Cleaning Up News Corp

How should philanthropy respond to the ‘Hackgate‘ scandal that is gripping Britain at the moment and, perhaps, spreading across the Atlantic?

Supporting journalistic ethics (in the face of the continued business model crisis of the print media) is meat and drink for many foundations. The Knight Foundation, for example, invests considerable resources in community media and training for journalists to help maintain standards. Others have decided that in-depth reporting can no longer be left to the for-profit media, which is why Herb and Marion Sandler created and funded the not for profit investigative news agency ProPublica. Under the leadership of respected former editor of the Wall Street Journal, Paul Steiger, ProPublica has enjoyed some success in rooting out wrongdoing in a way that commercially-squeezed news organisations maybe could not.

This is important stuff but it is hard to see how this would have made much difference to the activities of an organisation like News Corp if, as seems increasingly likely, the orders to illegally gather information through hacking into mobile phones (or, at least to turn a blind eye to such practices) came from senior figures within the group’s businesses. 

Hackgate has exposed Rupert Murdoch’s media empire to what seems certain to be a thwacking from both the long arm of the law (especially now the top leadership of London’s Metropolitan police has resigned) and perhaps by onerous new regulations. Yet one of the most disappointing aspects of this whole affair is that the owners of News Corp – at least, the minority of whom that are neither members of the Murdoch family nor their relatives, but regular investment institutions – seem not to have pushed hard enough for reform of the governance of the company, despite the evidence of phone hacking having been public for years (albeit, until recently, evidence seemingly limited to a smallish group of celebrities, politicians and royals).

These institutional owners include charitable foundations – one of which has at least tried to do something about the firm’s governance. The Nathan Cummings Foundation has lobbied News Corp as a shareholder, asking for the company to be far more transparent about, and responsible in making, its political donations. In its latest letter, the foundation points out that, among other things, in 2010 News Corp made a $1m donation to the US Chamber of Commerce, which lobbied against a strengthening of the US Foreign Corrupt Practices Act under which the firm may now be prosecuted over the phone hacking.

It wrote as “long-term shareholders with a continued interest in the success of News Corporation”. If only the firm’s other owners had been as interested: whilst it is far from certain that greater transparency about political donations would have prevented Hackgate, surely a more actively engaged institutional ownership would have brought the sort of governance at the firm that demanded a very different corporate culture to that in which widespread illegal activity thrived.

Philanthrocapitalists will take a pinch of comfort from the attention that Hackgate has brought to the work of the Nathan Cummings Foundation and its role in pioneering shareholder activism in the foundation sector. The story of how the Nathan Cummings Foundation (created by the legacy of the man who started the Sara Lee food company) discovered its power as an investor is well told in the book ‘Do More Than Give’. According to authors Leslie Crutchfield, John Kania and Mark Kramer, the foundation did so by accident: having made various grants to organisations tackling pollution from giant pig farms, in 2003 the foundation serendipitously discovered that it had 32,000 shares in….the largest pork processor in the United States, Smithfield Foods. For foundations operating an ethical screening policy on their investments, the response would have been to dump Smithfield stock. The Nathan Cummings Foundation, on the other hand, held onto its shares and used this influence to get the company to report on its environmental trotter-print.

An important lesson from the Nathan Cummings Foundation’s initial venture into shareholder activism is that persuading other shareholders matters – it was only in 2006, when the foundation had nearly a third of the shareholder vote on its side, that the executives finally listened. (Shareholder rights are also heavily constrained in the United States, a fundamental flaw in American capitalism – that we describe in ‘The Road From Ruin’ – which makes it hard to challenge a firm’s top executive team unless you are prepared to engage in the sort of committed long-term campaigning undertaken by the Nathan Cummings Foundation.)

Could the greatest influence of philanthropic foundations on the media business come not through grant-making but through their role as investors? Possibly, but only if there is a seismic change in the foundation world. For another striking aspect of the Nathan Cummings Foundation’s experience is that it is still all too rare. Yes, organisations like Rockefeller Philanthropy Advisors are pushing foundations to make better use of their shareholder power as a force for good; the More for Mission campaign is trying to get foundations to use more of their endowment capital for what is now known as “impact investing”. But they have so far made little progress, despite plenty of talk. This type of activity still comes a distant second (or last) to what many see as the ‘real’ business of foundations: grantmaking.

If the Nathan Cummings Foundation can come up with a compelling vision for the evidently much-needed overhaul of the journalistic standards at News Corp, maybe it will be able to persuade other foundations to use their shares in the company to join them in some potentially high-leverage philanthrocapitalism? Here’s hoping. But such is the inertia in the foundation world that we won’t hold the front page.