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News Corporation Scandal Essay

1794 words - 8 pages

Analysis of the corporate governance of News Corporation

Executive summary

The 2011 News Corporation phone-hacking and bribery scandal, as recent scandals in other business sectors such as the Enron, Tyco and the Parmalat controversies, might be directly linked to the failure of the company’s corporate governance practices and structures. Evidence supports that the division of the corporation in two entities in 2013 partially restored the brand image and the stock value of the media conglomerate. However, some underlying corporate issues, i.e. independence of board members, nepotism allegations, dual class shares structures and corporate responsibility, still need to be addressed to ...view middle of the document...

(Picard, 2005, pag.7)

The main corporate governance critic to be addressed to the News Corporation is Rupert Murdoch’s tendency to manipulate his media outlets to seek the realization of personal goals, such as conservative political causes, management of the public information and family business interests. The trend is reflected in the distribution of equity and voting rights: News Corporation had and still has in both new companies a two-tiered stock setup that differentiates the voting rights of the company’s share. Murdoch’s family company, Cruden Investments, holds 19% of News Corporation’s equity and around 30% stake in the class B voting shares, according to company filings and data compiled by Bloomberg (Hymowitz, et al., 2011). Other shareholders are entitled to the non-voting, class A shares.
It has been widely suggested that the corporate governance structures and processes provides architecture of accountability, that is to ensure that companies are managed in the interests of their
owners (Higgs 2003). Shareholders and owners often pursue different and conflicting objectives and risk preferences, emphasized by the information asymmetry and the desire to maximize certain goals at the expense of others (Eisenhardt, 1989). As exemplified by this case, it has been discussed that publicly listed corporate media companies, especially in the newspaper sector, tend to focus on short-term profits (Demers & Merskin, 2000), thus leading to practices that could compromise the media integrity and quality (Picard, 2005; Blankenburg & Ozanich, 1992; Cranberg et al. 2001).
Another weakness of the corporate governance of the company could be traced in the compliance of the board at the time of the scandal: in addition to Murdoch himself, News Corporation board included his sons Lachlan and James (BBC News, 2001) and several senior executives from the company. The selection of independent directors was made in technical conformity with the NASDAQ stock exchange’s criteria and the legal obligations for a publicly-traded company (Dean, 2011) but the majority of them had personal or financial ties with Murdoch’s family (Knight, 2011).
Ultimately, to analyze the corporate governance issues, the specific environment in which a firm
operates has to be considered as a key factor, since it has an influence on the structures of governance and on the circumstances under which ownership and management influences occur (Pinard, 2002). News Corporation has developed into an international media corporations operating worldwide, in such a way that makes unclear the location of their corporate headquarters and the ethical standards followed (Picard, 2005).

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