If angry shareholders have their way, the allegations of illegal phone hacking and corporate corruption that closed the 168-year-old News of the World, in London, will mark the beginning of a wide-reaching reckoning for the Australian business tycoon.
In a lawsuit filed Monday in Delaware, a coalition of institutional investors alleged, among numerous complaints, "These revelations show a culture run amuck within News Corp. and a board that provides no effective review or oversight."
Criminal charges are mounting overseas, and additional revelations were being issued from Scotland Yard throughout the day Monday. Major business deals, such as a proposed $14 billion satellite firm acquisition, are faltering. How much trouble does this mean for the powerful media empire?
“It’s maybe a bit too early to know if this is the first domino that will lead to the collapse of the whole structure,” says Robert Thompson, founder of the Bleier Center of Television and Popular Culture at Syracuse University in New York. But if it did play out that way, he says, “there would be a symbolic symmetry to it, because the News of the World was the first newspaper [Mr. Murdoch] bought when he began his media empire.”
How widespread is the damage?
Longtime News Corp. observer Richard Levick says the writing is on the global wall. “This is no Watergate,” says the president of Levick Strategic Communications, a firm that specializes in crisis management. “This is another Enron."
Mr. Levick notes the longevity and breadth of the charges to date, which he says permeate the entire company. “These span years and involve thousands of people,” he says, adding that Monday’s lawsuit in US court is just the beginning of a response on this side of the Atlantic.
In civil court, the lawsuit filed Monday alleges loss of company value due to mismanagement. In addition, the intangible damage to American journalism should not be overlooked, says Levick. Look no farther than the Murdoch-owned Wall Street Journal, he says. “On the Monday morning of this enormous scandal,” he notes, the paper had only a small notice about the closing of the News of the World.
“This scandal is setting a new low bar for the fourth estate,” Levick says, with a culture of do-whatever-it-takes to get a sensational story.
Others also see potential knock-on effects for American journalism. "The lack of ethics shown by Murdoch's powerful staffers in England is a transnational virus," writes Jeff Cohen, journalism professor at Ithaca College, in an e-mail. "News Corp. has regularly imported these British staffers to his US outlets, from the New York Post to Fox News to the Wall Street Journal."
News Corp.'s holdings span the globe. A very partial listing: 20th Century Fox, Fox News, Fox Television Studios, National Geographic Channel, 30 magazines (from Australian Golf Digest to Tattoo to Vogue Entertaining), dozens of newspapers including the Wall Street Journal and The Times of London, HarperCollins, and the Dow Jones Indexes.
Will Rupert Murdoch's empire survive?
Don’t underestimate Murdoch’s ability to weather the scandal, cautions Paul Levinson, author of “New New Media” and professor of media and communication at Fordham University. After all, Professor Levinson points out, “Murdoch has had many adversaries over many years and he has still managed to build an impressive empire.” However, he says, if any behavior akin to the Scotland Yard revelations appear in the US, “all bets are off. That would be the beginning of the fatal blow to his empire.”
Even if Murdoch weathers these accusations, his ability to do business in future media will be severely hampered, says Robert Hurley of Fordham University, author of “The Decision to Trust.”
"If the lack of trustworthiness turns out to be systemic within News Corp., the odds are that there will be future betrayals that will come out," writes Professor Hurley in an e-mail. "This will undoubtedly affect Murdoch’s US position with viewers and investors over time,” he adds.
Hurley draws an analogy to the way the Catholic Church dealt with sex scandals. The American pedophile scandal led to many fixes, he says, “but the hierarchy failed to realize that the issues were systemic and global. Subsequently betrayals in Ireland, Belgium, and Germany shocked people globally and even led the US Catholics to lose trust again,” he points out.
Trust repair is a tricky business when done well, Hurley adds, “and is a recipe for disaster when done poorly.”