News Corp’s ethics were set at the top

August 17, 2011

By David Callahan
All opinions expressed are his own.

Rupert and James Murdoch have even more explaining to do after Tuesday’s allegations that top editors at the News of the World knew about the use of phone hacking by reporters. While the Murdochs have pleaded ignorance about the sordid doings of their underlings, a growing pile of evidence suggests that at least James was very much in the loop. That is not surprising. You don’t build a business empire – or even inherit one – by being a hands-off boss. What’s more, subordinates in major corporations don’t tend to commit serious crimes unless they think such behavior is okay with the boss.

Business scandals typically take a predictable path. Atrocious behavior comes to light and, within days, top executives are in front of klieg lights professing to be just as shocked as anyone else. But look, they say, we CEOs and chairmen can’t know everything that goes on around here. Then, over time, documents and witnesses emerge to show that top executives did know about illegal behavior. So it is that former CEOs like Jeff Skilling of Enron, Bernard Ebbers of WorldCom, Calisto Tanzi of Parmalat, and John Rigas of Adelphia are now serving long prison sentences for frauds that they initially denied any knowledge of. Other CEOs, such as subprime king Angelo Mozillo of Countrywide, have paid large penalties to settle suits by government authorities.

The phone hacking scandal is now well along this familiar trajectory. James Murdoch may have gotten to the top of the News Corp mainly because of nepotism, but he is no dummy and profiles have depicted him as a very competent executive. Yet we are supposed to believe that he signed off on a record payment to settle a hacking complaint without knowing the damning details? Or that, even though hacking was discussed openly at News of the World editorial meetings — until such explicit talk was banned by the editor — the top command at the News Corp had no idea what was going on? Right.

It is a cliché, but also true, that the ethical tone of organizations is set by its leaders. At Enron, for instance, Jeff Skilling famously encouraged a Darwinist culture of harsh competition and extreme risk-taking. Richard Nixon — to take an example from politics — was his Administration’s chief paranoiac. How top people behave matters because you don’t get ahead in big institutions by marching to your own drummer, but by emulating those higher up in the orchestra. If your boss is Mr. Clean, you’re not going to think that a bag of dirty tricks is your ticket to success.

Rupert Murdoch built his fortune by explicitly embracing the low road. And while he followed the standard script last month by telling a parliamentary committee he was “surprised and shocked” by the hacking, this scandal is a logical result of the culture he created at the News Corp — and that James eagerly continued as a top executive.

Any student of business scandals knows what is next in this saga. The trail of documents and witnesses that link top News Corp executives to phone hacking is likely to get longer as investigators dig deeper. The emergence Tuesday of an incriminating letter written four years ago by Clive Goodman, the News of the World’s former royal correspondent, is an example of the secrets that may still lie buried in the Murdoch empire. While such secrets tend to be safe in normal times, things change fast when subpoenas start flying and arrested subordinates start talking. Inevitably, too, cover-up efforts spawn new alleged crimes for authorities to investigate – as we are seeing with accusations that James Murdoch lied under oath when he testified to Parliament on July 19.

Still, even as the odds mount that James Murdoch will be forced to resign as CEO of the News Corp — and that his father might be compelled to step aside as the company’s chairman — don’t expect a satisfying resolution to this scandal. Should evidence emerge to link the Murdochs to illegal acts, prosecutors may still be reluctant to risk an expensive and drawn out trial. Securing prison time for deep-pocketed executives is not easy when they can spend a fortune arguing that they were insulated from day-to-day decisions and ignorant of criminal actions. The convictions of CEOs like Bernard Ebbers and Calisto Tanzi (which took years to win) are an exception to the usual outcome, which is that the boss gets off while his minions do time.

The history of corporate scandals may confirm the old saying that the fish rots from the head down. But proving this simple truth of organizational life is anything but easy.

PHOTO: News Corp Chairman and Chief Executive Rupert Murdoch is seen on television screens in an electrical store as he is questioned by a parliamentary committee on phone hacking, in Edinburgh, Scotland July 19, 2011. REUTERS/David Moir

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nice article. thanks

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