April 23, 2013
In re News Corp., Duty of Loyalty, D&O Insurance and Political Contributions
Posted by Christine Hurt

Yesterday, attorneys for the shareholders of News Corporation announced an agreement in principle to settle derivative claims filed in various U.S. jurisdictions, including Delaware, against officers and directors of the corporation for $139 million (minus attorney fees, TBD).  The payment will be made to the corporation from the various D&O insurance policies.  The Memorandum of Understanding is here.  The amended complaint is here.  The parties agreed to file a stipulation with the Delaware Chancery Court within 14 days for approval.  Kevin La Croix's expert commentary on the D & O issues is here.

So, what were the claims?  The claims fall roughly into two big groups, both under the Duty of Loyalty:  (1) the conflicted $615 million acquisition by News Corp. of an entity owned by (controlling shareholder, CEO and Chair) Rupert Murdoch's daughter; and (2) lack of oversight related to the illegal surveillance scandal involving News Corp.'s 100% owned subsidiary, News of the World.  Sprinkled around these claims are accusations of Murdoch using the corporation as a vehicle for supporting his political agenda.  The overarching thesis of the complaint is that the board allowed Murdoch to use News Corp. for his own personal purposes:  family and political.

Historically, conflict-of-interest claims have teeth; oversight (Caremark) claims do not: waste claims don't even have a mouth.  Something here had a lot of teeth given that the parties agreed to go to mediation prior to a ruling on a motion to dismiss and given the $139 million figure.  For those of us waiting to see a winning Caremark claim, failure to oversee an ongoing pattern of illegal news-gathering activity that was well-known internally might be it.  But, we may never know if the settlement is all about the acquisition or a little bit of both.  Perhaps the oral argument for the motion to dismiss last year held some clues that the court thought the oversight claim was not going to be dimissed, at least.

The remedy section of the MOU has not only the monetary award but also positive remedial changes, such as more compliance, a compliance officer, an independent Chairman of the Board, and new definitions of "independent" for board members, etc., that might match up to oversight if the money merely lines up with the acquisition.  And, interestingly, a new "Political Activity Policy": 

2. The Company has or will implement a policy requiring annual public disclosure to its shareholders of political conributions made directly by the Company to state or local candidates, political party committees, political committees (e.g., PACs) or other political organizations exempt from federal income taxes under Section 527 of the IRC; payments to any other entity that is earmarked to be used for independent expenditures for a candidate or political party; or to a ballot measure committee. . . .

3. The Company will notify the Board (for its information and not approval) on an annual basis of payments in excess of $25,000 (including special assessments) that are not deductible under Chapter 162(e) of the IRC . . . and are. . .made to any US-based trade association, Section 501(c)(4) organization, or Section 501(c)(3) organization that coordinates directly with the Company in drafting proposed legislation or grassroots lobbying activities. . . .

Stay tuned to see if this is a throw-away provision (like most remedial changes in derivative settlements, or something to see.

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