Murdoch’s Own Horizon

Like the BP oil spill last year, News Corp.’s phone-hacking crisis may have roots in a toxic corporate culture, says Tuck professor Sydney Finkelstein.

Rupert Murdoch, the chairman and controlling shareholder of News Corp., is reportedly fond of saying, “bury your mistakes.” Up until recently, his company was fairly adept at it too.

In 2009, for instance, News Corp. paid $1.6 million to settle claims connected with alleged phone hacking practices dating back to 2005. But a few weeks ago, those misdeeds bubbled up to the surface again when it was revealed that the News of the World, one of Murdoch’s British tabloids, hacked into the voicemail of a missing schoolgirl who was later found dead. Now the scandal is a veritable geyser: News of the World is gone, arrests have been made, Murdoch gave up his bid to take over British Sky Broadcasting, and he and his son James have been summoned to testify before the House of Commons.

For Sydney Finkelstein, the Steven Roth Professor of Management and an expert in leadership and strategy, there’s no denying that News Corp.’s troubles are the result of a “colossal leadership and management failure.”

There are two ways to think about the genesis of this failure, Finkelstein says. Either this criminal activity was directly sanctioned by Rupert or James, the latter of whom is responsible for News Corp.’s European and Asian businesses, or it’s a product of an overly aggressive, take-no-prisoners corporate ethos. “Both scenarios,” say Finkelstein, “lead to the same conclusion of culpability. Even if Murdoch didn’t sanction this behavior, as the senior executive of the company, he’s responsible for the culture of the organization.”

Finkelstein believes the latter situation is more likely, given Murdoch’s reputation in the media world. Indeed, Murdoch built News Corp. into one of the globe’s biggest media conglomerates mostly through his own swashbuckling business tactics. In a 1995 New Yorker profile, he was described as a “pirate” who will “cunningly circumvent rules, and sometimes principles, to get his way.” Through acquisitions of British tabloids and the New York Post, and his founding of the Fox News network, Murdoch’s penchant for hard-nosed deal making was matched with a newsgathering spirit that critics contend places sensationalism ahead of truth and accuracy. A corporate history like that, says Finkelstein, sets a tone for the employees. “Being aggressive, sensationalist, and going after your enemies is really what it’s all about, and not necessarily journalistic integrity.”

The pattern reminds Finkelstein of the revelations about BP’s corporate culture after last year’s Deepwater Horizon oil spill. “There were so many reports from insiders talking about how safety was not a primary concern,” he says. This attitude, Finkelstein believes, flowed directly from the stated priorities of former BP CEO Tony Hayward, who encouraged cost-cutting at the expense of workplace safety.

As this scandal has played out, Murdoch’s response hasn’t been particularly adroit, Finkelstein says. For example, Murdoch decided to shut down News of the World just three days after the media reported on the hacking of the missing girl’s voicemail. “The fact that he did that so quickly makes you wonder what else we don’t know,” he explains. “When you make concessions like this, it emboldens your critics and they want more.”

To make matters worse, when Murdoch was initially asked to answer questions at the House of Commons, he demurred, stating that he wasn’t available. No CEO wants to submit to questioning from a governmental body, Finkelstein says, but it’s part of the job description, and Murdoch’s unwillingness betrayed the cavalier attitude that probably contributed to this mess. Murdoch changed his mind when the request turned into a summons.

From here, the path for the “man who owns the news” gets tricky. Resignations from top-level executives in News Corp., and even Scotland Yard, are piling up. The FBI has opened an investigation into whether or not News Corp. journalists tried to access the phone records of victims of the September 11 attacks. The cycle of disclosures and blame is bound to continue. The only way to leave his son James with a viable business to run, Finkelstein says, may be for Murdoch to step down. Perhaps only then will critics believe that a reform of the corporate culture is possible.

“If he asked me,” Finkelstein says, “I’d tell him it’s time to resign.”

July 2011