News Corp. Ethics: Rotten at the Top

Rupert and James Murdoch have even more explaining to do after today's arrest of James Desborough, the former U.S. editor of News of the World, and Tuesday’s allegations that top editors at the paper knew about the use of phone hacking by reporters. While the Murdochs have pleaded ignorance about the sordid doings of their underlings, a growing pile of evidence suggests that at least James was very much in the loop. That is not surprising. You don’t build a business empire – or even inherit one – by being a hands-off boss. What’s more, subordinates in major corporations don’t tend to commit serious crimes unless they think such behavior is okay with the boss.

Business scandals typically take a predictable path. Atrocious behavior comes to light and, within days, top executives are in front of klieg lights professing to be just as shocked as anyone else. But look, they say, we CEOs and chairmen can’t know everything that goes on around here. Then, over time, documents and witnesses emerge to show that top executives did know about illegal behavior. So it is that former CEOs like Jeff Skilling of Enron, Bernard Ebbers of WorldCom, Calisto Tanzi of Parmalat, and John Rigas of Adelphia are now serving long prison sentences for frauds that they initially denied any knowledge of. Other CEOs, such as subprime king Angelo Mozillo of Countrywide, have paid large penalties to settle suits by government authorities.

The phone hacking scandal is now well along this familiar trajectory. James Murdoch may have gotten to the top of the News Corp mainly because of nepotism, but he is no dummy and profiles have depicted him as a very competent executive. Yet we are supposed to believe that he signed off on a record payment to settle a hacking complaint without knowing the damning details? Or that, even though hacking was discussed openly at News of the World editorial meetings — until such explicit talk was banned by the editor — the top command at the News Corp had no idea what was going on? Right.

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