We knew the newspaper industry was in trouble -- but who knew it was in this much trouble? News Corp.'s (Nasdaq: NWS) recent phone-hacking scandal has revealed just how big a risk poor corporate governance policies can pose to shareholder value.

Control freaks
News Corp. has operations around the world, but Americans may be most familiar with the media giant's U.S. news outlets, such as Fox News and The Wall Street Journal.

The company's current controversy involves allegations that News Corp.'s British tabloid News of the World hacked into phones to mine for newsworthy tidbits. News Corp. quickly shut down the tabloid, but that hasn't stifled the building outrage, nor its ripple effects.

The media giant's shares have fallen by about 13% since the news broke. That's bad news for shareholders on its own, but there's more been more trouble here than meets the eye.

News of the World 's outrageous breach of trust and ethics has led to shareholder lawsuits, police inquiries, grilling from Britain's Parliament, and media and government criticism of Murdoch's now-abandoned plan to acquire the remainder of British Sky Broadcasting, or BSkyB, in which it holds a roughly 40% stake.

All this bad press has duly punished News Corp.'s stock price, and at least one group of News Corp. shareholders really isn't happy. They're suing the company for governance failures. Granted, lawsuits aren't uncommon after a major drop in a company's stock price whether anything nefarious occurred or not. But in this case, the company wasn't very shareholder-friendly to begin with.

News Corp. shareholders allege that company head Rupert Murdoch "habitually uses News Corp. to enrich himself and his family members at the company's and its public shareholders' expense." According to The Financial Times, corporate governance expert Nell Minow said her organization, GovernanceMetrics International, has "consistently given News Corp. an F, only because there is no lower grade."

The company has a dual-class stock structure, meaning it has two classes of stock that have different voting rights. Not surprisingly, management's shares have greater voting power than regular shareholders'. This gives management tight control over corporate events, while stifling other shareholders' power to exert any influence through voting. In News Corp.'s case, the Murdoch family holds 40% of the voting power.

News Corp. isn't alone in making regular shareholders second-class citizens. Tech companies have their own reasons to keep insiders strong and shareholders relatively weak. Recent IPO LinkedIn (Nasdaq: LNKD) and Google (Nasdaq: GOOG) both have dual-class stock structures.

In the news industry, similar setups persist at New York Times (NYSE: NYT) and Washington Post (NYSE: WPO). While dual-class shares can arguably help these companies retain journalistic integrity in spite of grasping shareholders, News Corp. just punched a great big hole in that reasoning.

More shareholders now realize that News Corp. urgently needs new blood on its board. The Financial Times reported that the company's board faced accusations of nepotism in the past. At least one former News Corp. executive has been warming a board seat there since 1979.

Tell-all headlines tell the tale
The News Corp. scandal reveals just how far the news industry now feels driven to go in pursuit of the public's increasingly divided attention. News Corp.'s competitive desperation led to bizarre, unethical behavior that has eroded public trust in all news organizations.

Perhaps next time, shareholders will crack down on poor corporate governance policies before things go this horribly wrong. Bad policies and lousy governance can and sometimes do destroy reputations, demolish trust, and needlessly deprive investors of hard-earned cash. Those probably aren't the kind of headlines News Corp. ever wanted to make.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomaxdoes not own shares of any of the companies mentioned. For more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. The Motley Fool owns shares of Google. Motley Fool newsletter serviceshave recommended buying shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. The Motley Fool has a disclosure policy.