At the court of King Rupert: News Corp AGM preview

It's now 15 months since the phone-hacking scandal at the News of the World went nuclear and devastated the Murdochs' political power in Britain. And since that meltdown, the fall-out has wrought havoc right around Rupert's world.

News Corporation's $12 billion bid for Britain's biggest media company, BSkyB, had to be abandoned, his son James was soon forced to flee to America, and Rupert was finally persuaded to cut his beloved newspaper business adrift. And there is the small matter of $584 million in damages to hacking victims, redundancies at the News of the World, penalty fees to BSkyB and lost profits from the NotW's closure.

But despite these setbacks, some things remain the same, because Rupert’s power over the empire he created lives on.

Next week's annual general meeting of News Corp shareholders in Los Angeles, at Hollywood's Daryl F. Zanuck Theater (at 4am AEST, October 17) will see formidable forces ranged against the might of the Murdochs.

Pension funds and other institutional investors representing billions of dollars of News Corp stock will call for huge changes in the way the group is run. They will demand an end to the 81-year-old Rupert acting as both CEO and chairman, plus a cull of Murdoch’s friends and family on the board, and an end to the gerrymander that allows the Murdochs to hold 40% of the voting power in News Corp with only 12% of the shares.

But none of this will get anywhere, even if two-thirds of the independent shareholders vote for change, because Rupert holds almost untrammelled power over his $50 billion media empire, and there's nothing anyone can do about it, unless the News Corp board revolts. Of which the chance is roughly zero.

The case for change is that the NotW hacking bomb was ticking away for five years in Britain under the noses of Murdoch and his managers until it finally exploded last July. During that time, News' most senior executives in Britain destroyed documents, obstructed the police and lied to a succession of Parliamentary inquiries -- as well as to the public -- while Rupert and his son James turned a blind eye to the shenanigans, and the News Corp board snoozed comfortably on.

That same board failed to investigate any of the claims made by The Guardian in July 2009 or The New York Times in September 2010, and failed to act on scathing criticism from the House of Commons Culture and Media Select Committee in February 2010, viz that the "one rogue reporter" defence was not credible, that News executives had been seized by "collective amnesia" when giving evidence to Parliament and that Murdoch's managers had "deliberately tried to conceal the truth".

Worse still, the board's compensation committee reacted to James Murdoch's exact same failure to take those warnings seriously (as CEO and then chairman of News International) by awarding him a cash bonus of $6 million in 2011 and $5 million in 2012. In any other public company, not run like the family business, Rupert's boy would surely have been out on his ear.

And if you need to refresh your memory on what the House of Commons Culture Committee's report said about James's behaviour in May this year, it is best summed up the words "astonishing", "simply astonishing" and "wilful ignorance". Britain's TV regulator, Ofcom, was even more critical of James's performance last month, describing his behaviour as "difficult to comprehend" and "ill-judged", and commenting that it "repeatedly fell short" of what was "to be expected of him as CEO and chairman".

Britain's MPs on the Culture Committee were no kinder when it came to Rupert, pouring scorn on his claim that he had no idea what his hacks at the NotW, and its editor Rebekah Brooks, had been up to. "The notion that ... a hands-on proprietor like Rupert Murdoch had no inkling that wrongdoing and questionable practice was not widespread at the News of the World is simply not credible," was the MP's opening shot.

They then followed this up with an even harsher rebuke, saying that if Rupert really didn't know what was happening at any time between 2001 and 2011 (four years after two NotW employees were jailed for hacking), "he turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications".

The MPs also blamed the corporate culture at News which, they believed, Rupert encouraged: "This culture, we consider, permeated from the top throughout the organisation and speaks volumes about the lack of effective corporate governance at News Corporation and News International."

And finally, they hit him with the big one: "We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of a major international company." But it's not only Rupert and James that those MPS attacked. News Corp and its directors also came in for a walloping, for "huge failings" of corporate governance.

"In failing to investigate properly, and by ignoring evidence of widespread wrongdoing, News International and its parent News Corporation exhibited wilful blindness, for which the companies' directors -- including Rupert Murdoch and James Murdoch -- should ultimately be prepared to take responsibility," the MPs concluded.

So has anyone fallen on their sword at News Corp to atone for these crimes? Well, certainly not at board level. And certainly not anyone whose name begins with M. And neither are there likely to be any major changes in corporate governance as a result.

The spin from on high is that this will never happen again: the stables have been cleaned, the door has been bolted; the culprits have been charged. But no responsibility at all has been taken by those who ran the group in which these things flourished or by those who (at the very least) failed to investigate it. That's why this AGM in Los Angeles ought to see some interesting exchanges.

Now it must be said the current News Corp board is both more independent and more competent than some we've seen in the past. But that would surely not be hard. Back in 1994, an ancient News Corp director called Keith MacDonald, proudly confessed to BRW’s Ali Cromie that he was past his "use-by date" and made "virtually no contribution" to Rupert’s board meetings.

"I am yesterday's man," he happily admitted, "a kind of passenger, an interested passenger." The 68-year-old Macdonald, who had by then been sitting on News Corp’s board for seven years, said it was up to Rupert how long he would stay. He continued to ride the gravy train for another four years, until 1998.

Back then, as Cromie revealed, virtually the entire News Corp board was made up of Rupert’s current or former executives, members of his family, or suppliers to News Corp. And his most forceful and outspoken critic in the boardroom, as Murdoch admitted, was his then wife Anna.

After the AGM next Tuesday, the 16-strong News Corp board will have eight "independent" directors. But the reality is that Rupert will still get what he wants. Seven of the 16 will owe their seat to the emperor's continued patronage: James, Lachlan and Rupert are family members, while Chase Carey, David DeVoe and Arthur Siskind are in the Murdoch inner circle which runs News Corp. A seventh, Joel Klein, was paid US$4.5 million last year to be a vice president of News Corp. One would hardly expect any of them to kick up a fuss. An eighth, Stanley Shulman, runs the investment bank that has advised Rupert for 40 years or more, and still rakes in fat fees from News Corp. (As directors emeritus he and Siskind will get to go to meetings and speak but not vote.)

Among the eight independent directors is Sir Rod Eddington, who worked for News Corporation in the 1990s, running the ill-fated Ansett Airlines until it collapsed in 2001. As "lead director", Eddington is principally responsible for keeping Rupert in check, so one can only hope he does a better job than he did with the charismatic David Coe at Allco, which collapsed into a $10 billion black hole in 2008 and has since been of great interest to the Australian Securities and Investments Commission.

Another independent director until June 30 this year was Andrew Knight, who has been with Rupert since the early 1990s and was once regarded as a potential successor. Murdoch's long-time lieutenant in Australia, Ken Cowley, was also on the board until 12 months ago.

With such a line up, and with Rupert in the chairman's seat at meetings, it would be brave bunch of independents who dared take him on, and an even braver bunch who managed to defeat him. And if it did come to a fight, the Murdochs would have massive firepower to deploy.

The Murdoch family trusts own 317 million Class B voting shares, which give them almost 40% of the votes in News Corp, even though they actually own only 12% of the company. They also have a formidable ally in the shape of the Saudi sheikh, HRH Prince Al Waleed Bin Talal Bin Abdulaziz Alsaud, who has a further 7% of the vote. It was he who came to Rupert’s rescue in 2005, when Murdoch's control of News Corp was threatened by attacks from fellow media billionaire John Malone.

Back then, Prince Alwaleed -- who is known as Arabia’s Warren Buffet -- told the media he had "the utmost confidence in Mr Murdoch, his management team and his succession planning". The prince reaffirmed that confidence in July 2011 when the phone-hacking scandal broke, even though he did demand that Brooks be sacked. And despite all that has been revealed since then, there is no suggestion that he has changed his mind.