Corporate Law

'Adult Supervision' Lacking in UK Paper's Phone-Hacking, Del. Suit Says, Blaming Board

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As a popular United Kingdom tabloid newspaper ceases publication after allegations of widespread hacking into thousands of individuals’ telephone messages—including the account of a missing British 13-year-old who was later found murdered—what one newspaper describes as “toxic fallout” is raining down.

Shareholders on Friday amended a prior complaint (PDF) in Delaware Chancery Court against News of the World parent News Corp. to allege “rampant nepotism” and massive failures of corporate governance. Filed by Grant & Eisenhofer and Bernstein Litowitz Berger & Grossmann, the shareholder derivative and class action suit seeks to block media mogul Rupert Murdoch’s daughter, Elisabeth Murdoch, from taking a seat on the board, as well as to stop the family from allegedly treating the company as a family “candy jar.”

“News Corp.’s behavior has become an egregious collection of nepotism and corporate governance failures, with a board appearing to be completely unwilling to provide even the slightest level of adult supervision,” said partner Jay Eisenhofer, who serves as co-managing director of Grant & Eisenhofer, reports the Telegraph.

The suit says the board should have taken action long ago to get the situation under control after the phone hacking came to light six years ago.

The company didn’t immediately respond to a request for comment, reports the Associated Press.

Meanwhile, questions are being raised about possible violations of the Corrupt Foreign Practices Act, the Associated Press reported in a separate story, and the scandal could potentially cost News Corp. its broadcasting licenses in the United States, This Week panelists said on the ABC News show.

The Federal Communications Commission has a “character” clause that broadcasters must comply with, notes a TV Newser summary of the TV show.

Criminal investigations are also underway concerning some executives of the company, reports a CBS News video.

But that’s not all:

“As the News of the World scandal gathered momentum, it became clear, by midnight on Thursday, that this was not just the latest of a series of institutional crises–the banks, MPs expenses–but the biggest,” writes Paul Mason in a lengthy BBC News analysis and opinion column about the influence of the media on British politicians.

For decades, under both parties, “[t]he strength of the Murdoch newspaper and TV empire was that it occupied the commanding heights of a kind of journalism that dispenses power, intimidates and influences politicians and shapes political outcomes,” he continues. But, as with Lehman Brothers and the shadow banking system, that only became clear after the empire collapsed.

Additional and related coverage: “UK Attorney Says Tabloid Hacked Up to 7,000 People’s Phone Messages; Big-Bucks Cases Expected” “3 Journalists Arrested in Expanding Phone-Hacking Probe” “News Corp. GC Resigns Amid Controversy over UK Paper’s Celebrity Phone Hacking” “Lawyer Says UK Tabloid May Have Hacked His Phone Messages for Princess Di Info”

Bloomberg: “News Corp.’s BSkyB Bid Sent to Competition Unit”

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