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Stewardship Lessons from NewsCorp

by Mark Goyder

In 2002 I wrote “Lessons from Enron”. It was story of power, fear and greed by the people at the top of the company. The non-executives who were there to hold them to account failed to restrain it.

People close to the operation knew there was much that was smelly. Brave whistle-blowers tried to draw attention to the problems but were slapped down.

Does any of this sound familiar this week?

There are differences, of course.Enron was listed company with dispersed shareholders. News Corp is a hybrid, with listed status but family control through preferential voting structures.

In Enron the performance pressures led to fraud and corruption. In News Corp they led journalists and executives to break the law, invade personal privacy, ignore the industry’s codes of practice and pay police for information. How much their managers then covered up this wrongdoing is still emerging.

We know some of the conclusions.

Every time there is a shareholder value disaster, somewhere behind it lurks a culture of fear.

As I argued 9 years ago in lessons from Enron, independent directors will only be effective if they follow what I call the “behavioural audit trail”. This means insisting first that a company states its values and second poking their noses in where they may not be welcome to ensure that the company’s managers practise what they preach.

Stewardship investors will insist on asking questions to satisfy themselves that directors are following the behavioural audit trail.

This is not rocket science. The best non-executives and the best investors do ask these questions. The trouble is that there are many more who lack the imagination or the understanding or the energy to feel the pulse of the organisation. They think this is all “soft stuff”, which “takes their eye of the ball”.

As I wrote then, until we realise that this soft stuff truly is the hard stuff, we will continue to pay the price in corporate irresponsibility and shareholder value.

That’s why we need stewardship investors who do have the experience and the commitment to hold company boards to account on the soft stuff and the hard stuff.

I could do worse than repeat the agenda I set out then and rename it “lessons from News Corp” – especially the bit at the end about journalists!


You are the company’s ethics and risk committee. Clear your agenda so that there is time for the serious examination of corporate values and the gap between what is preached and what is practised in your company. It may tell you more than the report of the audit committee. Ask repeatedly what kind of behaviours and what kind of managers get on round here? Do the answers fill you with confidence? If not, dig deeper.

…Institutional shareholders

Re-examine your time horizons. What kinds of performance are you rewarding and how durable is it? Are you incentivising people to boost the share price without regard to the future? Challenge the remuneration. Is it one-dimensional? If it is, how can you be sure that you are getting real or cosmetic improvements?

Question CEOs about the kind of atmosphere and culture they seek to create in their companies. See if they are managing the risks that go with big rewards for performance. You are right to invest a lot of credibility in CEOs and teams who deliver what they promise. But how much do you trust the earnings reported to you? What about cash and what about the underlying health of key relationships in the business? Are you encouraging a game of presentation, rather than underlying substance?

…Pension trustees

Question the more active of your fund managers. What are they doing to promote the underlying health of the businesses they invest in and to manage the risk around values, culture and governance? How are they rewarded? Are they encouraging an approach that delivers expected numbers at the expense of building value for the future? Is this what you want?

…Company secretaries

Open up the AGM. Encourage awkward questions as an insurance policy and a sign that the CEO and Chairman of your company are role models for open behaviour.

… the Remuneration Committee

Is your approach to performance one-dimensional? If it is focussed on total shareholder return - over what timescale? How are you protecting tomorrow’s shareholders against today’s creative accounting? Where in the remuneration system are you sending signals that results are not to be achieved at any price to the values and integrity of the organisation?

…Business Journalists

How often do you ask the CEOs you profile about the things they are doing to ensure the business is still robust in ten years time? Do you ask them about the ethos of the business? Is the emphasis exclusively on performance and the next few quarter earnings? What about following the behavioural audit trail? Do you talk to employees and customers and look at the underlying health of the organisation that is expected to continue delivering these results?”

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