Rupert Murdoch recently told owners of 62% of the equity in News Corporation that they had no business in corporate decision-making. The company employees in excess of 50,000 people and has revenues of US$34 billion, a figure which exceeds the GDP of 86 of the globe’s countries including Afghanistan.
In that company, 38% of the shares are owned by institutional investors and mutual funds, the place where superannuation funds and other members of the public invest their money. Murdoch’s advice was “if you don’t like it, don’t buy the stock”. This situation raises some significant concerns.
News Corporation’s astounding control of the media in Australia, the UK, and the USA puts great power into the hands of Murdoch’s chosen few. From its ubiquitous television channel, Fox News, to newspapers The Australian, to the UK’s The Times and USA’s Wall Street Journal, Murdoch uses the media empire to shapes public dialogue.
He has explicitly used his media empire to support political parties and candidates who are willing to do his bidding, and to run sustained attack campaigns against those who won’t. This control over media is very significant because the organisation does not provide news when it comes to politics. Rather, it provides highly partisan opinion under the guise of news.
Consider, for example, Murdoch’s behaviour in phone hacking, political influence peddling, from everything to pressuring Tony Blair to invade Iraq to opposing greenhouse gas emissions. Such acts have led to a widespread concern not only about his economic judgement, which allowed his newspapers to engage in unethical journalism (and ultimately economically risky practices), but also his anti-democratic pressure on the democratic discourse in many nations.
This opinion dissemination both subconsciously influences the tired, distracted voters looking for a bit of information and entertainment at the end of the day, and explicitly dupes less the informed about their real interests and the efforts of politicians trying to create effective policy.
Murdoch has successfully manipulated public dialogue to turn political discourse from a debate about national policy into a combination of high drama and farce. His decision to use legal economic rights to restrict and regulate the terms of the political debate and related democratic rights has raised alarms.
How can it be that a person who is a minority equity owner can have control over the company, its assets, employees, and have such a loud political voice but be subject to such limited accountability?
The simple answer is that the company has two classes of shares: equity and voting. Although Murdoch owns only a small amount of the equity shares, he controls 38% of voting shares. Thus he needs only to add 12.1% of the voting shares to his votes to control the company. As a result, the control of the company — and hence its editorial policy and political voice — does not represent the voices of those people whose billions of dollars are invested. That is the structure of corporate law.
At law, the owners of equity shares, are entitled to dividends, perhaps some other economic rights, but nothing more. In other words, when they purchased the shares they did not purchase governance rights (voting rights). As a result, their proprietary interest in the corporation is limited to economic rights; their complaint limited to matters of finance.
Are they obtaining a fair return on their investment? If yes, then, as Institutional Shareholder Services advised, they should stay and leave governance uncontested. If not, they are free to sell those rights on the market, or attempt to purchase more voting shares. After all, this right to buy and sell share property is the essence of capitalism.
While corporate law allows Murdoch to say: “if you don’t like it, don’t buy it”, it does not allow democratically inspired shareholders and others to reply: “Rupert, if you don’t like democracy, don’t stay. There is no shortage of dictatorial kleptocracies which would be pleased to be host your money.” This state of affairs may lead to the suggestion that there is something amiss with corporate law.
The basic issue is recognising that the publicly traded corporation is not a private club. The contemporary corporation, which finds its roots in the medieval era, has changed markedly since its creation. It is much more than a purely legal or private economic actor. Rather, it has become the dominant actor in society, controlling media and culture, shaping wants and aspirations, creating jobs and setting terms and conditions of employment, possessing, despoiling and in some cases restoring vast swathes of the planet.
Reform should take account of the corporation’s social, political and environmental impact. Those impacts are in the first instance the consequences of corporate decision making. Currently, corporate law allows a small group to make very significant decisions with very limited accountability.
In any other context, a person who controls billions of dollars, tens of thousands employees, and who dominates the shaping of political opinion, would have some political accountability. If we believe in democracy with respect to the decisions of who runs the country often thousands of kilometres away, how can we reject democracy in the case of those who run and regulate the minutiae of our everyday lives?
The claim that corporate rights are private rights falls when one considers that rights are publicly created in the first instance. It falls as well when it is considered that everything from the money used, to the social institutions such as honesty, a decent work ethic, public education, and the collaboration relied on for production, are in fact public goods. It falls when the massive impacts just mentioned are acknowledged to be public impacts.
This argument leads to the reform suggestion that decisions about the costs and benefits of large corporations should not be made by a group of people whose interests are far removed from the impact of those decisions.
Corporate law could integrate political, social and environmental concerns through implementing a serious CSR program which incorporates stakeholder theory. CSR founded on stakeholder principles includes not only more informed and socially embedded decision makers, but also includes a wider range of measures beyond privatised corporate economic gains. It should lead to a better, more sustainable future for the majority, sustainable ecologically, socially and politically.
Finally, as the case illustrates, a corporation may be far more than merely a pool of cash and assets trying to turn a profit. News Corporation’s efforts to shape political discourse rather than hold politicians accountable has failed its public duty as the Fourth Estate: to watch the political guardians.
Taking this public governance role requires that it be held to an even higher standard. Yet, as we have seen, News Corporation has been used by Murdoch and his associates as a political machine, and has ultimately, become a threat to democracy itself.
This leads to a second direction for reform. Where the corporation is intended to deliver public goods, from roads, to health care, to telecommunications and public messages, a sharp watch and empowered hand needs to be kept.
As it was said long ago: “Eternal vigilance is the price of liberty”. There is no point in granting public rights and duties to a corporation and then hoping it won’t run amok. Corporations which pursue such public grants need to include in their constitutions a special clause providing additional public access and empowered oversight.