News Corp.'s (Nasdaq: NWS) phone-tapping scandal put it on the short list of untrustworthy corporate citizens. One influential investment advisory firm is recommending that shareholders voice their displeasure by using their proxy ballots.
Institutional Shareholder Services has advised News Corp. investors to vote against the re-election of most of News Corp.'s board of directors, including founder Rupert Murdoch and his sons. Two directors were spared the embarrassment, simply because they've only served for a few months.
News Corp. is a repeat offender in poor corporate governance. The phone-tapping scandal that came to light this summer helped bring these ongoing issues into the public eye. As the scandal widened into News Corp. executive arrests and parliamentary hearings, in true narcissistic CEO fashion, Murdoch didn't truly take responsibility for his company's grave misdeeds by offering to step down from his post.
At our Foolish investing conference last month, The Corporate Library's Nell Minow described News Corp. as a "ticking time bomb" and a "disaster waiting to happen" because of its serial problems in corporate governance, and she predicted more bad news to come.
A major advisory firm recommending this kind of vote certainly constitutes more bad news for the company, and shareholders should brace themselves going forward.
Granted, should shareholders vote to ditch the Murdochs and their cronies, it would likely function only as a warning. The Murdoch family owns about 40% of the voting power at News Corp., which utilizes dual-class stock. With a dual-class structure, which many media companies use, the class of shares that regular shareholders own has limited voting rights, while a second class has much greater voting rights that help keep voting power "in the family," so to speak. New York Times Co. (NYSE: NYT) and Washington Post Co. (NYSE: WPO) also utilize dual-class structures.
Tech companies commonly use this structure, too. Recent IPO LinkedIn (NYSE: LNKD) and Google (Nasdaq: GOOG) have dual-class ownership structures. Planned IPO Zynga has envisioned a triple-class structure. When shareholders invest in companies with this setup, they'd better hope they can really trust management with that much voting power.
Obviously, News Corp. has shown its regular shareholders it's not trustworthy. If a majority of News Corp.'s outside shareholders vote against re-electing the insiders and directors, it will send a strong signal to the company's powers that be. News flash: Shareholders have had enough of your nonsense. Straighten up or somebody's shipping out.
