Today Rhett Kessler of fund manager Pengana Capital was quoted in the AFR discussing why he is buying more News Corp…ultimately he feels that the ongoing phone-hacking scandal will be a good thing for News Corp shareholders. But I question why anyone in their right mind would want to profit from such unethical behaviour?
The amazing series of errors in judgement by News Corp should serve as a classic lesson in Corporate Governance – although sometimes hidden behind the scenes, if the true culture of a company is riddled with poor governance, it can be an ethical (and public relations) disaster waiting to happen.
The following article by Mark Robertson is titled: ‘News Corp, phone hacking & media ethics: how should investors respond?’:
Recent events surrounding the current phone hacking scandal at News Corp’s News of the World (NoW) newspaper are both troubling and dramatic.
The list of those identified as victims or possible victims of phone hacking by Glenn Mulcaire, the News of the World’s private investigator, seems to grow every day. At the same time, allegations also suggest the NoW paid bribes worth £100,000 to up to five police officers.
Yesterday, News Corp’s chairman James Murdoch announced that the NoW would close as a consequence of the phone hacking scandal. Earlier today Andy Coulson, former NoW editor and Downing Street’s former communications director was arrested by police investigating phone hacking and corruption allegations.
Whilst the full extent of the scandal is yet to be revealed its origins can be traced back to 2006 with the arrest of NoW’s Royal Correspondent Clive Goodman and private investigator Glenn Mulcaire.
The parallels with BP are obvious. The News Corp scandal is perhaps another example of how a series of ESG failings can have an immediate and very negative impact on a company – ruining a reputation which can have taken many years to build.
It illustrates how unethical business practices, failure to implement a code of ethics and a lack of transparency can have very dire consequences for a company.
The scandal raises big issues for investors in News Corp and the media sector as a whole. What kind of culture existed at NoW to enable the phone hacking and bribes to take place in the first place? How was it possible that large payments could be made to private investigators and bribes paid to police officers? Did the company have adequate whistle-blowing procedures in place?
EIRIS research shows that News Corp has an advanced code of ethics which commits it to obeying laws and regulations, prohibiting giving and receiving bribes, restricting facilitation payments and addressing conflicts of interest. However, News Corp only scores basic in our assessment of its systems for actually implementing its code of ethics. This shows that News Corp’s systems lack provision for employee training, lack reporting, do not include details of any breaches and enforcements and also lack any undertaking to regularly review the code.
The phone hacking scandal may well have wider implications. Media reports suggest that the Press Complaints Commission may well be replaced by a new non-self regulatory body. In this respect the events of the last few may serve as another example to underline the need for a more robust regulatory framework from government which protects both the public and guides companies by instilling a more responsible corporate culture in the media sector.
Suggestions that the UK media regulator Ofcom will consider whether News Corp would make a ‘fit and proper’ owner of satellite broadcaster BSkyB increase the uncertainty about whether and when NewsCorp will be able to buy the shares in the company. This underlines how shareholders can be potentially disadvantaged and shareholder value reduced by reputational damage which can occur when governance issues are ignored.
The shortcomings at NoW offer investors a sound basis for urgent engagement with News Corp to improve performance on issues around code of conduct, bribery and corruption and transparency. It’s vital that these codes and values pervade the whole corporation.
Source: ‘News Corp, phone hacking & media ethics: how should investors respond?’ By Mark Robertson of EIRIS on 8 July 2011 (http://www.eiris.org/blog/)
Many JustInvest clients have given themselves peace of mind by choosing to invest according to their ethics. To learn more about Responsible Investing in your Super and Investments, talk to us today.
