A powerful group of News Corp's shareholders have accused Rupert Murdoch of "egregious" behaviour and treating his media empire like a "family candy jar".

The shareholder group, which includes banks and pension funds, accused Murdoch of "rampant nepotism" and using News Corp resources for "his own personal and political objectives".

The institutional shareholders, led by the Amalgamated Bank, said it was "inconceivable" that Murdoch would not have been aware of rampant phone hacking at the News of the World.

"It is inconceivable that [James] Murdoch and his fellow board members would not have been aware of the illicit news gathering practices. And yet, the board took no real action to investigate the allegations until 7 July 2011, when Murdoch selected two of his co-directors to deal with the imbroglio," the shareholders said in a legal filing in Delaware, where News Corp is registered.

"These revelations should not have taken years to uncover and stop," the filing adds. "[They] show a culture run amuck within News Corp and a board that provides no effective review or oversight."

The shareholders noted that Rebekah Brooks, chief executive of News International and editor of the News of the World at the time of the hacking, was "consistently promoted even while the scandal was unfolding".

The legal filing is an update to an earlier lawsuit against the appointment of Elisabeth Murdoch to News Corp's board following the $615m (£383m) acquisition of her Shine Group production company.

"News Corp's behaviour has become an egregious collection of nepotism and corporate governance failures, with a board completely unwilling to provide even the slightest level of adult supervision," said Jay Eisenhofer, a Grant & Eisenhofer lawyer representing the shareholder group.

"The result has been a piling on of questionable deals, a waste of corporate resources, a starring role in a blockbuster scandal, and a gigantic public relations disaster. It is way past time that the News Corp board step in and initiate serious changes to the company's corporate governance."

The legal complaint filed in Delaware chancery court said: "Murdoch has treated News Corp like a family candy jar, which he raids whenever his appetite strikes. Ignoring the distinction between public and family business, the board has repeatedly permitted Murdoch to: intertwine rampant nepotism in the conduct of company business; undertake actions designed to maintain his control over News Corp; use News Corp resources for his own personal and political objectives; and reward himself handsomely with excessive compensation."

The shareholders complain that Murdoch's personal interference with good corporate governance has led to a so-called "Murdoch discount" that has depressed the value of the shares below those of other similar media companies.

"The fact that the board has been so passive despite years of misconduct is a testament to how lacking in independence its members are from the Murdoch family, shareholders allege. This has led to a 'Murdoch discount' in the marketplace," the complaint adds.

The shares were down 5% at $16.50 in New York trading at 3.45pm London time. The shareholder lobby group owns less than 1% of News Corp stock.