The decision by News Corporation’s independent non-executive directors to hire a law firm to carry out an audit of governance practices is almost a “surrogate for a board evaluation”, according to analyst Jennifer Pendergast, from the US-based Family Business Consulting Group.
In July, the directors took on law firm Debevoise & Plimpton to offer advice on good corporate governance at the media conglomerate, which is dominated by Rupert Murdoch and his family.
They were spurred on by the phone-hacking scandal involving News International, the UK division of News Corp, which resulted in the closure of British newspaper News of the World last month and raised concerns the scale of the crisis was not fully appreciated by the board.
The decision to hire a law firm has come under heavy scrutiny, with commentators suggesting it could help establish an alternative strong voice to Murdoch and his son James.
Whether the partnership between the directors and the law firm will be effective, particularly when it comes to reducing the Murdoch family voice, will be dependent on the type of assessments undertaken, Pendergast said.
“To really evaluate good governance, it requires observing the board in action to evaluate whether there is an open culture of discussion and debate that allows independent directors to identify issues and for their concerns to be heard,” she added.
One of the key issues which has arisen from the hacking scandal is whether or not independent directors are effective.
This is often influenced by the selection process – where people are appointed for their skills and not because they are an “old friend of mum and dad”, said Alex Sharpe, a consultant at London’s Peter Leach LLP.
“However, family firms are different to other businesses, and even this rule is not black and white as there are circumstances where putting a non-family non exec who has a personal history with, and deep understanding, of the controlling family can be an effective tool to help facilitate succession between family members,” she added.
As in News Corp, many family businesses or family-controlled companies are often the domain of charismatic leaders and dominant personalities, she said, and for this reason “the recruitment of yes men must be avoided”.
The Murdoch family control almost 40% of the voting rights at News Corp. Rupert is the current chief executive and chairman, while James is deputy chief operating officer.