DEEPWATER Horizon would be better suited as a title for a summer blockbuster coming out of News Corporation's 20th Century Fox studios, but it is rapidly becoming the defining point for a company lurching towards a crisis.
Just as one-time ambitious global oil giant BP was almost brought to its knees by the Deepwater drilling rig explosion and offshore oil spill in the Gulf of Mexico early last year, News Corp is quickly losing control of a story it should own.
Consider how quickly the scandal has spread. In a little over two weeks, News Corp has closed News of the World and shelved its $US12 billion ($A11.3 billion) takeover bid for British Sky Broadcasting. The company has come under sustained criticism from both sides of British politics. In the US, it is under investigation by the FBI on allegations that newspaper reporters have targeted victims of the September 11 attacks.
Following the testimony by chairman and chief executive Rupert Murdoch in London last night, the focus has swung to the response of the independent directors in taking a firmer hand in cleaning up the mess.
The independent directors have a fiduciary duty to the shareholders. These include Australian super funds, which have been willing to flex governance muscle in the past when a crisis hits.
Last month's landmark Centro court ruling highlighted the principle that information passed on to directors must not be taken at face value.
New Corp's shares have fallen more than 16 per cent since the scandal broke this month, although the Australian-listed shares yesterday rallied 2.4 per cent on reports out of the US that independent directors were considering elevating chief operating officer Chase Carey to chief executive, effectively forcing the issue of succession planning. This would split Murdoch's current roles, leaving him with the job of chairman.
However, News Corp independent director Thomas Perkins quickly denied such plans. He told Associated Press in the US that Murdoch had the full support of the company's board.
But Perkins's take on the affair was worrying. ''The board has been misled, as has top management been misled, by very bad people at a very low level in the organisation,'' Perkins told AP.
That comment came just days after the resignation and arrest of Rebekah Brooks, the former chief executive of News International, and the resignation of Dow Jones CEO Les Hinton.
Looking at News as a public corporation, clearly there are pressing governance issues that need to be tackled - and fast. What would investors demand if the same were to be happening to a bank or even an oil company such as BP?
The counter to this is that the normal rules do not apply when it comes to backing a company such as News Corp, an organisation that has been built up over decades under the influence of a dominant figure, who also commands 38 per cent of the vote. Shareholders have long been willing to be passive and tolerate the personal whims of Murdoch when it comes to strategy, given that over the longer run the wins have outweighed the losses.
Of New Corp's hefty 16-member board, nine directors are classed as independent, but there are doubts about the independence of several of them: Ken Cowley, a former long-time News Corp executive who has been on the board since 1979; likewise Rod Eddington, the former head of the 50 per cent News Corp-owned Ansett Australia; and Andrew Knight who was once a News executive.
Credit rating agency Standard & Poor's has put News Corp on its creditwatch list - a remarkable development for a company sitting on very little debt. For its part, S&P was concerned about ''the increased business and reputation risks associated with broadening legal inquiries'' into possible criminal activity by News Corp journalists and executives.
That makes even more critical the response by several truly independent News Corp directors. They include Viet Dinh, professor of law at Georgetown University and a former assistant attorney-general under George W. Bush. Others include John Thornton, a one-time president of Goldman Sachs, and Australia's Peter Barnes, current chairman of Ansell and former president of Philip Morris Asia.
Several years ago, in addressing Commonwealth Bank shareholders, well-known Australian director Harrison Young provided one of the clearest overviews on the role of independent directors. Much of this had to do with asking probing questions.
Ultimately, independent directors are required to ''sniff the wind and hope to smell smoke if there is any, before a fire can get out of control'', Young said.
Smoke from the scandal should have drifted to the boardroom as much as five years ago when the first News of The Worldarrests were made.
Just as one-time ambitious global oil giant BP was almost brought to its knees by the Deepwater drilling rig explosion and offshore oil spill in the Gulf of Mexico early last year, News Corp is quickly losing control of a story it should own.
Consider how quickly the scandal has spread. In a little over two weeks, News Corp has closed News of the World and shelved its $US12 billion ($A11.3 billion) takeover bid for British Sky Broadcasting. The company has come under sustained criticism from both sides of British politics. In the US, it is under investigation by the FBI on allegations that newspaper reporters have targeted victims of the September 11 attacks.
Following the testimony by chairman and chief executive Rupert Murdoch in London last night, the focus has swung to the response of the independent directors in taking a firmer hand in cleaning up the mess.
The independent directors have a fiduciary duty to the shareholders. These include Australian super funds, which have been willing to flex governance muscle in the past when a crisis hits.
Last month's landmark Centro court ruling highlighted the principle that information passed on to directors must not be taken at face value.
New Corp's shares have fallen more than 16 per cent since the scandal broke this month, although the Australian-listed shares yesterday rallied 2.4 per cent on reports out of the US that independent directors were considering elevating chief operating officer Chase Carey to chief executive, effectively forcing the issue of succession planning. This would split Murdoch's current roles, leaving him with the job of chairman.
However, News Corp independent director Thomas Perkins quickly denied such plans. He told Associated Press in the US that Murdoch had the full support of the company's board.
But Perkins's take on the affair was worrying. ''The board has been misled, as has top management been misled, by very bad people at a very low level in the organisation,'' Perkins told AP.
That comment came just days after the resignation and arrest of Rebekah Brooks, the former chief executive of News International, and the resignation of Dow Jones CEO Les Hinton.
The counter to this is that the normal rules do not apply when it comes to backing a company such as News Corp, an organisation that has been built up over decades under the influence of a dominant figure, who also commands 38 per cent of the vote. Shareholders have long been willing to be passive and tolerate the personal whims of Murdoch when it comes to strategy, given that over the longer run the wins have outweighed the losses.
Of New Corp's hefty 16-member board, nine directors are classed as independent, but there are doubts about the independence of several of them: Ken Cowley, a former long-time News Corp executive who has been on the board since 1979; likewise Rod Eddington, the former head of the 50 per cent News Corp-owned Ansett Australia; and Andrew Knight who was once a News executive.
Credit rating agency Standard & Poor's has put News Corp on its creditwatch list - a remarkable development for a company sitting on very little debt. For its part, S&P was concerned about ''the increased business and reputation risks associated with broadening legal inquiries'' into possible criminal activity by News Corp journalists and executives.
That makes even more critical the response by several truly independent News Corp directors. They include Viet Dinh, professor of law at Georgetown University and a former assistant attorney-general under George W. Bush. Others include John Thornton, a one-time president of Goldman Sachs, and Australia's Peter Barnes, current chairman of Ansell and former president of Philip Morris Asia.
Several years ago, in addressing Commonwealth Bank shareholders, well-known Australian director Harrison Young provided one of the clearest overviews on the role of independent directors. Much of this had to do with asking probing questions.
Ultimately, independent directors are required to ''sniff the wind and hope to smell smoke if there is any, before a fire can get out of control'', Young said.
Smoke from the scandal should have drifted to the boardroom as much as five years ago when the first News of The Worldarrests were made.
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