A thriving, sex-and-gossip newspaper has been shuttered, big shots in media, politics and law enforcement have resigned, and arrests have been made. It has resulted in a lot of headlines, but considering how old the real news is, I wonder what all the fuss is about.

The worst-kept secret in recent business history is that News Corp. is an underachiever when it comes to matters of corporate governance. Long before hacked phone messages and bribed London cops replaced Dominique Strauss-Kahn as the hot global story, the people who analyze how well public companies manage themselves were holding their noses whenever they perused regulatory filings from Rupert Murdoch’s media empire. Now, shares of the company are themselves a scandal, losing 19 percent since the scandal heated up July 4.

Garbage in -- that is, a board encumbered with conflicts of interest -- turns out to be a reliable predictor of garbage out.

To recap: It has been five years since newspapers reported that a journalist at Murdoch’s now-defunct News of the World had hired an investigator to hack the phones of Prince William and others. Armed with the royals’ messages, the paper imparted to readers an international scoop of history-making proportion: The prince had hurt his knee.

The reporter, Clive Goodman, and the investigator, Glenn Mulcaire, both did time in prison for that and other hacking crimes in 2007. News Corp. portrayed the matter as an example of isolated rogue reporting. Then on July 4 of this year the Guardian published a story detailing how News of the World staffers had also hacked into the mobile phone of missing teenager Milly Dowler in 2002, deleting some of the girl’s messages to make room for new voicemails in hopes of getting an exclusive. The girl’s distraught parents thought Milly herself must be deleting the messages, and thus was still alive. She wasn’t.

What a Prince

It’s one thing to mess with public figures like a prince, but it’s another to hack the mobile phone of a murdered teenager, providing hope to her traumatized parents and sidetracking police on the case -- all in the name of breaking a story that has no public-policy value. The Guardian article marked the start of a deluge of news coverage that put to rest the implausible rogue-reporter theory. On July 31, News Corp.’s Wall Street Journal reported that U.K. police had expanded their criminal investigations of the company to add possible computer hacking to what was initially a probe of phone hacking and police payoffs. Jack Horner, a spokesman for the company, declined to comment.

There is much more to this sordid tale, but if you are a shareholder the only fact you really need to get your head around is why you hadn’t braced yourself for trouble in the first place. News Corp., as it turns out, is a case study in why corporate governance should matter to investors.

Case for Crisis

The details of all this couldn’t have been foreseen by even the most prescient of analysts, of course, but the prediction that News Corp. would at some point land in a crisis was clear to experts in corporate governance. “If you wanted to make up the sort of company that will fail in the future, this is the sort of board you’d put together,” said Paul Hodgson, managing director at GovernanceMetrics International, a New York-based governance consulting firm and rating service. GMI tracks 3,000 publicly held companies in its database. Only 36 of them now carry an “F,” the rating News Corp. has had since GMI began grading corporate governance in 2003.

It’s easy to understand why when you scroll through the list of the company’s 15 directors. Among nine directors deemed independent are Jose Maria Aznar, the former prime minister of Spain, who was 50 percent owner of a consulting firm that was paid 120,000 pounds ($195,000) for advisory services to News Corp. in the fiscal year that ended June 30, 2006; he and the company terminated the agreement on June 20, 2006, just before he joined the board, according to a News Corp. proxy. Aznar couldn’t be reached for comment.

Kenneth E. Cowley, another independent director, was a senior executive at News Corp.’s News Ltd. subsidiary in Australia from 1964 to 1997, according to a regulatory filing. He has been a director since 1979 and is on the corporate-governance committee. Rod Eddington, a member of News Corp.’s compensation committee and chairman of its audit committee, used to be chairman of Ansett Holdings Ltd., an Australian airline in which News Corp. had a financial interest until 2000. At least shareholders can take solace that independent director Natalie Bancroft comes with no strings attached. Put on the board as a condition of the deal when Murdoch purchased Dow Jones & Co. from the Bancroft family in 2007, she is a professionally trained opera singer. That might come in handy should Murdoch ever stage a hostile takeover of the Metropolitan Opera.

(Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.)

Getting F’s

News Corp. might get F’s when it comes to corporate governance, but you can’t say the operation is lacking for family values. Rupert and sons James and Lachlan sit on the board. James is deputy chief operating officer. Rupert Murdoch’s wife, Wendi Murdoch, was on the payroll from 2006 to 2010 for providing what company regulatory filings describe as “strategic advice” to develop MySpace in China. (After buying MySpace for $580 million in 2005, News Corp. sold it for $35 million this year). A Murdoch son-in-law, Alasdair MacLeod, worked for the News Ltd. news division until last year. Another son-in-law, Matthew Freud, runs a publicity company that in each of the past five years has been paid between $350,000 and $669,202 by News Corp., according to proxy filings.

Rupert Murdoch intends to add his daughter Elisabeth, the wife of Freud, to the board. News Corp. purchased her production company, Shine Group Ltd., for $673 million earlier this year, prompting a shareholder lawsuit in March that accused Murdoch of using the company as if it were “a wholly owned family candy store.” News Corp. called the suit “meritless.” Oh, and I almost forgot: JPMorgan Chase & Co. advised Elisabeth Murdoch on the transaction to sell Shine to her father’s company. Eddington is nonexecutive chairman of JPMorgan Australia Group.

Family Thing

Even non-Murdochs have that family thing going. David F. DeVoe is the chief financial officer; his son, David F. DeVoe Jr., is executive vice president of News Corp.’s Fox Entertainment Group Inc.

None of this would matter if News Corp. were a private company. But there’s this old-fashioned idea out there that managements of public companies report to boards of directors, and that shareholders are owners who have a say in things. Good luck with that if you hold News Corp. stock. Murdoch and his trust own 39.7 percent of the Class B shares, the only ones with a vote. “With a 40 percent holding, it’s very difficult for public shareholders unless they are in absolute concert to vote against him,” said Hodgson, the governance expert.

Fighting Back

That’s not to say shareholders haven’t tried to fight back. In a letter to shareholders on Oct. 7, 2004, News Corp. responded to a flap raised by shareholder advisory groups by making several changes, among which was a policy covering so-called poison pills, which are often used to deter hostile takeovers. If the board were to establish a poison pill without shareholder approval, it would expire after one year “unless it is ratified by stockholders,” the company said at the time. On Aug. 9, 2005, though, News Corp. broke that promise, extending its poison pill for two years without putting it to a stockholder vote. John Malone’s Liberty Media had accumulated an unwelcome 18 percent stake in News Corp., and Murdoch used the pill to keep him at bay long enough to cut a deal in 2008 to get Malone’s $11.3 billion stake in exchange for cash and certain News Corp. assets. With Malone out of News Corp.’s hair, the board dropped the pill later that year.

No Kidding

Bloomberg News reported on July 27 that News Corp. had asked New York-based public relations firm Sard Verbinnen & Co. to survey the biggest shareholders about the independence of New Corp.’s board, its dual-class share structure and its corporate governance. Why bother? News Corp. has known for years what shareholders think about those issues. And shareholders have known -- or should have -- what they were getting when they purchased News Corp. shares. Hodgson says companies with all the governance problems News Corp. has “will get away with it for a certain period, and then it comes home to roost.”

So who’s kidding whom here? When you buy shares of a company where more than one person on the board has the same last name, and spouses, in-laws, and directors cash in on job appointments, contracts and asset sales to the company, you should expect to get what you pay for. The best favor News Corp. could do for shareholders is to make sure nobody named Murdoch sits in the C-suite. Barring that, shareholders with a complaint about the downside of investing in a family dynasty have only themselves to blame.

(Susan Antilla, who has written about Wall Street and business for three decades and is the author of “Tales From the Boom-Boom Room,” a book about sexual harassment at financial companies, is a Bloomberg View columnist. The opinions expressed are her own.)

To contact the writer of this article: Susan Antilla at santilla@bloomberg.net

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net