Update (4/12/23): On April 11, an individual Fox Corp. shareholder sued Rupert and Lachlan Murdoch and other board members for violating their fiduciary duties by allowing the network to lie about the 2020 election. The filing read, “FOX knew — from the Board on down — that Fox News was reporting false and dangerous misinformation about the 2020 Presidential election, but FOX was more concerned about short-term ratings and market share than the long-term damages of its failure to tell the truth.” This is the first shareholder lawsuit brought because of Fox’s 2020 election lies, but many more could potentially be filed as the Dominion case continues.
In March 2021, Dominion Voting Systems filed a $1.6 billion defamation suit against Fox Corp., claiming that “Fox sold a false story of election fraud in order to serve its own commercial purposes, severely injuring Dominion in the process.” Recently released filings and documents from the lawsuit have revealed that Fox knew it was broadcasting lies to its viewers — but the Murdochs, Fox Corp.’s board of directors, and other top executives did nothing to stop it. These filings suggest that board members violated their fiduciary duty and top executives neglected their responsibilities, and the behavior seemingly flouts Fox Corp. shareholders’ understanding of responsible corporate governance.
Fox Corp.’s board of directors potentially violated its fiduciary duty and top executives ignored their responsibilities by allowing Fox personalities to lie about the 2020 election
According to its statement of corporate governance, Fox Corp.’s board of directors is responsible for overseeing “management of risks.” The board — with Chair Rupert Murdoch bearing much of the responsibility — has a fiduciary duty to act in Fox Corp. and its shareholders’ best interests. Boards typically oversee compliance with legal standards and help protect companies from financial and legal risks that could potentially harm long-term value.
As revealed in Dominion’s February 27 filing against Fox Corp., Rupert Murdoch and other board members knew that Fox hosts were lying about the 2020 election — and by extension, Dominion. According to the filing, at least two board members understood this to be both unethical and bad for the company.
Former Speaker of the House and board member Paul Ryan said it was his “fiduciary duty” to tell Rupert and Executive Chairman and CEO Lachlan Murdoch that Fox “should labor to dispel conspiracy theories if and when they pop up.” He later expressed to Lachlan Murdoch (who then shared it with Rupert Murdoch) that pushing back on election denialism is “a key inflection point for Fox, where the right thing and the smart business thing to do line up nicely.” (The Yale School of Management’s Jeffrey A. Sonnenfeld described his efforts as “cowardly, ineffective, and immoral.”) After the January 6 insurrection, board member Anne Dias told them that “the time has come” for Fox News or the Murdochs “to take a stance” as it was an “existential moment for the nation and for Fox News as a brand.” However, these efforts failed to move the needle: Fox News continued to lie.
Even Fox’s chief legal and policy officer, Viet Dinh, said no when asked whether Fox should “broadcast election fraud allegations that it knows to be false” and said executives had an obligation to “prevent and correct known falsehoods.” Despite this acknowledgment, it appears that neither Dinh nor other Fox executives, including Rupert Murdoch, compelled hosts and guests to stop spreading baseless conspiracy theories about the 2020 election and Dominion.
According to Sonnenfeld, the Dominion filings show that Fox Corp.’s board “failed to act to prevent misconduct by Fox executives.” The board thus left the company exposed to severe legal repercussions, including defamation suits. According to TheWrap, while the Dominion suit might not “sink” Fox Corp., it could open up the company “to other mounting financial troubles — any one of which could deal a potentially fatal blow.”
Fox’s shareholders should be concerned if Fox Corp.’s board engaged in substandard corporate governance
Many of Fox’s largest shareholders have declared the importance of integrating environmental, social, and governance (ESG) factors into their investment and stewardship approaches. Analyzing these nonfinancial factors provides a holistic understanding of a company’s risk. Best ESG practices, including governance, are not narrowly defined. However, good governance is increasingly prioritizing ethical business practices, which include “integrity, honesty, and openness.” Betraying these principles could ultimately result in “legal and financial ruin” — a potential concern for Fox Corp. now after the company embraced baseless conspiracy theories instead of accurate and honest reporting.
By allowing employees to spread lies about the 2020 election and Dominion, Fox ignored the good corporate governance practice of operating with integrity and honesty, thus making itself vulnerable to risk. With many emphasizing the importance of ESG principles, Fox’s shareholders would seem to agree. Here is what some of Fox Corp.’s largest shareholders say about the importance of solid corporate governance:
- Vanguard advocates for the “highest standards of corporate governance worldwide” and says a board of directors “should work to prevent risks from becoming governance failures.”
- Dodge & Cox integrates ESG principles into its investment strategy. As an active manager of its investments, it also “believe[s] companies need strong corporate governance” to ensure that they will be financially successful.
- BlackRock’s approach to investment stewardship prioritizes “board quality and effectiveness” and “sound corporate governance and business practices.” Additionally, it expects boards to oversee “management of business risks and opportunities and the fulfillment of the company’s purpose.” (Lachlan Murdoch claims Fox Corp.’s “foremost principles” include “the accuracy of information.”)
- State Street declares that its “focus begins with governance” because “strong, independent and effective boards of directors can better address the issues affecting long-term strategy.”
- American Century Investments incorporates ESG principles into its investment strategies, so much so it built out a dedicated ESG and investment stewardship team. Senior Vice President and Chief Investment Officer Victor Zhang said his firm thinks “of ESG as part of serving our fiduciary duty to our clients. So ESG allows us to look at unforeseen risks that are not being analyzed by our financial models.”
- Norges Bank Investment Management expects that the companies it invests in practice good corporate governance: “We see good corporate governance as a premise for responsible business practices.” Additionally, the firm “expect[s] boards to understand the broader environmental and social consequences of their companies’ activities, take them into account when setting strategy, analyze risks and report on outcomes.”
- Independent Franchise Partners evaluates whether a board “can provide sufficient oversight and challenge” and integrates ESG principles in its stewardship approach. Additionally, the firm — which opposed the merger between Fox Corp. and News Corp. — says that “good governance in turn promotes sensible capital allocation and the sound management of a company’s environmental and social risks and opportunities, crucial elements to help sustain the long-term vitality.”
- Ninety One UK considers the “governance of companies, hence the board, as crucial for the protection and enhancement of shareholder value.” Additionally, it says that “governance failures are a perennial threat to companies’ ability to create long-term sustainable value.”
- Columbia Management Investment Advisers says it’s committed to being responsible investors: “We have upheld responsible investment as an established pillar of our business for well over a decade.” Part of this responsibility includes integrating ESG “considerations” to build a “fuller picture of the risks and future return prospects of all investment opportunities.”