High corporate governance standards: low Ethical performance 

The News Corporation case
News Corporation (NewsCorp) is a media conglomerate, founded by Rupert Murdoch. In 2010, the company had world-wide revenues of over $30 billion, profits of over $2.5 billion, and over 50,000 employees. 

They had their own code of conduct and gave so much importance to governance. The seventeen directors of NewsCorp include nine who are nominally independent. The group’ concern for ethical conduct is reflected in a letter from Rupert Murdoch, Chairman and CEO said (-all the good things): 
“This public trust is our Company’s most valuable asset: one earned every day through our scrupulous adherence to the principles of integrity and fair dealing.
We have revised this Standards of Business Conduct to make it easier to read and use, and to clearly outline what we should all expect of ourselves as colleagues. Each of us has the power to influence the way our Company is viewed, simply through the judgments and decisions we each make in the course of an ordinary day.
It’s an important responsibility and I’m honored to share it with you”.

As unveiled subsequently, everything on paper was admirable but the corporate culture had started to change and the leadership chose to ignore it…

Disaster strikes NewsCorp
In July 2011 the best-selling British Sunday newspaper, the “News of the World”, was closed after 168 successful years. For some years, the company had faced damaging allegations of telephone hacking to obtain stories, but had claimed that this was the work of a single rogue, free-lance investigator, who went to jail. But subsequently it emerged that the practice was widespread and known to senior executives. It was then alleged that large sums had been paid to celebrities, who had discovered that their voice mails had been listened to by the “News of the World”, to settle actions for breach of privacy. Payments had been made to police for information. This raised the possibility of prosecution for bribery under the American Foreign Corrupt Practices Act. Some senior police officers resigned.

The question is, whether the Chairman and the Board encouraged the culture of news at any cost or even noticed the change in corporate culture. 

Rogue trading
The story of Kweku Adoboli, the rogue trader, who brought the Swiss banking giant UBS to it’s knees with losses of £7.5bn also supports my argument on culture. Adoboli told his trial “We were told to push the boundaries, so we pushed the boundaries. We were told you wouldn’t know where the limit of the boundary was until you got a slap on the back of the wrist. We found that boundary, we found the edge, we fell off and got arrested”. The prosecuting lawyer summed it well, “you played God in that bank, tearing up the rules and doing whatever you wanted. Rules were for other people: that was your attitude.” Similar patterns at Barings & Societe Generale were noted.

How many such Sri Lankan stories are available closer to home, however, due to our sub-zero level of regulatory and legal monitoring process, all of them continue merrily. One interesting such paper compliance can be noted in many of the so called private banks where 25-30% of the shares are owned by government bodies. Do nomination committees appoint directors to these Banks? If they are nominated by the state can they be referred to as “independent directors”? What about the ‘fit and proper test’? Is this nominal compliance like the gradual sliding of culture southwards? I think, if they were open and honest about their status that would be a better example to set for an organization with conscience.

For others, please take care of the minor ethical offenses and prevent larger disasters. 

About surenraj

“Views expressed are my own”
This entry was posted in Governance and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s