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(Reuters) - Rupert Murdoch and his sons James and Lachlan should be kicked off the News Corp board along with 10 other directors when shareholders vote at this year's annual general meeting, a corporate governance watchdog said on Monday.
The phone hacking scandal at News Corp's UK weekly tabloid paper News of the World has rocked the entire company since it erupted in July. ISS said the scandal has "laid bare a striking lack of stewardship and failure of independence."
The board had been unable to set a "strong tone-at-the-top" about unethical business practices, ISS said. ISS is a proxy firm that advises some of the largest institutional investors in the United States on shareholder votes.
The statement was particularly critical of the board's decision to approve a 180 percent increase in Chief Executive Rupert Murdoch's cash bonus to $12.5 million in the fiscal year to June 2011 soon after the phone hacking fallout began.
Rupert Murdoch controls the company through a 40 percent stake in the company's voting stock.
Including the Murdochs, ISS recommended shareholders vote against reelecting 13 of the 15 directors at its annual general meeting on October 21. It suggested votes against executives on the board including Chief Operating Officer Chase Carey, Chief Financial Officer David Devoe and former general counsel Arthur Siskind as well as independent directors including former British Airways CEO Rod Eddington and former assistant attorney-general Viet Dinh.
The only two directors ISS backed were veteran lawyer Joel Klein and venture capitalist Jim Breyer "as neither has yet served on the board for more than a few months. Breyer is set to join the board on October 21, after fellow venture capitalist Tom Perkins announced he was stepping down last month.
News Corp said it "strongly disagrees" with ISS analysis.
"The company takes the issues surrounding News of the World seriously and is working hard to resolve them. However, ISS' disproportionate focus on these issues is misguided and a disservice to our stockholders," said a company spokeswoman.
"Moreover, ISS failed to consider that the company's compensation practices reflect its robust performance in fiscal year 2011."
Reporting by Yinka Adegoke; Editing by Gary Hill