Calpers Waves Wet Noodle at Murdochs, While DoJ Appears to Be Sitting On Its Hands

It’s a bit curious that l’affaire Murdoch, which has dominated the news in England, has gotten some air time here, but not in proportion to its importance in the UK and potentially in the US. True, you have to know a bit of who has done what to whom over time, but stuff like hacking the voicemails of dead little girls and live major government officials, lying in Parliamentary investigations, paying hush money, and suborning the police isn’t that hard to explain. And it’s also hard to imagine that a culture that the US operations didn’t share at least some of the aggressive and reckless habits of its siblings across the pond.

At least one party, Calpers, which is the largest pension fund in the US, appears to have decided to use this revelation of the Murdochs’ feet of clay to open up an issue that was worth airing a long time ago: the hold the family maintains on News Corp. The company’s dual class equity structure allows the Murdoch clan to maintain a 40% voting interest, when their economic stake is worth only 12%. The tendency of big institutional investors to support management means that 40% is more than enough to assure effective control (not that one needs to argue the point, given how the Murdochs are the company). And Prince Alwaleed bin Talal holds a 7% stake, and has been and continues to be a loyal supporter of the family.

This means the Calpers effort is dead from the outset. The Murdoch control does serve as useful vehicle to publicize this issue, but don’t mistake it for a serious salvo. From the Financial Times:

“Power should reflect capital at risk. Calpers sees the voting structure in a company as critical. The situation is very serious and we’re considering our options. We don’t intend to be spectators – we’re owners,” Ms [Anne] Simpson [senior portfolio manager and corporate governance chief]. said. “Dual class voting is one way to pervert the alignment of ownership and control…

The dilemma for News Corp’s board is how to establish its independence, the fund manager said. “Where the founder is still in control, as at News Corp, it is hard to see him running the board as a hands-off chairman or letting an independent chairman in to run strategy and the board. And the worst of all worlds would be to bring in a puppet chairman.”

The real problem is the notion that shareholders in liquid, widely held companies are anything other than spectators. It’s much easier for unhappy investors to sell than to try to have an impact on corporate governance. Companies have so many defense mechanisms in place, in particular staggered boards, that it is virtually impossible for dissident shareholders to have an impact. And the way they do is typically indirect: like short sellers, they make such a stink that the damage to the stock force management to change behavior.

And by contrast, the parties in the US that could force change on News Corp. don’t seem to be seriously entertaining the question as to whether any action is needed. The Guardian discusses the peculiar complacency of the US officialdom (hat tip reader Foppe):

What’s not remotely clear at this point, however, is whether the people and organisations who can actually do something to bring the America-based Murdoch empire to heel are paying much attention. I refer mainly to the agencies with subpoena and enforcement power in the federal government, such as the Securities and Exchange Commission and the Department of Justice.

It will, in fact, surprise me if the authorities working for the Obama administration take this up in a serious way. After all, Obama’s typical approach is to insult his allies while he cozies up to his enemies.

Imagine if the roles in this scandal were reversed. That is, imagine that the perpetrators of the voicemail hacking, apparent bribery of police and who knows what else were part of a liberal news conglomerate while Republicans controlled the White House and at least one house of Congress.

You can bet that a George W Bush administration would respond with savage pleasure. It would use the situation like this to punish its political opponents. One would expect the same from any of the plausible Republican candidates for president in 2012. And Republicans in Congress would be frothing at the mouth to ensure that the company paid dearly for its transgressions…

The Obama administration doesn’t seem terribly interested, despite news stories suggesting that an investigation has begun, and his party doesn’t have anything like enough spine to force the issue. The Democrats stand for essentially nothing, as they’ve shown repeatedly in recent years. To be fair, moreover, Washington has other issues on its table – the debt ceiling, for example, which threatens to blow an even bigger hole in the struggling economy…

Would it bite hard or be long-lasting? Probably not. Fox is one of the right wing’s primary propaganda arms, after all, and it employs a variety of out-of-work GOP politicians (especially those who might someday run for president). Punishing that operation would have consequences.

Admittedly, there are efforts afoot to turn up the heat on News Corp, but they come from outside the Administration, and there is no assurance the DoJ will go through anything more than a pro forma effort. Frank Lautenberg asked the FBI and DoJ to investigate a case of alleged hacking that was settled between Floorgraphics and News Corp.

One effort that could change the picture radically is the FBI investigation into allegations of phone hacking of 9/11 families. But that took place so long ago I wonder whether they can make much headway, even if the accusations were accurate.

The obvious avenue is the Foreign Corrupt Practices Act, particularly as more information about efforts to derail police investigations comes to light. As Eliot Spitzer wrote in Slate last week:

Much more importantly, the facts already pretty well established in Britain indicate violations of American law, in particular a law called the Foreign Corrupt Practices Act. The Justice Department has been going out of its way to undertake FCPA prosecutions and investigations in recent years, and the News Corp. case presents a pretty simple test for Attorney General Eric Holder: If the department fails to open an immediate investigation into News Corp.’s violations of the FCPA, there will have been a major breach of enforcement at Justice. Having failed to pursue Wall Street with any apparent vigor, this is an opportunity for the Justice Department to show it can flex its muscles at the right moment. While one must always be cautious in seeking government investigation of the media for the obvious First Amendment concerns, this is not actually an investigation of the media, but an investigation of criminal acts undertaken by those masquerading as members of the media.
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What is the FCPA? Enacted after the scandals of the 1970s in which American corporations were bribing overseas officials in order to secure business deals, the FCPA was an effort to bring some baseline of ethics to international business. It prohibits any American company or citizen from paying or offering to pay—directly or indirectly—a foreign official, foreign political figure, or candidate for the purpose of influencing that person in any decision relating to his official duties, including inducing that person to act in violation of his or her lawful duty. Very importantly, even if all such acts occur overseas, the American company and citizen will still be held liable here. So acts in Britain by British citizens working on behalf of News Corp. create liability for News Corp., an American business incorporated in Delaware and listed on American financial exchanges.
The rampant violations of British law alleged—payments to cops to influence ongoing investigations and the hacking of phones—are sufficient predicates for the Justice Department to investigate.

So if nothing comes to pass, it will be because, as has happened so often, Eric Holder is nowhere to be found when a prosecution might inconvenience powerful interests.