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July 19, 2011
Shareowners Amend Lawsuit Against News Corporation
    by Robert Kropp

In an amended lawsuit, Amalgamated Bank argues that ineffective oversight by a board that has consistently been given an F rating by GovernanceMetrics International contributed to the phone hacking scandal now engulfing the company


In an amended lawsuit originally filed in March, the Amalgamated Bank argued that the phone hacking scandal now engulfing Rupert Murdoch and News Corporation proves that the media company's board of directors "provides no effective review or oversight."

"It is inconceivable," the amended complaint continued, "That Murdoch and his fellow board members would not have been aware of the illicit news gathering practices."

The bank, on behalf of shareowners including the Central Laborers' Pension Fund, argued in its original complaint that approval by the News Corporation's directors of a proposed $675 million purchase of Shine Group constituted a "breach of their fiduciary duties to the Company." Shine Group is owned by Elisabeth Murdoch, and, according to the complaint, Rupert Murdoch's "admitted purpose in entering into the Transaction is to bring Elisabeth back to the family business…and onto News Corp's Board of Directors."

"In short," the original complaint continued, "Murdoch is causing News Corp to pay $675 million for nepotism."

In addition to the lawsuit, Citizens for Responsibility and Ethics in Washington (CREW) has added its voice to calls for an immediate Congressional investigation into allegations that News Corp journalists "hacked or attempted to hack the voicemails of American terrorist victims, politicians, and celebrities."

In a commentary posted on Bnet.com, Nell Minow of GovernanceMetrics International (GMI) described the corporate governance failures that allowed Murdoch to engage "in a series of outrageous breaches by a man who thinks the rules don't apply to him and has gotten away with it so far."

Noting that GMI, which rates the effectiveness of corporate boards of directors, has "consistently given News Corp an F, only because there is no lower grade," Minow wrote, "The board is Murdoch family friendly but decidedly less friendly to those whose interests they are legally obligated to protect: the shareholders."

However, "For the first time this latest scandal has given the board some leverage to push back" against Murdoch, Minow wrote.

Writing on GMI's blog, Minow stated, "A board that has been told what to do by an imperious CEO will be told what to do by the lawyers, and getting rid of the CEO is what boards do when there's a mess."

As for Amalgamated's lawsuit, Minow wrote, "For pure ROI (return on investment), it looks like a sure thing."

 

 
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