News Corp. (NASDAQ:NWS) wouldn�t exist in its current form if it weren�t for its controversial dual class system of share ownership that has recently come under fire — and neither would other media companies.
But shareholders might be worse off without it.
If his family didn�t control 40% of the New York-based media conglomerate, CEO Rupert Murdoch would have never been able to convince the naysayers 15 years ago that Fox News Channel would be able to topple CNN as the ratings leader in cable news. He also probably wouldn�t have been able to keep Fox Business Network on the air as what he viewed as a more pro-business alternative to CNBC.
In addition, his purchase of Dow Jones, the publisher of The Wall Street Journal, would have never happened. After all, what shareholder in their right mind would green-light acquiring a company that no one else wanted for a 67% premium?
Come to think of it, Murdoch also encountered plenty of skepticism when he launched Fox Broadcasting in 1986 over whether the U.S. was ready for a fourth network — which, of course, it was.�
Maybe the recent U.K. phone-hacking scandal has highlighted the board�s lax oversight over the founding family. At times, Murdoch looked tired and confused in public. His continual apologies for the bad behavior of his employees aren�t helping his case, either.
Indeed, there have been media reports that Chief Operating Officer Chase Carey is being groomed to replace Murdoch — that probably would be welcome relief to shareholders. But a Murdoch-less News Corp. would be like Apple (NASDAQ:AAPL) without its late visionary CEO Steve Jobs. It just wouldn�t be the same place.
What makes Murdoch�s tenure so remarkable — besides its longevity — is how often his instincts were proven correct. One of the few times he blew it was with the $585 million acquisition of MySpace, which News Corp. unloaded for $35 million earlier this year. Amid the latest serious blunder in the U.K., News Corp. already has paid a steep price when it scrapped its plans to acquire the remainder of BSkyB that it didn�t already control for 8 billion pounds ($12.6 billion).
Having such an iron grip over News Corp. gave Murdoch a level of freedom to experiment and let businesses develop that most CEOs would envy. Shareholders who bet on Rupert Murdoch and his management team have been well rewarded. During the past decade, shares of News Corp. have gained more than 21%, outperforming rivals such as Viacom (NYSE:VIA), which has barely budged.
With no end in sight yet to the U.K. scandal, pressure on the Murdoch family is intensifying.�The powerful California Public Employees Retirement System and the California State Teachers’ Retirement System have both said that they will vote against the Murdochs and those allied with them at this week�s annual meeting.
Both shareholders are angry about the dual class ownership system. They better hope that the cure is not worse than the disease.
Jonathan Berr does not own shares of any stocks mentioned in this article.
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