July 19, 2011 10:08 am

News Corp: reputational damage

Rupert Murdoch could learn lessons from other corporate scandals

Corporate reputational damage does not last forever. Few now remember the 1995 detergent mess at Unilever. But, after Rupert and James Murdoch’s forensic grilling by MPs at Westminster, the inner circle at News Corp should not be consoled.

Most self-inflicted corporate crises are caused by either financial over-reach or a faulty product. The first is not a problem at News Corp right now. Net interest expense of $900m in 2010 took up only 21 per cent of operating income (which was cut by a $500m charge related to accusations of unfair competitive practice in a US direct marketing operation). The faulty product, the News of the World, has been withdrawn, but that has not cauterised the hacking scandal. This is at least in part because the original misdeeds appear to have been compounded by a thorough lack of investigation and a very slow recognition of the political significance of the charges - an impression not dispelled by the elder Mr Murdoch’s frequent expressions of ignorance before the MPs.

The recent history of Siemens can give some comfort to the Murdochs, who control News Corp. The German industrial leader recently emerged from a bribery scandal which cost it €2.5bn and forced out the formerly well respected chairman. Still, while News could afford to pay a similar 60 per cent of last year’s profits in fines, it has many more ill-wishers than Siemens. Also, Rupert Murdoch, the News chairman, wants to stay.

BP’s story is less encouraging still. The oil major has survived the 2010 Deepwater Horizon rig explosion, often attributed to a faulty corporate safety culture (that should sound familiar at News). But the cost has been enormous: something like $40bn – 150 per cent of 2009 profits – and a chief executive. To follow the BP model, Rupert Murdoch will need to leave as CEO. And while BP has suffered from political hostility in the US, it owns nothing as annoying to much of the political establishment as News’s Fox News.

E-mail the Lex team in confidence at lex@ft.com

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