No company ever wants a crisis to get to this point: the chief executive and his lieutenant grilled by skeptical legislators, with errors condemned, reputations impugned and the drama broadcast around the world.
For News Corp. CEO Rupert Murdoch and his son James, the hearings in London on Tuesday on the company's phone-hacking scandal were the climax of a bad couple of weeks. For the company and its shareholders, it may have been confirmation of something more troubling:"If you look at it from both sides of the Atlantic, they've done everything wrong that one could possibly do wrong...a failure of Crisis Management 101," says Harris Diamond, chief executive of Weber Shandwick, a public-relations firm. "It's just baffling to watch the defense that's been made and then the failure of the defense to stand up."
Harsh? Maybe. But consider that for years News Corp. insisted its phone-hacking scandal was largely an isolated affair: one reporter and his investigator gone rogue, a small number of voice mails hacked.
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Rupert Murdoch at a parliamentary hearing in London on Tuesday.
Top managers at News Corp. responsible for managing the crisis may have believed this to be the case, and may also have believed they had properly investigated and addressed the problem. But it turns out more rogues were involved, and many more lines were hacked—possibly thousands. Authorities in Britain are also investigating whether News Corp. employees bribed police.
"Management should have responded more thoroughly to the issues raised by the original hacking," says Andrew Brimmer, a partner at Joele Frank, a crisis-management firm. "What happens to a crisis deferred? It typically explodes into the open at some point."
The penalty for missteps in the early phase of a corporate crisis—expense, lost reputation, distraction—can be brutally high.
Ask BP, which initially played down last year's oil spill in the Gulf of Mexico. Or Toyota, which at first dithered over public concerns about alleged sudden acceleration in its cars. Or Jack Welch, the former General Electric CEO, who was slow to see how his robust retirement package might become a public embarrassment for GE.
In News Corp's case, the rising casualty count includes: Two senior executives forced out; a newspaper closed down; a key corporate acquisition lost (for now); law-enforcement investigations in Britain and the U.S.; the energies of top managers consumed by the problem; and shareholders increasingly restive.
Rupert Murdoch apologized to victims of phone hacking by employees of his U.K. tabloid but deflected blame for the failure to quickly address the fiasco at a hearing before Britain's parliament. Bruce Orwall has details from London.
Experts who deal with blow-ups like this say News Corp.'s big mistake was not understanding—or ignoring—the dimensions of the problem from the outset. The time for crisis management, they say, was in the years between 2006 and 2011, when evidence of wrongdoing kept emerging, when inadequate investigations were conducted by the police and the company, and when victims kept complaining and reaching settlements with News Corp.
What's left at this stage, they say, is something akin to crash management—keeping the shrapnel from hitting too many corporate assets and bystanders.
Michael Gordon, whose Group Gordon advises companies in crisis, says that News Corp. more recently has been "handling it correctly....You have to separate the initial bad acts that caused the crisis from how the company handled the crisis once the heat got turned up" two weeks ago, when there were new disclosures about the extent of the hacking. "They made some bold, decisive moves," including closing the offending newspaper, The News of the World. "Many companies take months to get to that point and have to get dragged through the mud to get there."
Web of Connections
Learn more about who's who and how they're all connected in the scandal over allegations of voice-mail interceptions and corrupt payments to police.
As for those early years, News Corp., which owns The Wall Street Journal, said it relied on a police investigation, an internal review, and outside legal advice that determined the hacking was limited. In a sign that more heads may belatedly roll, Mr. Murdoch told the parliamentary committee: "I feel that people I trusted – I'm not saying who and I don't know what level – have let me down."
Enter, belatedly too, the crisis managers: News Corp. in the last few days has hired a phalanx of public-relations and legal expertise—Edelman, Sard Verbinnen, Williams & Connolly and Mark Mendelsohn, among others—to help it navigate the worsening mood of investors, regulators and law enforcement. The company also asked board member Joel Klein, a former top Justice Department official, to guide response to the crisis, and it set up an independent committee to investigate what happened.
The advice from other experts is straight forward: This time, get to the bottom of what occurred, find out if there was a coverup, and determine if the rot was unique to the down-market News of the World or if it extends elsewhere into the News Corp. culture. Then make everything public, make amends with victims and the authorities, and demonstrate how the company will assure it never happens again.
"That's why we're here today," James Murdoch told the parliamentary committee Tuesday. "We're trying to be as transparent as we possibly can."
How the company manages the next stage of the crisis will determine one of two things: Will News Corp. be able to start rebuilding its reputation? Or will the crisis worsen into a more serious attack on the leadership of the company?
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