News Corporation has reached a $139m (£91m) settlement with shareholders over a lawsuit claiming that its board of directors put Rupert Murdoch's interests ahead of the company over the phone-hacking scandal and the acquisition of his daughter Elisabeth's TV company Shine.

The suit was brought against News Corp directors including Murdoch, his sons James and Lachlan and the former British Airways boss Rod Eddington. According to the shareholders the board had "disregarded its fiduciary duties" and allowed Rupert Murdoch to run News Corp as his "own personal fiefdom".

The Amalgamated Bank, Central Laborers Pension Fund and City of New Orleans Employees' Retirement System first launched their suit after News Corp's 2011 purchase of Shine. They subsequently amended their complaint to include the hacking scandal.

Shareholders alleged that the board had ignored "clear and unmistakable warnings that News Corp's business practices were not only unethical, but also illegal". The board was also "an outright accomplice to Murdoch's self-interested breaches of duty", according to the suit.

The lawsuit accuses Rupert Murdoch of treating News Corp "like a wholly owned family candy store" and argues that a fair price was not achieved for Shine. News Corp paid $675m for Shine, the maker of Masterchef. Elisabeth Murdoch received $214m in cash from the sale, according to government filings. "Amazingly, at about the same time that the police turned up the heat on son James in early 2011, Rupert told the board that News Corp should buy a business owned by his daughter Elisabeth," the suit claimed, referring to James Murdoch's then central role in dealing with the hacking scandal as executive chairman of News International, News Corp's newspaper arm. "There was no pretence of negotiating the deal's terms," according to the shareholder lawsuit.

As part of the settlement, which is awaiting court approval, News Corp agreed to tighten oversight at the company and to set up an anonymous hotline for whistleblowers to report misconduct. The settlement, which will be covered by insurance, was brought against directors on behalf of shareholders and the money will be paid back to the company by the insurer.

It is the largest ever reached in a so-called derivative lawsuit in Delaware chancery court, said Jay Eisenhofer, partner at Grant & Eisenhofer, who represented Amalgamated Bank. In a statement, the company said: "News Corporation acknowledges the meaningful role the plaintiffs and their counsel played in the company's continuing efforts to enhance the important compliance and governance structures and policies that the board and management of News Corporation have adopted over the last year and are adopting as part of the settlement." The hacking scandal has led to over 100 arrests and is still under investigation by the US authorities. News Corp is planning to split its assets in two, with its newspapers and publishing assets keeping the News Corp name while the TV and Hollywood media assets will be renamed 21st Century Fox.