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Old tricks

5 September 2012 By Jeffrey Goldfarb

The reformation of Rupert Murdoch looks to have reached its limit. The 81-year-old media mogul has moved to sensibly deploy capital and break up News Corp as part of a big turnaround since a British phone-hacking scandal rocked his empire. But two new board nominees look like the old Murdoch at work. Investors shouldn’t be so quick to forget the havoc an unconstrained emperor can wreak.

Poor corporate governance contributed to the misconduct at the now-shuttered News of the World tabloid newspaper. Systems and controls across News Corp were exposed to be lacking, ultimately costing the company its desired acquisition of the entirety of its BSkyB satellite business and upending top management around the world. The Murdoch discount deepened, as News Corp shares traded well below the sum of the group’s parts.

The old fox grasped the nettle, though. Murdoch sidelined his son, James, and elevated right-hand man Chase Carey to a more prominent role. Billions of dollars originally earmarked to buy BSkyB were redirected to buy back shares and raise the dividend. Murdoch even opted to separate his beloved newspapers from the more profitable TV and film divisions. And just like that, investors forgave the sins of the past, giving nearly full value to News Corp’s assets.

Murdoch still doesn’t want to be second-guessed, though. On Wednesday the group named as directors Alvaro Uribe, the former Colombian president, and Elaine Chao, who served for eight years under President George W. Bush as secretary of labor and is married to the top Republican in the U.S. Senate. Uribe is well suited to help Murdoch with his Latin TV ambitions. Chao can reinforce his ties in Washington. But neither looks up to the task of challenging the News Corp chairman and chief executive on how he runs his corporation.

Despite some turnover over the past year, the board is still stacked with Murdoch’s children, lieutenants, cronies and other supine directors. Shareholders would do well to remember that as quickly as Murdoch changed his ways to enhance their investment, he is still essentially free to act on his whims. The Murdoch discount isn’t necessarily gone forever.


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