The Rupert Murdoch era is over: Gottliebsen

Watching Australia’s greatest entrepreneur Rupert Murdoch fumbling over details any CEO facing a Parliamentary inquiry should have been across was both sad and disturbing, given that News Corporation is one of the world’s largest media companies. The Rupert Murdoch era is over.

But the hacking scandal raises a much more important international corporate issue, because what happened to News Corporation with hacking is a mirror image of what happened to BP in the Gulf of Mexico. For the second time in less than a year, a major global corporation has failed to understand the fundamental risks of its business.

In the case of BP, the CEO Tony Hayward fell on his sword. What role Rupert Murdoch will play in News Corporation’s future will depend in part on the findings of the Parliamentary committee, but it will be dramatically reduced and will almost certainly lead to the sale of the company’s newspapers, including those in Australia. That’s helped News Corporation’s shares rise.

What is remarkable is the similarity of the responses BP and News Corporation took to their crises. A vast number of other global corporations facing similar situations will make the same mistakes because the BP and News Corporation errors reflect flaws in the global corporation “rule book”.

The first reaction of both News Corporation and BP was to try to minimise the severity of the problem or claim that responsibility lay with someone else. News Corp hid behind the “no evidence” excuse while quietly settling cases relating to phone hacking allegations. BP consistently underestimated the amount of oil leaking into the ocean from the Deepwater Horizon well and the company’s then-chief executive Tony Hayward tried unsuccessfully to blame the accident on the owner of the blow-out preventer, Transocean, even though it was BP’s safety negligence that was a crucial factor leading to the accident – in the preceding five years BP had 760 US safety violations to ExxonMobil’s six.

Both News Corporation and BP were at fault but were reluctant to seek the facts that would reveal those faults, either because they trusted their badly performing mangers or because management feared the carnage that would be caused by the revelation of the truth.

The consequence of these exaggerations and omissions was that subsequent efforts to win back public support with big gestures were ineffective. News Corp closed down an entire publication and took out wrap-around ads in the major UK newspapers apologising for the phone hacking, while BP set aside billions of dollars for the recovery effort and released an ad with an apologetic Hayward saying the company took “full responsibility” for the accident. None of it worked.

But it wasn’t just the ineptitude of the companies – the UK and US Governments and their organisations were also found wanting in the face of powerful public companies. In the case of the oil spill, it was the sluggish response from President Barack Obama and the failure of regulators to scrutinise oil operators in the Gulf of Mexico that blunted the huff and puff from Congress when BP executives were hauled in for questioning. In the case of News Corporation, the police bungled the initial investigation and police officers were paid by News of the World for information.

Meanwhile, the close relationship between the British Government and News Corp executives – encapsulated perfectly by Prime Minister David Cameron’s decision to hire former News of the World editor Andy Coulson as head of his government’s media operations – undermined the genuine outrage from politicians.

A more curious commonality between the two scandals is the direct involvement of celebrities. On the News Corporation side, high-profile figures have been claiming for years that their phones have been hacked, with suspicions falling on News publications.

On the BP side, director James Cameron and actor Kevin Costner were involved in efforts to assess and clean up the spill. That’s not to mention the unprompted celebrity denunciations of both scandals.

Additionally, both cases have proved too severe for either company to limit the damage to a single business division. News Corp didn’t just have to close down News of the World, but also had to abandon its bid for BSkyB, which was all but sewn up when the scandal hit.

BP was forced to pull out of its bid to drill in the Arctic.

Both organisations have also proved to be completely unprepared for their respective disasters. Hayward said after his resignation that “embarrassingly, we found ourselves having to improvise on prime-time TV and slap bang in the middle of the glare of the global media”. Meanwhile, last night’s poor performance from Rupert Murdoch will never be forgotten.

The good news for News Corporation is that BP survived the ordeal and went on to prosper. The same may happen to News Corporation, minus the power of Rupert Murdoch – provided it is not caught hacking the phones of 9/11 survivors in the US.

This article first appeared on Business Spectator.