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Stewardship Lessons from News Corp (part two)

The radio was on in every room as my wife and I installed ourselves in our new home yesterday. I was moving house as the select committee interview of Rupert Murdoch and his son James unfolded.

Apart from the foam pie commentators today are concentrating on who knew what when.

Most of them are missing the two main points which screamed out from the hearing, especially in the testimony of Rupert Murdoch.

As leader and manager it is your business to know how people are behaving in your business. Even when all is going well. It is your business to check. And when you get clear warnings that things are going wrong, it is your business to investigate. If you delegate that to others you are abdicating your leadership. And if people don’t of their own accord tell you when things are going wrong, you have set the wrong tone.

News International may have had an ethics code. But they did not appear to place a leadership priority on how people behave. The best leaders are vigilant in watching behaviours. They make heroes of people who not only achieve targets, but who by their actions live out the company’s values.

Not the Murdochs. Rupert did not know that a CEO of subsidiary company of his had admitted paying the police for stories. He did not know that a senior reporter in that company had, in the words of a judge, been guilty of blackmail. He did not know that a Parliamentary Select Committee had described senior managers of the company as being guilty of collective amnesia. He did not know that it had paid out over three quarters of a million pounds to a victim of illegal phone hacking.

As the hearing went on I asked myself this question. What were experienced non-executive directors of News Corp doing to check on the behavioural audit trail which is a such key part of good governance? Why didn’t they heed the warning signs from parliamentary reports and court cases?  Why did they accept a decision to outsource ethical oversight to the police, the press Complaints Commission and a City Law firm?

In the UK and continental Europe at least most directors now say the right words – it is about behaviours, not compliance. In the USA and in large parts of the investment world, clever people continue to stumble over ethical landmines because they continue to believe that all they need to know about a company’s performance and value can be found in the numbers, not in its character.

And for those of us who care about stewardship, it is time to ask every fund manager handling our money what steps they take to assure themselves that shareholder value is being protected from the kind of ethical negligence that was evident at News International. .

It is easy to be wise after the event. It is important to be constructive and recognise that good governance is not all about stopping people doing things. Boards need to balance risk management with innovation, safety and enterprise.

We need our companies to focus on performance and we need them to take risks. In all the hoo-ha we mustn’t forget that the invention of BSkyB as a business was an extraordinary breakthrough in which Rupert Murdoch took huge risks. And that James Murdoch took Sky in radically new directions – for example by facing up to the challenge of climate change and the huge role a broadcaster could play in mobilising its viewers to make a difference. Sky have won many awards for this but we have known at least since 2002 that directors must follow behaviours as well as results. Non-executive directors everywhere, take note.

Posted by Mark Goyder, Founder Director of Tomorrow’s Company.

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