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News You Can Use: Why Nothing in Murdoch's Empire Will Change

As if News Corp. (NWS) CEO Rupert Murdoch didn't have enough worry from the phone hacking scandal rocking the company, he's now fighting a multi-front war between a shareholder lawsuit and calls for a boycott of other News outlets.

Most chief executives would be panicking about now, concerned about being ousted from their positions. That won't happen here; Murdoch can keep control as long as he wishes, so his hold on the company and what he and his family can get from it aren't at stake. Instead, as has always been the case, it will be News and its shareholders who pay for the decisions that Murdoch makes.

One herd of unhappy camels
For years, the markets have talked about a Murdoch discount -- the loss of value News shares have compared to competitors because of the Fearless Leader's choices:

Investors have been happy to go along with his autocratic style while they have benefited financially from his visionary business leadership. Increasingly, however, Murdoch is seen to be having a damaging effect on shareholders' wealth. Concern is growing about a perceived Murdoch "discount" -- News Corp shares trade at a discount of around 15pc to rivals like Time Warner and Disney.
Here's how the lawsuit complaint's plaintiff investors -- which include Amalgamated Bank (a union-owned bank with $4.5 billion in assets), the Central Laborers Pension Fund, and the New Orleans Employee's Retirement System -â€" describe governance at News in their amended complaint (they originally filed in March):
Rupert Murdoch ("Murdoch") â€"- News Corp's founder, Chairman, Chief Executive Officer and controlling shareholder â€"- habitually uses News Corp to enrich himself and his family members at the Company's and its public shareholders' expense. Plaintiffs bring this shareholder derivative and class action because recent self-interested transactions and revelations about News Corp's operations giving rise to this action are the proverbial straws that break the camel's back.
To the plaintiffs, the News of the World episode is just another example that the board provides "no effective review or oversight." The suit also addresses the News purchase earlier this year of his daughter Elisabeth's television production company.

The recent examples aren't the only ones. You could count the entire MySpace fiasco, in which Murdoch could have simply set fire to hundreds of millions of dollars -- including the nearly $300,000 the company paid his wife for strategic advice on MySpace China.

Pull those ads
Then there are the millions that News has lost as companies have pulled their advertising from the company's newspapers. But as my BNET colleague Jim Edwards reported last month, that has been a drop in the bucket at £40 million, or $64 million. Murdoch's grocery coupon empire has lost $656 million in legal settlements to date.

News of the World may have the spotlight, but it's relative chump change. At least, so far. The full cost of NOTW has yet to be seen. Online boycott campaigns could raise enough ugly PR to cause even more advertisers to defect and move their money to competing media outlets. Maybe that's the real reason why Murdoch wants BSkyB: for a cash flow that could pay all the penalties resulting from... the Murdochs' rule of News. [UPDATE 7/13: News has dropped its bid for the remainder of BSkyB.]
Murdoch can't be touched
Not that any of this matters, even with angry institutional investors. The board isn't going to demand that Murdoch step down. Out of 17 directors,

That's 11 members, or more than enough to control what happens in the company. The others are largely from companies that have benefited greatly from doing business with News.

Don't expect the board composition to change. According to the latest News proxy statement, Murdoch himself owns 39.7 percent of the class B voting common stock. The Murdoch Family Trust owns another 38.4 percent. That's more than 78 percent. Everything will continue exactly as it has been, with News paying or losing hundreds of millions to keep the Murdoch clan and its minions doing what they feel like doing.


Image: Flickr user DonkeyHotey, CC 2.0.
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