There is something very odd about the corporate arrangements of the holding company for the Times, the Sun – and now the Sun on Sunday, says Rob Taylor
Something struck me as very odd when I read the announcement of James Murdoch's resignation as chairman of News International: rather than a deputy chairman stepping in to take responsibility for the company, the chief executive of NI, Tom Mockridge, will report directly to the chief operating officer of the American parent company of NI, News Corp.
The actual name of the holding company that owns the Times, the Sunday Times, the Sun and now the Sun on Sunday is called NI Group Limited and it is a British company. There seems to be no deputy chairman, senior independent director or non-executive chairman of an NI Group Ltd nominations committee.
Of course, NI Group Ltd is not a PLC and its shares are not traded on a public stock exchange. NI Group Ltd as it stands is wholly owned by News Corp, an American company.
While there is nothing illegal about this structure, it is considered bad practice in Britain to not have an independent board overseeing the UK subsidiary company's activities. The Institute of Directors' most recent guidance on this matter was issued in 2010 and listed nine principles that well-run companies should follow including the establishment of an effective board, reflecting the scale and complexity of the organisation. That board should be responsible for risk oversight and should maintain a level of control to safeguard the shareholder's asset.
In recent years, the Financial Services Authority has insisted that all UK subsidiary financial service companies of foreign shareholders should have an independent board of directors, with external or independent non-executive directors. Those directors advise and challenge the executive management of companies and ensure that proper oversight is in place in an organisation. This best practice does not seem to be in place at News International as there do not seem to be any external board members. Indeed I wonder whether there even is a board, when the reporting line of the chief executive is now into an American executive rather than a NI Group Ltd board member. In trying to search for information on the NI board, the search engine always directs the researcher to the News Corp website and its management and standards committee. The committee, a News Corp body, was set up to cooperate with the Leveson inquiry into phone hacking and to oversee the implementation of robust governance at NI. Moreover, it is very difficult to find the names of any NI Group Ltd board members through the normal channels, which leads one to suspect there are none.
I am not certain what is stopping NI from establishing an independent board of directors and searching for an appropriate chairman. I suspect the lack of such a board is what left James Murdoch hanging out on a line to dry. After all, he was an inexperienced chairman when he took over NI and had to manage some businesses run by real experienced news hounds that he allegedly had very little interest in. He appears to have had no independent directors to turn to for advice when he needed it and ultimately has come out of the entire affair looking weak, ineffective and nothing more than an administrator in the News Corp
empire.
Good chairmen seek advice from board members and they want external parties to provide them with insight particularly in markets and industries that they have little experience directing. It appears that Murdoch didn't have this sort of support in the function he carried out at NI.
In any event, NI Grouphas no board, or succession plan that is apparent at this point. That must have made it pretty easy for Rupert Murdoch to launch the Sun on Sunday, as I would think there was little oversight of the setup from the UK limited company perspective. I do wonder whether the new paper would have been set up if there had been a sitting board in place with external directors challenging Murdoch senior's determination. Though I'm certain Rupert Murdoch thinks his way is robust governance.