The News Corp Phone Scandal
The shareholders of the company decided to sue the board for failing to take precaution when the scandal started. According to Rushe (2012, p.1), the shareholders have sued the board of directors because they failed to stop the scandal. The board of directors was composed of Murdoch, some family members and other executives of the company. However, News Corp has attempted to stop the case. To ensure that justice prevails, the court issued arrest warrants to 60 people. The people arrested were connected to the scandal. The company incurred a lot of losses after the scandal, and the shareholders were furious about the board of directors (Rushe, 1). The scandal has happened for several years, and the shareholders were not informed about anything that was happening. The board failed to represent the shareholders. The Murdoch’s family owns a big portion of the shares of the company. In addition, some of the members of the board are Murdoch’s family. Therefore, the decision to fail to disclose material information was viewed as if the family had access control over the business. Murdoch’s family own 39 percent of the shares of the company (Brooks, 1).This shows that the family has no exclusive control over the management of the company. Therefore, there was a need to inform at all the shareholders about the scandal. This would have provided the shareholders the opportunity to makeappropriate decisions. Failure to disclose material information was illegal, and the board should compensate the shareholders for the loss they incurred (Rushe, 1). Therefore, the argument under discussion is whether the shareholders were right in suing the board for gross misconduct.
The shareholders were right in suing the board for gross misconduct. The board of the company did not act appropriately because shareholders should have been informed about the scandal in time. The scandal had been happening since 2006, and the bard never informed the shareholders. The incident where the scandal involved the death of a person whose phone voice mail was hacked caused alarm. If the incident did not happen, the scandal would have continued. The board of directors never communicated anything until the incident occurred. That is the time when the shareholders knew that the scandal had happened for years. After the occurrence of the incident, the board did not engage the shareholders in finding a good solution to the problems facing the company. The board should have engaged the shareholders in making the decision about closing the newspaper. Murdoch decided to end the company without seeking the opinion of the shareholders. The shareholders were not informed about any material information that they ought to have been provided before the board decided to make drastic changes after the scandal was reported.
The board of directors is elected by the shareholders to run the company. The board has the responsibility to protect the interest of the shareholders at all costs. In addition, the shareholders should be provided with any material information. Any information that can affectthe operations of the company.The interest of the board should not prevail over the interest of shareholders. The shareholders own the company because they contribute the capital required to run the business. The board and managers are employees of the company. Therefore, the interest of the board should not exceed that of the shareholders.A company is an independent legal entity, but it cannot operate on its own. The directors’ conduct business on behalf of the company.Theshareholders finance the activities of the business..The board gets the wages, while the shareholders earn dividends. The board is vested with the mandate to run the company (Halbert and Ingulli, 22). Therefore, the board should consult the shareholders concerning any issue that may affect the performance of the business. The board of directors has the responsibility to ensure that a company makes profits. On the other hand, the shareholders have the right to the dividends, and to be provided with any material information that may affect the business. This means that the shareholders have the right to sue the board in case the operations of the business are affected. The shareholders and board should work together to ensure that all the policies of the company protect the interest of all parties (Bagley andDauchy, 469).
The strength of the argument
According to Hicks (2008, 242), the argument supports the legal provisions which require that the board of directors should consult the shareholders when making a major decision. In addition, the argument is supported by the legal requirement that shareholders should be informed about any material information that affects the business. In addition, public companies founded on the grounds that they owned by the shareholders not an individual (Mallin, 126). Therefore, one person can make a major decision without consulting all the parties affected by such a decision. Murdoch made the decision to close the company, and he fired employees who were linked with the scandal. The shareholders were not consulted when Murdoch made these decisions. In addition, the shareholders were not informed when the scandals happened. This shows that the board had gross misconduct which warranted legal action.
There are legal procedures followed when closing a company. Murdoch had no legal right to close the company without following the due process. Even though he is the founder of the company, he ceased to own the company once the business became a public entity. This shows that the decisions of other shareholders should be considered when making major decisions. Therefore, the argument is strong in that it supports the legal provisions of company law. The argument shows that Murdoch had no legal right to close the company without informing the other shareholders. The shareholders had a right to sue the board for the gross misconduct.
Weaknesses of the argument
According to Ferrara, Abikoff and Gansler (1995, 5-12), “the business judgement rule is also a reflection of the belief that corporate boards of directors are generally better qualified to make decisions than are courts”. The board has the legal right to make certain judgements depending on the circumstances that a company experiences. The business judgement rule protects the board of directors against any blame for making reasonable decisions. The board has the prerogative to protect the interest of all stakeholders. The board of directors ought to take risks when managing the company, and this provision is contained in the business judgement rule. There re many risks involved in a business, and the board has the mandate to take reasonable risk. There should be no threats of liability when the board makes decisions which are reasonable(Ferrara, Abikoff and Gansler, 5-12).
In the case of News Corp, the board acted reasonably to protect the interest of all stakeholders. There was need to take immediate action to ensure that the image of the entire business was protected. Therefore, Murdoch was right when he made the decision to fire some employees and to close the business. Therefore, Murdoch and other board members should not be blamed for making the decision. In addition, the shareholders should have solved the issue with the board of directors instead of suing the board. The board has qualification than the court in making the decision. It is evident that Murdoch is the founder of the company, and he has gained a lot of experience. In addition, he has worked with the company for many years, and he knows all the challenges and benefits of all decisions. Therefore, seeking the rule of the court is not good because the court has no hands-on experience in running the business.
Murdoch should not be criticized for making the decision because he acted reasonably. He has a lot of experience in managing the business and he knew that the decision was the best. Murdoch wanted to protect the entire empire, and closing the company would help maintain the reputation of all other businesses. The shareholders have no experience in running the business, and they cannot give an accurate decision. It is also evident that Murdock made a quick decision, when he realized that the scandal could affect the entire empire. He had no time to meet with the shareholders and make an inclusive decision.
What might be missing from the decision
The decision lacks information about the reaction of the board after realizing that the shareholders had sued them. There is no information about the legal process followed by the shareholders to sue the company. The shareholders should have hired a lawyer, to represent them in the court.
There is the assumption that the shareholders did not consult the board when seeking legal redress about the scandal. it is also assumed that the shareholders had no information about the scandal that was happening in the company. It is assumed that the Murdochs family had a lot of influence in the company. This assumption is drawn fact that Murdoch’s family had exclusive control of the activities and operations of the business.
I am of the opinion that the shareholders and the board of directors should have sought the decision of a third party to facilitate the negotiations instead of seek court redress. The parties should have solved the case outside the court, and provide a good decision without involving the court. The action of seeking legal redress damaged the image of the company because the people were aware about the case. If the parties sought alternative dispute resolution mechanism, the image of the company would have been protected (Sauvantand Chiswick-Patterson, 183). The News Corp is a large company, and the image of the company is important. The decision to use court redress affected other businesses of the empire. This could have been avoided if the parties used alternative dispute resolution process. Alternative dispute resolution provides the parties the opportunity to make a decision without involving the public. The image of the company is protected because only the participants know the activities and the decisions made during the process.
The decision that the board of the News Corp Company was not correct, and the shareholders had the right to seek legal redress.The company board informed the shareholders about the scandal when an incident occurred that affected the image of the company. The shareholders reacted by suing the board because the interest of shareholders was not protected. The scandal caused the closure of the company as well as firing 60 employees. The shareholders had to react to the actions taken by Murdoch because the company was not a family business. The company was a public enterprise, and the shareholders had the right to sue the board for making decisions without engaging them. The argument about whether the shareholders were right or wrong in suing the board is strong in that it is supported by legal provisions. The board has the obligation to protect the interest of the shareholders. On the other hand, the argument is weak in that the board had the right to make reasonable decisions depending on the prevailing circumstances.
The decision to seek the rule of the court was good because the board should have protected the interests of the shareholders. Murdock never sought the opinion of the shareholders, despite the fact that the company is a public enterprise. The shareholders lost all their investment, and they had a reason to seek legal remedy. On the other hand, the decision was weak in that the shareholders should have trusted Murdoch and other board members in making critical decisions. The board has more qualification than the court in making the best judgment because the board has experience in running the business. Therefore, the shareholders should have sought the judgement of the board instead of suing the company.
Brooks, Rebekah. (26 September 2012. “Hacking Scandal Not Going Away Soon: Ex-News Corp”.Ad Age. Retrieved 30 October 2012
Bagley, Constance E, and Craig E. Dauchy.The Entrepreneur’s Guide to Business Law. Mason, Ohio: Thomson/West, 2008. Print.
Halbert, Terry, and Elaine Ingulli.Law & Ethics in the Business Environment. Mason, OH: South-Western Cengage Learning, 2009. Print.
Mallin, Christine A. Corporate Governance. Oxford [u.a.: Oxford Univ. Press, 2007. Print.
Hicks, Andrew, and S H. Goo.Cases and Materials on Company Law. Oxford [u.a.: Oxford Univ. Press, 2008. Print.
Ferrara, Ralph C, Kevin T. Abikoff, and Laura L. Gansler.Shareholder Derivative Litigation: Besieging the Board. New York, N.Y. (345 Park Ave., South, New York 10010: Law Journal Seminars-Press, 1995. Print.
Sauvant, Karl P, and Michael Chiswick-Patterson.Appeals Mechanism in International Investment Disputes. New York: Oxford University Press, 2008. Print.
Rushe, Dominic (19 September 2012). “News Corp shareholders in the US want to sue over phone hacking scandal”. The Gurdian.Retrieved 30 October 2011.
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