Shareholder Passivity: A Viable Explanation for Corporate Governance Failures at Newscorp?

Abstract

This paper investigates investor perspectives on why shareholders would remain passive despite economic incentives to address serious corporate governance failings at the company level. As such, the study addresses a current theoretical debate that questions investors` role in monitoring the companies they own, in ensuring their high standards of corporate governance and maximizing shareholder value. Though rich and robust, this debate confronts an analytical blind spot in adequately theorizing the determinants of shareholder passivity. The existing literature primarily takes on the normative issue of whether shareholders should take on oversight functions, rather than on factors that may induce or inhibit oversight. Responding to this gap in the literature, we examine shareholder passivity through a qualitative case analysis of the behaviour of NewsCorp investors, in light of a historical pattern of corporate governance failings at the company. We argue that the corporate governance failures at NewsCorp resulted not just from absent internal controls at the Board level, as recent law suits filed by investors would suggest, but also from the failure of external governance mechanisms available to shareholders. Our findings show that agency-level, structural and cultural barriers stymied the efforts of activist investors and campaigners seeking corporate governance reform at the company. We draw the insights of investors together within a framework of compelling policy recommendations that could mitigate shareholder passivity. Through a process of critical reflection, and in keeping with our exploratory focus, we also propose promising theoretical trajectories for advancing the related research program via approaches that better account for the interplay between structure, agency and culture.

Keywords: institutional theory, shareholder passivity, internal controls, corporate governance, corporate culture

JEL Classification: G18, G28, G38, G20, A14, N20