Phone-hacking crisis hangs over News Corp. board

9th August 2011, Comments 0 comments

Rupert Murdoch's News Corp. holds a meeting of its board of directors and releases its fiscal year-end quarterly results this week as it grapples with the biggest crisis in its history.

The phone-hacking scandal in Britain that has seen the closure of The News of the World tabloid and resignations of key Murdoch lieutenants is expected to dominate the agenda at Tuesday's board meeting in Los Angeles.

The gathering of the 16-member News Corp. board will be the first since the phone-hacking scandal mushroomed into a full-blown public relations nightmare for the media and entertainment colossus helmed by the 80-year-old Murdoch.

In an article on Monday, the News Corp.-owned Wall Street Journal said News Corp. executives will seek to use the board meeting to "steer attention away from the scandal" and "refocus investors on the company's core operations."

Citing "people familiar with the matter," the Journal said News Corp. is also hoping that the release of the company's fiscal fourth quarter earnings report on Wednesday will "defuse pressure relating to the scandal."

Daniel Diermeier, a professor of managerial economics and decision sciences at Northwestern University's Kellogg School of Management, said News Corp. has been "badly affected" by the phone-hacking scandal but he does not expect any major action by the board.

"Everybody that looks at this company from the outside gets now that there's a problem with respect to the culture, there's a problem with respect to the governance of the company and there's a problem with respect to the porfiolio of companies that they have," Diermeier told AFP.

"If this was any other company there would be dramatic consequences in the leadership already," he said. "But this governance structure is unusual. News Corp. has this unusual board structure that basically guarantees family control over the company.

"I'm not sure there will anything dramatic at the board meeting given the governance structure at News Corp," he said.

Rupert Murdoch, News Corp.'s chairman and chief executive, and his sons James and Lachlan are members of the board although News Corp. announced last week it was abandoning a plan to name their sister Elisabeth to the body.

The Journal said News Corp. is not expected to make any management changes at the board meeting and Rupert Murdoch made it clear during his grilling by a British parliamentary committee last month that he has no plans to step aside.

The newspaper said the board could discuss raising the company's dividend or buying back more shares beyond an ongoing $5 billion buyback program.

It said the board meeting will provide a chance for its nine independent directors to discuss the work of a committee chaired by Lord Grabiner, a London-based commercial lawyer, investigating the phone-hacking scandal.

The "Management and Standards Committee" was established on July 18 and is reporting through News Corp. executive Joel Klein to Viet Dinh, a law professor at Georgetown University who is an independent director of the board.

During the tumultuous quarter, News Corp. closed the 168-year-old News of the World and abandoned its bid for full control of British pay television giant BSkyB.

The quarter also saw the resignations of trusted Murdoch aides Rebekah Brooks, a former News of the World editor, and Les Hinton, chief executive of News Corp.'s Dow Jones unit, which publishes The Wall Street Journal.

Brooks was editor of the News of the World from 2000-2003, when reporters at the newspaper allegedly hacked the phone of murdered teenager Milly Dowler -- the claim that sparked the crisis and led to the closure of the tabloid.

Hinton, who served as chairman of News International, the News of the World parent, from 1995 to 2007, worked alongside Rupert Murdoch for more than five decades dating back to his start in the newspaper business in Australia.

News Corp. also sold Myspace, the social network which it bought in 2005 for $580 million, during the quarter for a paltry $35 million, bringing the curtain down on Murdoch's tie-up with the one-time social networking star.

News Corp. shares have lost more than 20 percent of their value since the first reports in early July that phone-hacking victims in Britain included the slain teenager Milly Dowler.

Its shares plunged 7.16 percent on Wall Street on Monday to close at $13.62.

© 2011 AFP

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