More About the Murdoch Fiasco:

Let's assume, for the moment, that the Murdochs and their top editor for News of the World did not know about the phone-mail hacking fiasco and alleged bribery of police officials by their employees.  Let's also momentarily assume that they did not know of their company's out-of-court settlements-worth millions of dollars-with phone-hacking victims.  (See below from a New York Times story on July 20, 2011).  Then consider these questions: 

Does that not attest to their inability as managers? 

Or does it simply suggest that companies can grow too large for even the ablest of managers? 

Or does it -another possibility-- highlight  a fundamental weakness in how large corporate businesses operate:  conglomerates patched together by investors who may get involved in deal-making and some aspects of policy but not in the nitty-gritty of running the business and so who are surprised when the authorities-and the public-seek to hold them accountable for the questionable conduct and misdeeds of their operating companies.  Absent gross misconduct on their part, our legal system tends not to hold them responsible for acts committed by the employees of the organizations they have set up.  And courts may be reluctant to break up the companies because they distinguish between rogue employees and the corporate entity-if only to save jobs of the many other, unimplicated employees.  All of which means, does it not, that there are really only limited consequences for today's mammoth enterprises and conglomerators. 

If such fundamental weakness does exist, then do we really need these large-scale networks, whether in the media industry or automotive industry?  Isn't there a point at which corporate size exceeds the manager's grasp and at which questionable corporate activities emerge that are attributable to diseconomies of scale?

What would Teddy Roosevelt do?

______________________

Murdochs Deny That They Knew of Illegal Acts
NYT 7/20/11, p. A1 at p. 10

(Also at  http://www.nytimes.com/2011/07/20/world/europe/20hacking.html?pagewanted=1&src=un&feedurl=http://json8.nytimes.com/pages/world/europe/index.jsonp  as of 7/20/11)

"While the elder Mr. Murdoch has long had the reputation of being a hands-on manager, pressing for and savoring the scoops scored by the newspapers he had always felt were the soul of his media empire, he said in his testimony that in the case of The News of the World, he had no knowledge of the specifics of what was going on.

"He did not know, for example, that his company had paid confidential out-of-court settlements of £600,000 and £1 million to two victims of phone hacking. Nor, he said, did he know that the company was paying the legal fees of Glenn Mulcaire, a private investigator under contract to The News of the World who was convicted in 2007 of hacking into the phones of staff members of the royal family.

"James Murdoch said he had not known about paying Mr. Mulcaire's legal fees either, and was ‘as surprised as you are that some of these arrangements had been made.'"

-0-

"Rupert Murdoch said that as the head of a company with 53,000 employees around the world, he could not have been expected to follow every decision made at The News of the World or even at News International, the News Corporation's British newspaper division.

"He said that he generally called the editor of The News of the World once a month to ask ‘what's doing?'  He tends to call the editor of The Sunday Times ‘nearly every Saturday,' he said, but ‘not to influence what he has to say.'

"He added: ‘If there's an editor I'm most in touch with, it's the editor of The Wall Street Journal, because we're in the same building.'"

-- Jeff Bogart

Too large to manage?  At what point does an organization, especially a fast-growing one, become too large and intricate to manage?  In the Murdoch/News Corporation voice-mail hacking and alleged bribery fiasco, the heads of News International and of Scotland Yard said they were unaware of their subordinates' conduct (see, for example, NYT, 7/18/11, p. 1).  Leaders  of other organizations accused of misdeeds, such as Enron, have made similar statements.  When does size become a governance obstacle?   Should Scotland Yard and News Corp. each be broken into a series of separate enterprises?

-- Jeff Bogart

 

Wasted gesture?  Is the resignation of the top executive at companies accused of wrongdoing an effective public relations strategy for dealing with public concern, or is it a wasted gesture?  Take the resignations of the heads of Scotland Yard and Murdoch's News International in connection with Britain's voice-mail hacking and alleged police bribery fiasco (see, also, NYT, 7/18/11, p. 1).  If News International CEO Rebekah Brooks, Scotland Yard Commissioner Sir Paul Stephenson and Scotland Yard Assistant Commissioner John Yates did not know of any misconduct, why not just take a leave of absence instead of resigning?  It seems doubtful that their departures are going to derail the ongoing investigations.  Perhaps in other eras, resignations of top officials satisfied the public and put an end to the matter.  These days, a cynical public is more likely to view the resignations as admissions that the officials knew something untoward was going on and perhaps participated in it.  Assuming these officials had no involvement, resigning may have been the wrong move.

-- Jeff Bogart