The High Cost of News Corp’s Growing Scandal

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. Celebrities that have had their lives turned upside-down by tabloids must be smiling at the escalating misfortunes of the News Corp. empire.

At the first hint of this scandal, News Corp. has seemed inept at reacting to, and containing, the damage.

Procedures to contain damage

To properly contain image damage when there is a crisis, companies should follow the Fact or Rumor Procedures. If true, the fact procedure advises you to…

  1. Admit (what you did wrong)
  2. Apologize
  3. Limit the scope (put the transgression in perspective)
  4. Propose a solution so it will not happen again.

If not true, the rumor procedure advises that you should…

  1. Not publicize the rumor
  2. Promote the opposite
  3. 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, Les Hinton, a close confidant of Rupert Murdoch for 52 years and CEO of News Corp.’s Dow Jones division, resigned. This resignation came on the heels of the announcement that Rebekah Brooks, CEO of News International and Editor of News of the World under Hinton, did the same. Update: News reports from Britain say that Ms. Brooks was arrested.

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 the 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 have tumbled 13% 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.” The scandal has 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 defense 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.

  1. As Google says in their mantra, don’t do evil.
  2. Proper policies need to be put in place.
  3. Once effective policies exist, employees need to be supervised from top to bottom to insure that they follow them.
  4. At the slightest hint of scandal, the company needs to contain the damage by employing the relevant fact or rumor procedures before the sparks turn into conflagrations.
  5. Companies that live by the sword have a high risk of dying by the sword.

Can News Corp.’s image be fixed? If so, what do you think the Company needs to do to fix the growing damage to its reputation?

Ira Kalb is president of Kalb & Associates, an international consulting and training firm, and professor of marketing at the Marshall School of Business at University of Southern California (USC). He has won numerous awards for marketing and teaching, authored ten books and over 60 published articles, created marketing inventions that have made clients and students more successful. He is frequently interviewed by various media for his expertise in branding, crisis management and strategic marketing. Follow him on Twitter.

image courtesy of flickr user, DonkeyHotey

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