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Was it really a 'keep it from Rupert' culture?

By Paul Hodgson, Special to CNN
Paul Dodgson writes that the stacked News Corp. board could never hold Rupert Murdoch to account.
Paul Dodgson writes that the stacked News Corp. board could never hold Rupert Murdoch to account.
  • Paul Hodgson: GMI rated News Corp.'s governance standards worst in class since 2003
  • Hodgson: Board is effectively controlled by the Murdoch family
  • Murdoch family controls 40% of the voting stock, he writes
  • Did employees keep him out of the loop? Even so, responsibility is his, Hodgson says

Editor's note: Paul Hodgson is the chief communications officer and executive compensation guru for GMI and he has been writing and working in the governance field for more than 18 years. GMI provides independent corporate governance research and analysis.

Portland, Maine (CNN) -- Sir Paul Stephenson denied being complicit with News Corp., but he still resigned from the Metropolitan Police, taking responsibility for the force's poor decision in hiring a former deputy editor of the News of the World as a public relations consultant and the failed investigations into the phone hacking scandal at the paper's parent company News Corp.

In the same way, one has every right to expect Rupert Murdoch to resign as chairman and CEO of News Corp. even though he claims that none of his senior executives informed him of the scandal.

With power comes responsibility. Unfortunately the governance standards at News Corp. would seem to indicate that the company is accustomed to abuses of power, for the same reason one can also expect the abuse of responsibility.

News Corp.'s governance standards, which Governance Metrics International (GMI) has rated worst in class since we launched our ratings in 2003, are such as to virtually guarantee a major scandal of this kind. The board, which is supposed to consist of independent directors responsible for overseeing senior management and representing the interests of public shareholders, is, fundamentally, chosen and elected by the Murdoch family and consists of many members of the Murdoch family.

Paul Hodgson
Paul Hodgson

Much of the balance is made up of former colleagues, current employees and friends of the Murdoch family. It is not so much a dysfunctional board as a nonfunctional board. There is no possibility of it ever holding Rupert Murdoch to account. There will be a change of leadership at the company only if Murdoch resigns voluntarily.

So what are these appalling governance standards? Of the 17-strong board, six are executives at the company, and four have disclosed relationships with either the Murdoch family or the corporation itself beyond that of a directorship. Several others have relationships that fall under the SEC's radar, but not GMI's. Thus a clear majority of the board is non-independent.

In addition, the Murdoch family controls almost 40% of the voting stock of the company. For this reason, although the board could fire Murdoch, he could as easily fire them. Such a situation is impossible to justify in a modern global corporation.

The fact that the publicly traded shares of the company have no voting power whatsoever also makes it difficult to understand why anyone would want to invest in such a company, where economic interests are divorced from any influence over the company's structure and fortunes. Finally, not only does Murdoch receive a base salary of more than $8 million, he also, despite being the major shareholder in the company, receives regular grants of stock.

PM Cameron addresses hacking allegations

It may be a cliché that the tone at the top sets the tone for an organization, but cliché or not, its applicability here is perfect. If the board of News Corp. sets an example of a cozy entourage of enabling directors who are either derelict in their duty or were kept as ignorant of any of the developments in the scandal as Murdoch says he was, then it is relatively easy to understand why the standards of journalism at the News of the World fell to the depths that they did.

During questioning by the members of the British Parliament's Culture, Media and Sport Select Committee, Murdoch repeatedly indicated he had not been informed of any details of any of the investigations, was not aware of civil and criminal investigations into senior reporters and senior managers of the News of the World tabloid and the UK division of News Corp., and was not aware that the committee had earlier accused senior News International executives of having collective amnesia.

Murdoch rightly rephrased this as accusing them of lying, but he still claimed not to have been informed of it. If what he says is true, there appears to have been a culture within the organization that could be categorized as "keep it from Rupert."

Why should this be? Did Murdoch discourage openness? Or were his employees too terrified to reveal facts that might damage not only the company's reputation but also its bottom line? Whatever the answers to these questions, whether Murdoch was aware of his employees' behavior or not, the responsibility, not for their actions, but for the culture that allowed them, is clearly his.

The opinions expressed in this commentary are solely those of Paul Hodgson.

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