This story has been updated.
As the proverb goes, those that live by the sword die by the sword. This is what seems to be happening to News Corp – the company that owns the now defunct News of the World tabloid accused of hacking voice mails of murder and terrorism victims and bribing police. The paper was shuddered in July of 2011 because the scandal just would not go away. Just last week, it was replaced by a new Sunday version of the Sun. However, several Sun senior journalists have recently been arrested. Lead investigators accused them of making illegal payments to government officials. In one case, a public official was paid $125,000 for information, and in another, a Sun journalist is reported to have received $235,000 over several years to pay sources for information. Investigators have alleged that systems were put in place to make payments to officials while hiding their identity.
Revenge of the Celebrities
Celebrities and others that have had their lives turned upside-down by tabloids are smiling at the escalating misfortunes of the News Corporation empire, whose tabloids have terrorized them for years. At the first hint of this scandal, News Corp seemed inept at reacting to, and containing, the damage. As they testified in front of Parliament, News Corp representatives looked like deer in headlights. Both James and Rupert Murdoch have repeatedly denied knowing of any hacking or bribery activities. They have tried to contain the damage by saying it is limited to very few rogue employees. This reminds many of Watergate and so many other scandals where controlling executives that managed minute details of their operations claim they did not know of illegal activities that later turned out to be rather widespread.
Procedures to contain damage
To properly contain image damage when there is a crisis, organisations need to follow proven crisis management procedures. If true, the fact procedure advises companies to…
- Admit (what you did wrong)
- Limit the scope (put the transgression in perspective)
- Propose a solution so it will not happen again.
If not true, the rumour procedure advises that companies should…
- Not publicize the rumour
- Promote the opposite of what the rumour says
- Provide proof for support of your promotion in Step 2.
Damage not contained
In this case, without following either procedure, Rupert Murdoch quickly closed down the News of the World tabloid that has been operating in England for 168 years. He presumably did this to contain the image damage to his News Corporation empire that stretches around the world. However, when you so quickly shutter a business that has been part of the cultural fabric for so long, suspicions will arise that there must be a lot more scandal to surface. Instead of containing the damage, News Corp.’s rapid action to close the business did just the opposite.
As a result, the British Parliament and Scotland Yard have gotten involved. The US Congress and the FBI are also investigating allegations that News Corp. employees hacked the phones and emails of victims of the 911 terrorist attacks.
Giving further credence to the suspicions of a more widespread scandal, five Sun employees were arrested last week on the heals of the arrests of four Sun employees in January. And, James Murdoch has just stepped down as executive chairman of News International, the British arm of News Corp. A story by James Doward in the Guardian says that “The drip, drip natures of the arrests is in danger of becoming a flood.”
More suspicions have been raised
Unlike most major newspapers, the News Corp-owned Wall Street Journal failed to feature the scandal on its front pages. This is quite amazing given the fact that this is a major business story that is of great interest to the Wall Street Journal’s target audience. Avoiding the coverage calls into question the Journal’s editorial independence and only fuels more suspicion of what News Corp may be hiding.
Resulting financial damage
As the scandal grows, so does the financial damage. Since news broke of the hacking of a murder victim’s voice mail in Britain, News Corp shares tumbled 13% last summer according to Bloomberg Business Week. Additionally, as reported in the Wall Street Journal, shareholders are suing News Corp for “… an egregious collection of nepotism and corporate governance failures, with a board completely unwilling to provide even the slightest level of adult supervision.” To date, some estimates peg the cost of the scandal at $200 million. Last summer, the scandal also caused the Company to drop its $12.6 billion bid for full control of British Sky Broadcasting Group.
Expenses related to this scandal are expected to mushroom since News Corp has hired criminal defence lawyer Brendan V. Sullivan Jr. of the D.C. law firm Williams & Connolly (he was the attorney for Oliver North during the Iran-Contra scandal). It also retained Edelman, the world’s largest private PR firm, to help it manage its reputation as the scandal continues to unfold.
Lessons to be learned
For marketers and company executives there are numerous lessons to be learned from this unfolding scandal.
- As Google says in their mantra, don’t be evil.
- Proper policies need to be put in place to prevent this from happening again.
- Once effective policies exist, employees need to be supervised from top to bottom to insure that they follow them.
- At the slightest hint of scandal, the company needs to contain the damage by employing the relevant fact or rumour procedures before the sparks turn into conflagrations.
- Companies that live by the sword have a high risk of dying by the sword.
Can News Corp.’s Image Be Fixed?
Many think that News Corps image is repairable if (1) they can successfully contain the scandal and (2) the financial performance of the company continues to rebound. With the latest arrests of Sun employees, however, it does not appear that the scandal is going away any time soon.
For News Corp to weather this storm, their top executives should employ proven crisis management protocols. To date, they have chosen to stonewall in front of Parliament, close the offending paper, pay legal fees of arrested Sun employees, or resign from boards.
These actions have not served them well, and will continue to cause the public to not trust them. Right now, the sword appears to be too close for comfort, and since there has been a lot of smoke, many believe the fire around the corner.
It seems that the fact procedure is the crisis management tool that is the best option for News Corp to put the scandal to rest once and for all. It will be interesting to see how this continues to unfold.
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