NewsCorp's Woes Stem From the Board Room, not the News Room

Corporate culture is established through leadership. If lessons are to be learnt from NewsCorp's misconduct, then perhaps attention is focused first on the board room and not the news room.
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One of the consequences of the humbling of NewsCorp is the probing light it shines on corporate governance. There is much that board-level directors should learn from the News International fiasco because, above all, this is an issue of corporate governance and ethics which emanate from the top of an organisation.

NewsCorp's woes are the latest in a litany of recent corporate governance failures suggesting that there appears to be a problem with how many of the largest businesses are run which, in turn, is damaging corporate reputation and destroying shareholder value.

Vodafone's recent write-off of £2.3bn, Prudential's botched bid for AIG Asia at a cost of £377m and BP's poor management of health, safety and environment over recent years suggests that there is a failure of effective, high quality decision making in big businesses - especially in the UK.

At the heart of the problem, appears to be a tendency to reward well deserving colleagues and acquaintances - and, in the case of NewsCorp, family members - with a seat at the board without scrutinising whether they are the right people for the job. This, in turn, has created a culture of 'group think'.

In a McKinsey survey published last year, out of 186 directors questioned, only half thought their boards had met the corporate stress test of the downturn. In other words there is a fundamental lack of faith on the part of executives who have to run the business in the board directors who are supposed to steward the business.

Too few boards are asking themselves whether they are the right people for the job. This has been flagged several times, but the light touch regulatory system that exists means cultural change is painfully slow.

The Government tried to encourage a shake-up of boardrooms when it launched the Higgs Review in 2002. Higgs advised there needed to be greater representation of all aspects of commercial life in the boardrooms and to draw on a much bigger talent pool. There's little evidence to indicate that fundamental change to board make-up (e.g. more women, more ethnic minorities etc) is indeed happening.

In May last year the UK's Financial Reporting Council (FRC) raised the issue again in its review of corporate standards, stating that there was a lack of voice among boards to properly challenge and hold the executive to account on its strategy. This lack of board-level challenge at NewsCorp is exacerbated by Rupert Murdoch's refusal to split the Chairman and CEO role.

Surely if management is subject to performance reviews, it's important to know the board is fit for purpose as well. Great talent can be brought in to an organisation and add great value, but the FRC's review infers that all too often board members are not being appointed based on the right criteria - in other words is a pharmaceutical boss the best candidate for the chairmanship of a bank? And if s/he is the right man for the job, how can the Chairman and the rest of the board be judged on performance without some formal review or assessment. And without the board being assessed, it's difficult to understand how they can then make a judgement about the performance of a management team.

Corporate culture is established through leadership. If lessons are to be learnt from NewsCorp's misconduct, then perhaps attention is focused first on the board room and not the news room.