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How Murdoch Can Survive the Hacking Scandal

Former New York City Schools Chancellor Joel Klein has been drafted in to advise Rupert Murdoch on how to handle the exploding phone hacking scandal, the second biggest challenge of his career. (The first involved restructuring his debt - a nail-biting finish that may now pale into insignificance.)

Murdoch's son James promptly announced Thursday he was closing the News of the World, the London tabloid implicated in the hacking. But Klein and Murdoch face huge challenges as News Corp. is now probably the most hated corporation in the U.K. It's fair to say the company was pretty widely loathed before, but was so powerful that governments were afraid to attack it. Now, however, all parties have been forced to unite in their attack on Murdoch. That newfound unity is giving them a strength Murdoch must have hoped they would never discover.

The risks News Corp. faces are enormous: many of Murdoch's lieutenants (including his son James) could face criminal prosecution for seeking to pervert the course of justice. The stock price is falling and normally staid readers of the Murdoch's more conservative paper, The Times, are canceling their subscriptions in disgust. And the broadcasting regulator, Ofcom, could deem the company unfit to run a television company. While newspapers represent only 13 percent of News Corporation's revenues, broadcasting is the company's future. So Klein needs to keep his new client highly focused on just what is at stake. What advice might Klein deliver?

  1. Forget about stupid gestures. Closing the News of the World is meaningless. The 168-year-old newspaper did nothing wrong; it's the people who did. Everyone can see that shutting down a paper that nobody wants to buy or advertise in is not an act of contrition; it is just bowing to necessity. The problem News Corporation is facing today is no more about a rogue newspaper than it was about a rogue employee.
  2. Abandon empty rhetoric. In his press statement announcing the closing of the tabloid, James Murdoch says that wrong-doing occurred "without conscience or legitimate purpose." This is mealy-mouthed hypocrisy. The purpose was legitimate - selling papers, boosting profits; it is the means that were illegitimate.
  3. Don't even think of re-deploying all the News of the World employees onto a new paper. Apparently the web addresses, and were reserved two days ago. Presumably, former News of the World employees will just be moved from one tabloid to another. The mores, morals and culture remain the same. No wonder Lord Prescott, former deputy Prime Minister, described this as showing "two fingers of contempt" to the public.
  4. Fire Rebekah Wade, CEO of News International UK. She is the poster child for the tabloid press that has hacked the phones of celebrities, royalty and crime victims. Protecting her will cost Murdoch more than she can ever deliver. Having stood by her this far, throwing her to the lions will satisfy a lot of blood lust and prove that Murdoch's paying attention. Murdoch should not let her appear to resign but gain the credit for cutting her loose. If she stays, she must know that everyone in News International will despise her for shutting down one organization while maintaining her own job.
  5. If you imagine that this will just blow over, keep two words firmly in mind: Arthur Andersen. Companies rest on their reputations and can die from them too.
Photo courtesy of the World Economic Forum

Further Reading

The Willful Blindness of News International

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