How to hit an iceberg: Rupert Murdoch’s unfolding disaster

As events have unfolded in the News of the World scandal I have kept being reminded of a phrase that explains much of the appeal of that (now defunct) newspaper: the fascination of the horrible. Really grim things can grip. That’s 50% of the key to “tabloid” newspapers and their stories. (The other half is celebs; and when celebs hit scandals, tabloid sales get supersized.) It is a delicious irony that the most celebrated scandal-sheet on the planet has fallen rapid victim to just the kind of story it has always loved to report. The fact that it also saw itself as a campaigning newspaper – crusading on the side of truth and goodness as it drove up sales –further seasons the feast. There’s nothing more grimly gripping on the planet than a loud-mouthed and out-and-out hypocrite.

We don’t know where this will end, and neither do Mr. Murdoch, his executives, shareholders, and those who wish him well or ill. What we do know is that we are looking at a corporate empire under threat. We don’t have to speculate about the potential use by U.S. prosecutors of the Foreign Corrupt Practices Act (which makes bribing foreign officials, like British cops, a particularly nasty federal offence) to note the potential impact of public sentiment on a corporate empire. Or, in other words, of values on value. We may find it curious that the public seemed to care little for the hacking of celebrities’ cellphones – which was round one of the scandal – but was thrown into rage by the use of that same news-gathering technique on a victim of crime. But for the very reason that the British public is a vast consumer of “tabloid” news its appetites are fed by sensation and sentiment. Sentiment has swung with a vengeance. Murdoch’s big move to control the key satellite broadcaster has been condemned by all political leaders. The police have placed several of his top execs on notice that they are being investigated. He and his team are being invited to be quizzed by parliamentarians. And here in the United States, Congress is waiting in the wings.

What’s the moral? Well, first, look at the impact of technology. Before there were mobile phones all we had were clunky answering machines. Now there are great vats of highly sensitive and potentially valuable private information digitally accessible from any telephone in the world – if you punch in the right sequence of digits. Asymmetries are breaking out all over. Low-level people under pressure for stories break the rules. High-level people may pay the price and market value may be destroyed. What’s the moral? Simple, really: the leveraging that emerging technologies are bringing to business make it far more important for values to be aligned throughout the organization than they were before. Dumpster-diving for discarded correspondence is one thing; pumping 4,000 names into a spreadsheet, bribing the Head of State’s security detail, eavesdropping on the victims of crime and terror, and hacking the phones of cops who are investigating, is quite another.  That’s the power of the handset in the hand of the representative of an organization that, at some level, has been shown to be corrupt.

Sure, you can argue that every organization has bad apples. In the nature of the case scandal-focused journalism operates on the edge. The boundaries overstepped did not look so big at the time. All correct. But some lessons learned. First, bad apples are now far more toxic to organizations than they used to be – because of the combination of technological leverage and reputational damage so devastatingly demonstrated here. When all is said and done, the little nexus of private detectives and journalists at the heart of this story may end up destroying billions of dollars of shareholder value. Second, the edgier the effort – whether sensationalist publishing or, say, healthcare systems where physicians can be rewarded for the denial of care – the more central the need for unambiguous, enforced values to pervade the organization from head to toe. Third, just as corporate leaders are now post-Enron required to sign off on the accounts, they need to sign off on the values that pervade their entities. Not because Sarbanes-Oxley requires it, but for an even more pressing reason: their building sustainable value for investors does. We don’t need a SOX for values. We already have one. It’s called the bottom line.

Go figure. And watch News International’s value in weeks to come.

First posted on the U.S. Chamber BCLC site

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