07/18/2011 02:33 pm ET Updated Sep 17, 2011

News Corp.'s Risky Governance

According to Bloomberg, News Corporation is now undervalued because of the scandals blighting its operations. Murdoch isn't an asset anymore; he's a liability. Hitherto awed and silent shareholders are, rather like MPs, getting their courage back. In suggesting that perhaps the company would benefit from different leadership, they almost seem ready to bell the cat.

The truth is that such shareholders have turned a blind eye to the bizarre corporate governance that News Corporation has always practiced. It was clear from the moment the company went public that this was, and would be run as, a family firm. Holding on to 40 percent of voting stock made that clear.

But there were other important signs, too. Packing the board with family members institutionalized nepotism. Absence of diversity on the board, too, made its clannish nature fairly obvious. The Office of the Chairman is entirely male, and of the 17 directors, only two are female, and one is Elizabeth Murdoch, who is officially only an observer. No one has ever (until now) suggested that Rupert Murdoch is getting a little old, and neither has anyone even contemplated that someone besides a Murdoch might take over from him.

You can complain that this is bad corporate governance, and you'd be right. But you also have to look at the institutional investors in the business -- including Invesco, John Hancock, Schroder and Legg Mason -- and ask what they thought they were doing. After all the corporate scandals we've lived through in the last 10 years, can't anyone see that bad governance is a business risk?