April 30, 2023

Fox’s Catastrophic Failures

by Hal Gershowitz

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The big story is the size of the apparent ineptitude of Fox management and of the company’s directors, especially the outside, or so-called independent directors, who presided over the entire catastrophe.

It now seems clear that just about everyone at Fox knew that Fox’s on-air talent was carefully curating a lie about the 2020 presidential election having been stolen. The on-air talent knew it. The company’s management knew it. The company’s Board knew it. It seems the outside independent directors knew it and appear to have tolerated it.

They were all playing with fire, not just because they were all either lying or tolerating those who were lying, but because of the enormity of the lie and the potential consequences of the lie. They were not merely risking the company’s revenue and earnings by tolerating a lie, especially this one; they were threatening the durability and the survivability of America’s constitutional democracy. And for what? To excite and grow an unsuspecting and trusting audience. Because the more that audience grew, the more Fox’s revenue and earnings would increase. Talk about risk reward! They were risking American democracy for ratings and the bucks that would follow.

So, it has now been a few days since Fox Corp management showed the door to the company’s mega primetime bloviator, Tucker Carlson.

End of story? No! Not by a long shot. More suits are coming, more settlements will probably be made, more reputations will be ruined, and more questions will be asked. Such as, “What in the world were the company’s so-called outside or independent directors doing? They are there to represent the shareholders’ best interests. Were they doing that?  

Management has, somewhat belatedly, spoken. Tucker Carlson, who, along with the other bloviators at Fox, was primarily responsible for costing Fox and its shareholders nearly 800 million dollars, is gone. Now comes a group of Fox shareholders weighing in with a shareholders’ derivative suit. It won’t be the last suit filed against Fox. That’s not surprising given that just about everyone in Fox management, including the Chairman, Rupert Murdoch, and the company’s Chief Executive Office Lachlan Murdoch, knew the company’s primetime talent were all wagging the dog about the 2020 election having been stolen when they all knew there was no evidence, none, zip, nada that there were any out-of-the-ordinary problems with the election. It was all a ruse, and they all knew it.

That’s a serious problem because Fox Corp, which owns Fox News, is a public company with a board consisting of several outside, or independent, directors whose responsibility includes representing the interests of the company’s shareholders. Several of Fox Corp’s outside directors also comprise the Board’s Corporate Governance Committee. They include Paul Ryan, former speaker of the U.S. House of Representatives, and other savvy business leaders, including Roland Hernandez, CEO of Hernandez Media Ventures, Anne Dias, founder and CEO of Aragon Global Management, and Corporate Attorney William Burck, Managing Partner of Quinn, Emanuel, Urquhart, and Sullivan which describes itself as “a Global force in Business Litigation” and “the most feared law firm globally by large businesses.”

So, ­now a group of shareholders is claiming that senior executives and top network, on-air talent engaged in and tolerated a campaign of lies contrary to the interests of the company’s shareholders? As I wrote last Sunday, the primetime lineup at Fox… Carlson, Hannity, and Ingraham were all wagging the dog and driving viewers into a frenzy over a rigged and stolen election while knowing full well that there was no evidence that the 2020 election had been rigged or stolen. No one at Fox, including their top executive officers, believed anything was wrong with the 2020 Presidential election. At least nothing wrong that would have affected the outcome of the election. But their viewers were hooked on the yarn they were promoting, and that translated to ratings, and ratings, well, they translate into revenue and profit.

While Tucker Carlson has become the lightning rod, attracting so much of the false stolen-election attention, we now know that virtually no one at Fox believed the election was stolen; no one thought there were any out-of-the-ordinary problems with the election. They all knew, from Rupert and Lachlan Murdoch to the primetime bloviators and employees who staffed their shows. They all knew the rigged election blabber was just that…blabber…bloviator blabber.

Now, this isn’t conjecture. Fox Corp Chairman Rupert Murdoch and Fox Corp’s chief executive Lachlan Murdoch knew. When Rupert Murdoch was asked, under oath, before settling the case, whether he believed Joe Biden was the legitimately elected president of the United States, he answered “yes.” He stated under oath that he didn’t believe the election was stolen.

So, it seems a fair question to ask of the outside directors of Fox Corp, those who sit on the Fox board to represent the interests of the company’s shareholders, and especially those directors who have the responsibility to monitor Corporate Governance, whether they have an obligation to answer to those shareholders what they were doing while all the stolen-election high-jinks was going on at Fox.

After all, Paul Ryan, former Republican Speaker of the U.S. House of Representatives and Republican Vice Presidential candidate was paid $334,986 to look after the shareholders’ interests. So was Anne Dias, and that’s what Roland Hernandez was paid as an outside director. Attorney William Burck received $304,986 in compensation as a member of the Fox Corp Board. These outside directors, collectively, received over a million dollars just last year to look after the interests of Fox Corp’s shareholders.

Given that the Chairman of the Board and, it seems, everyone else at Fox Corp knew there was no evidence that the 2020 election had been stolen and that the network was, therefore, spreading a colossal lie, might it be argued that the shareholders are due an explanation, and an apology, and, maybe even compensation? Are trusting shareholders entitled to an explanation from outside directors who were responsible for overseeing corporate governance and assuring that the best interests of Fox Corp shareholders were being represented? That, of course, will depend on how much the litigation that has been settled and that which may yet be settled will cost Fox as other defamation and shareholders’ suits ripen as they wend their way through the courts.

This is a legitimate question because the election conspiracy theories that bloviators at Fox News, and I use the word “news” loosely, were selling was propelled not by a culture of truth but by a cult of prevarication.

They were all, each in their own way, wagging the dog.

The ten largest shareholders of Fox Corp are among the nation’s leading institutional investors, who, in turn, have invested funds on behalf of their clients who have entrusted these institutions with the responsibility of investing their money responsibly.

But now we, and the world, know that Fox News was, apparently, fully aware that it was deliberately and carefully curating lies to its viewers. Yet, no one, not the Murdochs, not Fox Corp.’s Board of Directors, or executives, did anything to reign in the prevaricators who were propagandizing for ratings, which translates to money. There seems to be no other way to say it. These Fox commentators, their staff, and their bosses seem to have violated their responsibility and their moral duty. Top management certainly seems to have neglected their managerial responsibilities. This sordid tale appears to beg the question, was there anyone at Fox with any sense of responsibility?

Former Speaker of the House and Fox Corp board member Paul Ryan acknowledged that it was his “fiduciary duty” to tell the Murdochs that if and when conspiracy theories pop up, Fox should knock them down, that Fox “should labor to dispel conspiracy theories if and when they pop up.” Well, they didn’t just “pop up,” election fraud conspiracy theories became the foundation of Fox News primetime messaging.  

After the January 6th, 2021 attack on the capitol in that unprecedented, crude attempt to steal the election, Fox Board member Anne Dias reportedly told the Murdochs 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.”  But they did nothing. Their commentators, and thus, Fox News, continued to lie. Why? Because it was deemed an excellent way to hold on to, if not grow, their audience.

Viet Dinh, Fox’s chief legal and policy officer, said Fox executives had an obligation to “prevent and correct known falsehoods.”  But no one, neither Dinh, other Fox executives, Rupert, or Lachlan Murdoch, ever put their foot down and told their hosts and guests to stop spreading baseless conspiracy theories about the 2020 election and Dominion.

Now, some of Fox’s largest institutional investors are committed, or say they are committed, to investing only in companies with strong Environmental, Social, and Governance principles. Those principles even have an acronym in the investment business: ESG. Among the large institutions that claim to adhere to these principles are several of Fox Corp’s largest institutional investors. Among them:

Vanguard, which says it 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 states it “believe[s] companies need strong corporate governance” to ensure they will succeed financially. 

BlackRock prioritizes “board quality and effectiveness” and “sound corporate governance and business practices.”

State Street writes 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 also says it 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.”

Norges Bank Investment Management says it “expects 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 says that “good governance promotes sensible capital allocation and the sound management of a company’s environmental and social risks and opportunities (there’s that ESG again), which are crucial elements to help sustain long-term vitality.”

Ninety One U.K. considers the “governance of companies, hence the board, as crucial for the protection and enhancement of shareholder value.”

Columbia Management Investment Advisers is committed to being responsible investors: “We have upheld responsible investment as an established pillar of our business for well over a decade.”

So, there you have it. Among Fox Corp’s largest institutional investors are those financial institutions that demand the highest levels of responsible Social and Governance principles from the companies they invest in. Well, we’ll see.

Ann Lipton, an Associate Dean at Tulane law school, says, “It’s not too hard to draw a line from alleged misconduct on-air at Fox to mismanagement in the boardroom, citing precedents involving Blue Bell Creameries and Boeing Company which showed a board could be held liable for lack of supervision over mission-critical functions. “It would not be a hard sell for the court to say a news organization should avoid intentionally lying about people—this is core to their identity and obviously presents legal risks,” she said.

Hold on to your hats. It looks as though the Fox journey still has some tortuous seas to navigate, and we don’t see any particularly astute navigators at the helm at Fox Corp.

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