Opinion: Murdoch’s crisis goes beyond the family

A reputational crisis in the UK could turn into a broader corporate challenge

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Rupert Murdoch has faced his annus horribilis this year. While the risk-taking, ambitious, chief executive of News Corp has had plenty of ups and down over the years, including near-bankruptcy 20 years ago, nothing has hurt his personal image and that of his company, as much as the hacking scandal in the UK.

If the revelations of widespread phone hacking at the News of the World (NotW), which led to the closure of the paper last July, were not enough, Mr Murdoch has personally faced intensive scrutiny before a House of Commons select committee and given evidence to the Leveson inquiry into press standards.

The company, Mr Murdoch and his son James, who formerly headed News International, its UK newspaper arm, have tried to fight back.

However, the steady flow of revelations – culminating in the select committee’s split ruling he was not a “fit and proper” owner of a leading media company – have made that impossible.

Many well-regarded companies go through crises – Yahoo, Research In Motion and Nokia are enmeshed in their own. An accident can plunge a stable company with a strong brand into a severe crisis of reputation, as BP found with the Deepwater Horizon oil spill in 2010.

Yet the News Corp affair has a larger personal element than any of those, for it is the reputation of 81-year-old Mr Murdoch that mainly is at stake. Indeed, many US investors have so far shrugged off the UK scandal, with News Corp shares still performing strongly.

The most damaged brand is the Murdoch family itself rather than their corporate creation. That has diminished the chances of Mr Murdoch being able to hand control to James or the other children from his second marriage – Lachlan and Elisabeth – and has given more power to Chase Carey, chief operating officer.

This could change. The investigation by Ofcom, the UK media regulator, into whether News Corp is a fit and proper owner of British Sky Broadcasting, a satellite television broadcaster, of which it holds 39 per cent, having been prevented from taking full control following the hacking scandal, could have serious implications.

A finding that News Corp has to sell down its BSkyB stake would not only affect one of its core assets, but could have implications for how US regulators view the company. That would turn a reputational crisis in the UK into a broader corporate challenge.

The scandal is especially difficult for the Murdochs and News Corp, because it speaks to the dark side of what the company itself has always regarded as its strong suit.

As Mr Carey said at the recent Milken Institute Global Conference in Los Angeles, News Corp prides itself on being “a company that has been willing to take bets – one where people are more willing to look around the corner, take shots and seize that opportunity”.

That applied to the creation of BSkyB and the Fox channel in the US, both of which took on established broadcasters. Mr Murdoch has always challenged not only the political establishment but regulators, while taking care to stay close to the party in power.

In the context of hacking, however, that willingness to take chances looks more like a culture that was happy to flout the law.

Robert Jay, the lead counsel to the Leveson inquiry, has attempted to draw a link between the freewheeling managerial attitude at News Corp and the lawlessness of the NotW.

The attempt to examine other papers within News International and uncover any possible offences backfired internally, as journalists on The Sun felt they were being offered as victims by the Management Standards Committee in charge of the investigation. Mr Murdoch flew to London to soothe feelings.

The crisis is close to home for the Murdoch family, but it also bears on how the company is managed. The Murdochs still exercise voting control over News Corp, so they are not vulnerable to a challenge from the minority investors, yet perceptions about stewardship matter.

To start to overcome the crisis, News Corp will require a favourable judgment from Ofcom and a gradual lessening of the political pressure within the UK. In corporate terms, jettisoning the UK newspapers – The Sun, The Sunday Times and The Times – might dismay Mr Murdoch but such a move would please investors.

Unlike BP, which had to reduce its US presence as a result of the Gulf oil spill, the hacking scandal could make News Corp consolidate in Mr Murdoch’s adopted home. Although the group started as a newspaper operation in Australia, it is now a US entertainment group at heart.

In the end, the personal nature of the hacking scandal – the NotW was Mr Murdoch’s first Fleet Street acquisition – could rebound in News Corp’s favour.

The main damage may end up being to the Murdoch name and to operations that the rest of the company, and its own shareholders, do not much value.

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