into the voicemails of American politicians and citizens," he quotes Crew executive director Melanie Sloan as saying.

But it was British institutional investors who first raised concerns about News Corp's behaviour and the BSkyB bid as the Guardian reports here. Last Friday Camden Council instructed its investment manager Legal & General to review its BSkyB investments.

The paper reported Theo Blackwell, Labour cabinet member for finance in Camden, saying a review of the council's pension fund holdings in BSkyB had been ordered on Friday. "Camden ordered a review with our financial advisers Legal & General on the impact of the continuing developments and uncertainty around this."

"Pension funds like Camden may start voting with their feet in order to secure more stable returns for staff and pensioners," Blackwell said.

The outrage last week about the Murdoch organisation's behaviour was coordinated by the Church of England's Ethical Investment Advisory Group which demanded the business hold its senior executives to account. In a letter to News Corp it wrote: "While the EIAG welcomes the decision to close the News of the World, this action is not a sufficient response to the revelations of malpractice at the paper. Nor does it address the failure of News International and News Corporation executives to undertake a proper investigation and take decisive remedial action as soon as the police uncovered illegal phone hacking in 2006."

Here Australian website the Daily Kos looks in detail at the corporate governance issues from an Australian point of view.

This may be the most damning excerpt – that the company, rather than benefiting from the business acumen of Murdoch, is actually trading at a ‘Murdoch' discount because of the family's involvement.

The website report notes that: "The shareholders are essentially complaining that Murdoch's personal interference, and treating the company like "the family candy jar" (taken from the complaint) has led to a so-called "Murdoch discount" that depressed the value of the shares below those of other, similar, media companies.

On the website's comment board 4CasandChlo weighs the shareholders' chances.

"Shareholder derivative suits usually claim negligence in the running of the company – like H.P. and its decision making.  In that respect they are tough to win.

"But if you can prove that the company was run in a direct conflict of interests to the shareholders and that there was a breach of the officers/Board duty to the shareholders (and the easiest breach to prove is conflict of interest) then you can succeed.

"I think this is an important suit.  If the group is a minor one or not well funded, it may well be worthwhile to garner support for it. News Corp has never been more vulnerable."

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