Why James Murdoch Is Now a Headache for Glaxo

Last Updated Jul 20, 2011 11:38 PM EDT

GlaxoSmithKline (GSK) CEO Andrew Witty is no doubt gnashing his teeth over James Murdoch's testimony to the U.K. parliament yesterday on the phone hacking scandal at News Corp. (NWS). Murdoch has sat on GSK's board of directors since 2009. Murdoch is on the two of GSK's board committees, corporate responsibility and remuneration. He now looks like an unfortunate candidate for both those jobs.

In terms of corporate responsibility, Murdoch and his father, Rupert, repeatedly told MPs that their company was too big for them to know what was going on even at their flagship newspaper properties, or that they had failed to see when their lieutenants were misleading them.

Time and again Murdoch told the committee that important decisions -- such as paying off celebrities whose phones had been hacked or doing internal investigations to root out wrongdoers -- were delegated to lower-rung managers who then got things wrong or actively conspired to conceal the rot inside News. The company has 53,000 employees. They just can't pay attention to the whole thing. James Murdoch said he didn't even know whether the U.K.'s Serious Fraud Office (the equivalent of the SEC) was investigating his division of the company.

GSK, however, employs 96,500 workers worldwide. Clearly, on the basis of yesterday's questioning, it's too big for James Murdoch to pay a whole lot of attention to.

Who pays who?
In terms of remuneration, Murdoch received $10.3 million in compensation in 2010 for being News' CEO of Europe and Asia. Witty received only £2.3 million for being in charge of the whole shebang. How likely is Murdoch to begrudge Witty, whose company pays him $158,000 in annual director fees, a bump in pay?

Murdoch's presence at GSK is becoming an issue among corporate governance geeks, such as Richard Northedge at the financial trade publication Director of Finance:
... shareholders might belatedly start asking what experience he brings: his whole working life has been inside his father's empire.
GSK says it is sticking by Murdoch:
A Glaxo spokeswoman writes us to say that Murdoch has made a "strong contribution" to the board--and that "we believe that the full facts must be established and the ongoing investigations be allowed to take place and come to a considered conclusion."
Still, Witty and fellow directors might want to change the PIN numbers on their voicemails, just in case.

Related: Image: From GSK