News Corporation is another major multinational company that is faced with questions about the lack of oversight by its directors. This case also involves the issue of separation of control from ownership as its CEO Rupert Murdoch is also the chairman of the group. In July of 2011 the group was faced with the scandal of phone tapping where it was found that victims of phone tapping had been “paid off” in 2007, but the CEO claims he did not about these illegal phone tapping activities. As well as this scandal, there is another law suit against News Corporation’s board for approving a $618m acquisition of a film production company wholly owned by the daughter of Rupert Murdoch. The article explained that the board’s role is a monitoring one and that it is the responsibility of the board to make sure there are systems for risk management and that the News Corporation’s board has “failed to discharge this duty”. The article also explains that the structure of the board may be a problem at News Corporation and needs to be changed. While they have started 3 separate enquiries into the phone hacking scandals, their actions are seen as “too little, too late”,
Q11) What is the lesson learned from the cases
Delaware Supreme Court created the “entire fairness” test almost 25 years ago for analyzing transactions where the controlling stockholder is involved as a party in both sides as a buyer and a seller of a transaction. In this case the transaction was the acquisition of a subsidiary that is wholly owned by the controlling stockholder . This test requires a controlling stockholder to show fair price and dealings. The responsibility of proving entire fairness shifts to a plaintiff under special circumstances where the transaction was approved by
a) the majority or a special committee of independent directors or
b) an informed vote of a majority of minority stockholders.
Applying the “entire fairness test” in the recent decision by the Delaware Chancery Court in relation to Southern Peru Copper Corp, the court found that the company’s “controlling stockholder breached its fiduciary duty when it forced a publicly traded company to pay for the controlling stockholder’s over priced subsidiary.” The court ruled for the payment of damages of $1.263 billion which is the second largest ever in the USA and the largest in the history of Delaware fiduciary duty cases. Despite the company’s poor performance i was found that the special committee and accountant worked hard to justify the inflated price of the acquisition of the subsidiary at the level originally demanded by the controlling shareholder. This case shows that a controlling stockholder’s proposal must find a balance between getting a fair value in this type of transaction without breaching its fiduciary duty.
Q12) What is the lesson learned from the cases