Though they deny it, there are credible reports  that at least some of the directors of News Corp. have grown fed up with Rupert Murdoch’s leadership during the ongoing phone-hacking scandal and are looking to replace him. Technically speaking, the company’s board can fire the media magnate if indeed a majority of its members want to do so, and they have some other options for taking him on as well. But none of them will be easy. If Murdoch is removed as CEO, it will almost certainly be because he made the decision, or at least assented to it.
That said, although the two board members reportedly behind the anti-Rupert movement have come out publicly to say they’re actually fully behind him, they do have the authority to give him a pink slip if they want to.
“Legally, they have the right to remove him from the job right now—and certainly to remove him as a temporary matter pending the outcome of the investigation. They have the complete authority to do that,” says Nell Minow, a member of the board of GovernanceMetrics International, an independent provider of corporate governance ratings and research that has consistently given News Corp.’s board a miserable F rating.
But having the authority to depose Murdoch isn’t really the same thing as truly having the power to do it, and to make it stick. There’s a Catch-22 here: Whoever controls the voting stock also controls the board, and Murdoch controls the voting stock. “He has the votes to select [the board]. If they do something he doesn’t agree with, he replaces them,” says Charles Elson, a leading authority on corporate governance issues who teaches at the University of Delaware. The board could vote to fire Murdoch as CEO, but then, observes Jeffrey Haas, who teaches corporate law at New York Law School, “He is going to be in a position to get rid of the people who just fired him.” After that, all he’d have to do is select new directors who’d vote him back in as CEO.
The design of News Corp.’s dual stock structure—with Class A shares that are non-voting and Class B shares in place as the voting shares—ensures Murdoch will always have the final say: He controls a plurality of the voting shares, some 40 percent.
“At this point, he has to decide what his fate is,” Elson says.
Thanks to his commanding share of the voting stock, Murdoch can also make it very difficult to launch any attempt at deposing him through a hostile takeover of the company, or any attempt to get rid of directors sympathetic to him.
That doesn’t mean the board is entirely without options, even if none of them are as dramatic as actually moving against Murdoch would be. One of those options—one the board may actually be legally required to undertake—would be for the directors to enact measures aimed at preventing another failure of oversight like this from happening again. To be sure company employees are not running amuck, the courts in Delaware—where News Corp. is incorporated—require board members to have a good faith belief that the corporation’s information and reporting system is sufficient both in design and in practice. “[Directors] have to make sure there is a mechanism that upstreams material information from the grassroots all the way up to the top,” Haas says. “The fact that they didn’t know about [the phone hacking] means they’ll see problems in their reporting system—and they’ll have to take steps to fix it.”
If the board is able to muster up enough backbone to defy Murdoch, another possible action might be an attempt to overhaul News Corp.’s corporate customs. “It’s not unusual to bring in compliance people after a scandal like this with strong enforcement backgrounds to readjust the culture [of the company]. For shareholders, that’s the best case scenario,” Haas says.