Ethical Business Is Smart Business

Not many businesses are involved in phone hacking and interfering with a police investigation into a girl’s murder. But that’s what happened with the News of the World, Britain’s largest circulation paper. At least, it was the country’s largest paper until News Corp shuttered operations in the wake of the roiling scandal.

Most business degree programs have exposure to ethics, but often managers push what they learned to the side as they climb the corporate mountain and do what they think is expedient. However, ethics are practical, because they’re an important form of risk management. Although the News of the World has dealt with celebrity lawsuits for years, when word came out that it had tampered with the dead girl’s voicemails, major companies began to pull their advertising from the publication. But that’s just the beginning of the fallout:

  • Some advertisers are extending their boycotts to other News Corp properties.
  • Competing publishers will likely snap up much of the paper’s subscribers and ad revenue. Rivals have already seen jumps in their share prices, as investors play the odds.
  • Murdoch’s son James, deputy chief operating officer of News Corp, faces potential criminal prosecution, both in the U.K. and the U.S.
  • The acquisition of BSkyB by News Corp that Murdoch has badly wanted will, at best, take at least a year longer to complete, and time is money, especially for an estimated $12 billion deal.
  • Two former editors of the paper have been arrested in connection with the scandal.
  • A News Corp executive allegedly deleted millions of emails, which will bring even more scrutiny onto the company.
  • Murdoch’s years of building influence with politicians has just received a serious blow, and recovery at best will take years.
  • Indirect costs in terms of share prices could run into billions of dollars.

News Corp’s position should be viewed as an exercise in risk management. The corporate culture has apparently engendered questionable practices at many of the news outlets that the company owns. The drive was getting the scoop — the journalistic equivalent of a hit product or getting to market before your competitors. In that light, News Corp has shown itself more akin to banks in the recent financial crises. Management pushes for results without checking methods. Executives make decisions while assuming safety because the chance of any one event going badly (getting caught, for example) is small. But when events are independent, risk probabilities add. The overall chance of something big going wrong suddenly becomes significant. An unethical culture breeds many actions that can combine in this way. However, once one comes to light, many others often do as well. Only a firm ethical framework can help mitigate the potential damage that will eventually appear.

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