Why Murdoch will still be writing the script at News Corp

Rupert Murdoch will be missing at least one ally at Friday’s annual meeting  of News Corp shareholders in Los Angeles.

Evelyn Davis, an eccentric elderly investor who is a regular on the AGM circuit in New York, isn’t making the trip to the West Coast. Murdoch will, on balance, miss her.

More interested in her own publicity than the free food available at such meetings, Davis would have taken up valuable microphone time. Secondly, she’d have used it to back the media mogul over the phone-hacking scandal that threatened to unravel News Corp over the summer.

“No CEO can possibly know what all his flunkies are doing all the time,” she said when I caught her on the phone last week. “A lot of people are jealous of Rupert. He’s a genius.”

The shareholders who are travelling to Los Angeles will disagree. The past fortnight has seen an unprecedented number of News Corp investors demanding an overhaul of the company’s board, including the California Public Employees Retirement System (Calpers) and the California Teachers Retirement System (Calstrs) – America’s two biggest public pension funds – and Hermes, which manages BT’s pension fund.

For these investors, the scale of the phone hacking unearthed at the News of the World points to a system of corporate checks and balances that has badly broken down. There’s also scepticism that the committee News Corp has established to investigate the problem has sufficient independence from Murdoch. News Corp has defended the independence of its board, arguing last week that it's "acting decisively to get to the bottom of what happened."

But, one shareholder, Julie Tanner of Christian Brothers Investment Services, will take  to the floor to call for the appointment of an independent chairman. So befitting a meeting that will unfold in the grounds  of the Fox Film studios, it won’t lack for colour, drama, tension or plot lines.

But Tanner is the first to admit that  her call is a symbolic one. The only shareholders who will be able to vote on in it will be those crammed into the Zanuck Theatre. And it will take special effects beyond anything Hollywood can produce to prevent the re-election of the 13 existing board members, including Rupert Murdoch and his sons, James and Lachlan. The Murdoch family controls almost 40pc of News Corp’s B shares that carry voting rights and Saudi Prince Alwaleed bin Talal Alsaud, who has staunchly backed Murdoch, holds sway over more than 5pc. That’s already within touching distance of the 50.1pc any director needs.

So let’s assume that as the News Corp board sits down to lunch on Friday they’ve all been re-elected and the pay packages for Murdoch and Chase Carey, News Corp’s chief operating officer,  have been approved. How do those shareholders who have been insisting  on change react?

Much will depend on the scale of the vote against Murdoch & co. If it’s large, Calpers, Calstrs and Hermes will feel emboldened. Corporate governance experts who have long had News Corp

in their sights seem confident that shareholders’ likely defeat in the vote tomorrow will be an important staging post on the road to eventual change at News Corp. “Staying at a party when a lot of people aren’t happy to have you there isn’t much fun,” says Charles Elson, a professor of corporate governance at the University of Delaware.

There’s no disputing the events that cascaded from the News of the World’s Wapping office have left the naturally pugnacious Murdoch on the back foot. News Corp is under investigation by Parliament and the Met Police in the UK, while in the US, the Securities and Exchange Commission and the Department of Justice are examining one of the world’s biggest media and entertainment companies. Any of these inquiries, or further investigative reporting, could pull on a thread that would force Murdoch to relinquish his grip on the company he founded.

But, based on what we now know, is Prof Elson right? Will Murdoch be forced to leave his own party in the next year or so? The answer is no and the explanation again lies with News Corp’s shareholders.

For every Calpers that has voiced its concerns, there’s another shareholder  that hasn’t. They may have had private conversations with News Corp’s management. But given News Corp’s forceful defence of the independence of its board and the voting rights Murdoch already wields, it seems likely any shareholder who felt very strongly would have grabbed the leverage that speaking out publicly gives.

The scandal hasn’t dented News Corp’s profits, which are driven by its successful US cable television business. Wall Street’s greater concern is that Murdoch blows News Corp’s more than $10bn in cash on another newspaper or the next MySpace. Yes, pressure has increased on Murdoch, but he’s still writing the script at News Corp.

The banking crisis showed it’s a mistake to rely too heavily on shareholders to force fundamental change at companies. News Corp, so far at least, echoes that.