By Eleanor Bloxham
October 12, 2011

By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance

FORTUNE — As News Corp continues to endure the after effects of a hacking scandal that shook the company to its core this past summer, one question in particular still looms large: Where have the company’s shareholders been all this time?

Concerns related to the hacking scandal at News Corp (NWS) have spanned several years, but amid all the recent scrutiny, the company’s latest proxy, filed on September 2, did not include a single proposal from shareholders. In the governance world, that’s about as silent as shareholders can be.

One shareholder group, Christian Brothers Investment Services, plans to bring a proposal to the annual meeting on October 21 calling for the separation of the CEO and chair positions. But that single proposal — and the lack of others — is a very tepid response to the scandals roiling the company and the lack of independent governance at the media giant.

Some shareholders in recent days are now calling for votes against the reelection of certain members of the board. And proxy advisory firm Institutional Shareholder Services recently recommended that News Corp shareholders not reelect several board members, including chairman and CEO Rupert Murdoch, and his sons.

But why has any response from shareholders been so long in coming?

Have shareholders of News Corp just stood by as the hacking issues were revealed and the lack of board independence was evident? Or is their current silence just weariness from repeated failed activism in prior years? If only.

In 2010, there were only two shareholder proposals on News Corp’s proxy filing. One proposal was to establish a human rights committee at News Corp, arising out of concerns related to freedom of the press in China. The second related to establishing a vote on “say on pay,” which had already been mandated by the Dodd-Frank Act for the following year. Both shareholder proposals were voted down, in any case.

In addition, in 2010, there were also calls by British asset manager F&C and by the Nathan Cummings Foundation to vote against the reelection of the board’s audit committee chair, Sir Rod Eddington based on concerns related to the $1 million donation News Corp. made to the Republican Governors’ Association and another $1 million to the U.S. Chamber of Commerce.

The investors were displeased with the lack of board oversight of political spending. But Eddington sailed through his reelection, with 539 million votes in his favor and 41 million against.

What about 2009? No shareholder proposals. 2008? No shareholder proposals.

2007? There were two shareholder proposals that year. One was to elect directors annually. News Corp itself put forth this proposal in 2008.

Another shareholder proposal to eliminate the dual class of shares and create a single class of stock was also on the docket that year, which might have been helpful but was defeated by shareholders.

Yes, the bar is set high when it comes to making changes at News Corp. Rupert Murdoch holds around 40% or more of the company’s voting class shares now, up from around 30% in 2007.

But the lack of trying is the conundrum in this case. Institutional shareholders of News Corp are those who often concern themselves with governance matters.

Now, after all that has transpired, shareholder lawsuits are under way. While these suits take aim at the passive board, the question remains: where were the shareholders before and why did they not take action sooner?

While the News Corp case is one example, it is not unique: like some boards of directors who do not understand the business of the companies they have been entrusted to oversee, often even large, sophisticated shareholders remain unaware of the underpinnings of their investments — until it’s too late.

The fact is that, as a general matter, institutional shareholders are spread too thin – and fail to do their jobs effectively. To right the ship would require large institutional shareholders to organize much like securities analysts do within a single firm. They would have to come together to agree which investor would “cover” a certain set of companies and then stay on top of governance and other business practices for those particular companies.

While some funds do pool their resources on a small scale, investing (and governance activism, for that matter) is competitive by nature – and that presents an obstacle to effective cooperation. Governance rating services, some of which have attempted to act as information agents, have also failed to effectively rouse investors to action.

But If investors do not pay attention or take action, who can be surprised at poor governance — or financial crises which are the product of governance issues at multiple companies? To truly be effective in influencing the prosperity and accountability of the capital markets system, investors must be aware and active — rather than rely on lawsuits after the fact.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (

), a board advisory firm. 

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