02 May 2012

Moguls and Managers

I spent last night reading the report by the UK parliament’s Culture Media & Sport Select Committee into News International and phone-hacking, a foretaste of the Leveson report.

It is a fascinating document for anyone concerned with privacy and the governance of very large enterprises operating in difficult environments. It is of particular interest for anyone who has been reading the Finkelstein report, Australian denunciations of the proposed statutory tort of serious breach of privacy, and the Convergence Review noted here.

The House of Commons committee report, as I've noted elsewhere, will presumably to be denounced by News publications as egregiously partisan, a hatchet job from which some Tory MPs sensibly or cravenly dissented. A more persuasive criticism would be that it fails to adequately recognise the difficulties inherent in micromanagement of a global corporation in the 'content industries' and the extent to which the people at the top of other large enterprises are ignoring problems or being shielded from bad news. However, it offers a damning assessment of corporate governance at News, which remains one of Australia’s dominant media groups and operates one of the largest US television networks.

The report asks whether Rupert Murdoch “turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications”. It condemns “the lack of effective corporate governance at News Corporation and News International”. It criticises several News senior executives, an indication that the corporate culture is at fault, although the responsibility for that culture starts at the top.

One comment is that
In its 2010 Report, Press standards, privacy and libel, the Committee ... was “struck by the collective amnesia afflicting witnesses from the News of the World”. During the inquiry which led to the production of that Report, the forgetfulness of News International reached new levels on 15 September 2009, when Les Hinton, formerly Chief Executive of News International, appeared before the Committee and stated that he did not know, could not recall, did not remember or was not familiar with the events under scrutiny a total of 72 times. ... In 2009, witnesses from News International had noticeably less difficulty remembering the investigative measures to which the company claimed it had been subject following the arrest of Clive Goodman and Glenn Mulcaire.
It goes on to state that
We stand by the conclusions over phone-hacking in the Committee’s 2010 Report on Press standards, privacy and libel. As this Report sets out, those conclusions have been vindicated—and, indeed, reinforced—by evidence which started to emerge because of civil actions later that year, from continued pursuit of the matter by the Guardian and other newspapers, and from further disclosures made as a result of our work in 2011. Unlike the results of previous police and Press Complaints Commission inquiries, our conclusions have stood the test of time. It is a matter of great regret, therefore, that so much time elapsed before further action was finally taken by News International and the Metropolitan Police, in particular, to investigate phone-hacking. ...
Far from having an epiphany at the end of 2010, the truth, we believe, is that by spring 2011, because of the civil actions, the company finally realised that its containment approach had failed, and that a ‘one rogue reporter’ — or even ‘two rogue journalists’ —stance no longer had any shred of credibility. Since then, News Corporation’s strategy has been to lay the blame on certain individuals, particularly Colin Myler, Tom Crone and Jonathan Chapman, and lawyers, whilst striving to protect more senior figures, notably James Murdoch. Colin Myler, Tom Crone and Jonathan Chapman should certainly have acted on information they had about phone- hacking and other wrongdoing, but they cannot be allowed to carry the whole of the blame, as News Corporation has clearly intended. Even if there were a ‘don’t ask, don’t tell’ culture at News International, the whole affair demonstrates huge failings of corporate governance at the company and its parent, News Corporation.

The history of the News of the World at hearings of the Committee is a long one, characterised by “collective amnesia” and a reluctance fully and fairly to provide the Committee with the information it sought. News International has repeatedly stone- walled, obfuscated and misled and only come clean, reluctantly, when no other course of action was sensible and when its wider commercial interests were threatened.
The report concludes that Murdoch “is not a fit person to exercise the stewardship of a major international company".

Cynics might regard that conclusion as an echo of the famous finding - subsequently ignored by the UK Government, at the expense of a large number of pensioners and investors - that colourful entrepreneur Robert Maxwell (The Capn Bob of 'crash & splash' fame) was unfit.

There is no indication in the report that Murdoch has engaged in financial impropriety and no smoking gun demonstrating that he consciously commissioned illegal behaviour. It is important to recognise that in law there is a difference between a parliamentary inquiry and conviction in a trial regarding allegations of civil/criminal offences. Given that, like his centenarian mother, he appears to be hale & hearty, he may respond to the condemnation with vigorous protestations of innocence - presumably having been misled by over-enthusiastic underlings - and take a well-earned early retirement. At 81 it’s surely time to relax, enjoy the garden, talk to sympathetic biographers and engage in good works like his mother. Some Murdoch family members will presumably relinquish positions in the group, being replaced by proxies or luckier siblings. Fortune favours the brave or those who weren't in the executive carriages enroute to the 2012 corporate train wreck.

Irrespective of what happens with the Murdoch clan and restive private equity (a restiveness centred on revenue and control rather than a profound commitment to exemplary corporate ethics), the Commons report makes interesting reading when considered alongside the Finkelstein Review and the Convergence review noted earlier this week. All three pose questions about what media we want to have - or deserve to have, given that News (like its peers) merely fed a public appetite for sensation - and what are the appropriate regulatory mechanisms.

The Convergence and Finkelstein reviews pose questions about corporate governance in the Australian media industry and about the political commitment (or capacity) to reform. Unsurprisingly the reports have been denounced, on occasion with a hyperbole that approaches chutzpah. There is no need, it seems, for government supervision and media executives/proprietors can of course be safely left to regulate themselves in this the best of all possible governance worlds. The three reports suggest that we might take a harder look. Can we leave regulation to those whose behaviour indicates that they need to be regulated? Do we require board members and senior executives to be “fit and proper persons”, individuals who are socially responsible and vigilant in self-policing of corporate misbehaviour? What happens if they are one-eyed?

Murdoch’s “blind eye”, wilful or otherwise, might be attributed to managerial overcommitment, with arguments for example that the empire is simply too big for close supervision and employees have started going feral after disregarding messages from the top or saving the chairman and close associates from bad news. A more dour view is that there is an ethical hollowness at the heart of News ... and at the heart of its competitors, some of which have been identified in the Leveson inquiry as engaging in the same problematical (even illegal) practices. From a historical perspective corporate misbehaviour in the media industry isn't exceptional. Murdoch - unlike some of his executives - compares favourably with figures such as Lord Beaverbrook (adept at insider trading en route to becoming a UK cabinet minister), Robert Maxwell (adept at the use of defamation action to silence inquiries while he gleefully looted the corporate pension fund and employed the very best legal technicians), the zany Ezra Norton, Alan Bond, Christopher Skase, Conrad Black and Kerry Packer.

An assumption of Australian exceptionalism – that corporate misbehaviour is somehow restricted to Tokyo, London and New York rather than filtering down to local executive suites and board rooms – is naïve and regrettable. It’s abetted by a generation of MBA factories that have turned a Murdochian blind eye to notions of corporate social responsibility and best practice corporate governance, evident in for example the ingenuity [PDF] of blue chip James Hardie in offshoring its assets while leaving asbestos victims behind.

The Finkelstein Review suggested that we need to look hard – and make some tough decisions – regarding the balance between media self-regulation and public oversight. Given the media’s preoccupation with the Slipper Affair it is unlikely that either an ALP or Coalition Government will make those decisions.