News Corp. Board Ignored Wrongdoing, Investors Contend

News Corp.’s board turned a blind eye to illegal conduct including phone hacking by employees and sanctioned founder Rupert Murdoch’s misuse of company resources to gain political clout, investors said in a court filing.

News Corp.’s directors knew in 2009 that some of the media company’s reporters routinely hacked into phones and bribed British police officers for stories, a New York bank and an Illinois pension fund said in an amended complaint filed yesterday in Delaware Chancery Court. Board members refused to properly probe these acts for fear of angering Murdoch and his children who serve as company executives, according to the complaint in a lawsuit against the directors.

The board’s lax oversight “is a textbook example of failed corporate governance and domination by a controlling shareholder,” the investors said in their complaint. Directors also “condoned Murdoch’s use of News Corp. to pursue his quest for power, control, and political gain” at shareholder expense, the investors alleged.

News Corp. officials yesterday denied reports that James Murdoch, the New York-based company’s deputy chief operating officer, obstructed a U.K. media-ethics inquiry triggered by rampant phone-hacking at its now-defunct News of the World tabloid. Police are probing whether James Murdoch, Rupert’s son, failed to hand over to investigators an iPhone issued to senior executives at the company.

Single Reporter

News Corp. is trying to move past the controversy after the inquiry that began last year revealed damaging e-mails and text messages. Both Rupert and James Murdoch blamed the scandal on underlings when they testified in April before a judge handling the inquiry, saying they believed the hacking was limited to a single reporter who was jailed in 2007.

Jack Horner, a U.S.-based spokesman for News Corp., didn’t immediately return a call for comment today on the amended complaint.

Last month, British lawmakers concluded that Rupert Murdoch was not “a fit person” to lead a major international company after News Corp. officials misled Parliament about extent of phone hacking at the News of the World, which was closed in the wake of the scandal.

Murdoch “turned a blind eye and exhibited willful blindness to what was going on in his companies,” the House of Commons Culture Committee said in its report.

News Corp.’s board announced May 2 that it had “full confidence” in Murdoch’s ability to lead the media company despite lawmakers’ finding.

Best Interests

Directors’ willingness to back Murdoch in the face of criticism over the phone-hacking scandal shows they can’t be relied on to act in shareholders’ best interests, New York-based Amalgamated Bank and Jacksonville, Illinois-based Central Laborers Pension fund, said in the amended complaint.

“Plaintiffs seek to obtain redress for News Corp’s public shareholders for the harm caused by the board’s bad faith failure of oversight,” according to the complaint.

The investors filed a so-called derivative lawsuit against the board, which would return any recovery from insurance covering the company’s officers and directors to News Corp.’s coffers.

The case is In re News Corp. Shareholder Derivative Litigation, CA 6285, Delaware Chancery Court (Wilmington).

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