Subverting Shareholder Rights: Lessons from News Corp.'s Migration to Delaware
Jennifer G. Hill
University of Sydney - Faculty of Law; European Corporate Governance Institute (ECGI)
January 24, 2010
Vanderbilt Law Review, Vol. 63, No. 1, pp. 1-51, 2010
Sydney Law School Research Paper No. 10/16
Vanderbilt Law and Economics Research Paper No. 10-03
ECGI - Law Working Paper No. 143/2010
News Corp. is currently at the centre of a major corporate crisis, which began in the U.K. with the notorious phone hacking scandals, but is now spreading to the U.S. There have been recent amendments to pleadings in Amalgamated Bank v. Murdoch (CA6285, Delaware Chancery Court), which claim that News Corp. provides an example of "a culture run amuck". Also, Eliot Spitzer has publicly encouraged the Justice Department to prosecute News Corp. under the U.S. Foreign Corrupt Practices Act, on the basis that News Corp is "an American business incorporated in Delaware and listed on American financial exchanges".
Until 2004, however, this was not the case. The News Corp. empire had for decades been based in Australia. This Article provides a detailed case study of News Corp's decision to reincorporate in Delaware in 2004. In the light of current events, that decision is one that may ultimately rebound on the corporation like a boomerang.
As the Article shows, News Corp.'s move to the United States was both controversial and fundamental to Rupert Murdoch's continuing control of News Corp. The original reincorporation proposal prompted a revolt by a number of institutional investors, who argued that a move to Delaware would strengthen managerial power and reduce shareholder rights. The institutional investors were particularly concerned about the effect of the move on the ability of the board of directors to adopt anti-takeover mechanisms, such as poison pills, which were not permissible under Australian law. The Article demonstrates how News Corp. achieved its ultimate objectives in spite of such strong opposition from institutional investors.
This Article uses News Corp.'s reincorporation to highlight a number of significant, but underappreciated, differences between U.S. corporate law and the law of other common law jurisdictions. Specifically, the Article shows how News Corp.’s migration from Australia to Delaware effectively subverted shareholder rights and increased centralized managerial power. The News Corp. reincorporation saga has significant implications for Delaware law, for recent US shareholder empowerment developments, and for the crisis that is currently engulfing the News Corp. media empire.
Number of Pages in PDF File: 58
Keywords: News Corp, Rupert Murdoch, institutional investors, shareholder activism, shareholder empowerment, poison pills, entrenchment, corporate governance, comparative corporate governance
JEL Classification: D70, G30, G32, G34, G38, K22, K33, K40, K42, M14
Date posted: January 27, 2010 ; Last revised: July 14, 2011