What can Rupert Murdoch learn from Warren Buffett on how to handle the News Corp scandal?

Rupert Murdoch - World Economic Forum Annual Meeting Davos 2007

This also appeared on the Real Business website

The current scandal which has enveloped News Corporation and it’s founder, Chairman and CEO, Rupert Murdoch is an extraordinary spectacle; I can’t help wondering how the other famous 80 year billionaire, Warren Buffett, would deal with this issue if he were in Rupert’s shoes?

Interestingly the two share a common background in newspapers: Buffett started his entrepreneurial endeavours as a young boy operating paper delivery routes and in later life he’s also known for his ownership of the Buffalo News and as a board director of The Washington Post.

Rupert Murdoch, dubbed the “billionaire tyrant” in an episode of Fox screened cartoon, The Simpsons,  is of course infamous as a hands-on publisher who knows more about what’s going on than his editors; he is known to call his editors on a weekly basis and give them a grilling. That made it hard to believe what we saw at the committee inquiry today. On the one hand Rupert Murdoch, and even at times, his son James, appeared genuinely sorry, but also very genuinely unaware of the issues and the allegations facing News Corporation and its subsidiaries.

Even with the opportunity of the last couple of weeks to do their research and be well briefed, there were issues brought up of which the Murdochs seemed to have no knowledge of. They’re still paying some or all of the convicted criminal, Glenn Mulcaire’s legal bills, and Murdoch Snr had no knowledge at all of the “collective amnesia” of his News International staff, or of the actions of the News of the World’s chief reporter, Neville Thurlbeck in receiving transcripts of intercepted phone calls.

The media, and the MPs in today’s parliamentary select committee found it hard to believe that the Murdochs could be quite so trusting of their employees. One BBC reporter quaintly referred to delegation of power and responsibility at the company which employs 53,000 people, as “devolution”. It seems that could in fact be an accurate description. Should Rupert Murdoch be congratulated for being the trusting patriarch at the head of News Corporation, leaving talented and trusted employees to run each subsidiary as they see fit, or the person to blame for a culture of criminality and deliberately following a policy of willful blindness?

Warren Buffett

Warren Buffett is the founder and CEO of Berkshire Hathaway is famous as a hands-off manager, even though he runs a diversified conglomerate with annual revenues of $136Bn, an amount over 4 times that of News Corporation. In contrast to News Corp, Berkshire has a head office staff of just 16 people. He famously only does business with those that he “likes, trusts and admires”, and once he’s bought a company he leaves the management team in place to do as they see fit. So why does Buffett get away with such a light touch, when it appears to backfire so spectacularly for Mr Murdoch?

Looking back at the Salomon Brothers scandal of the 1990s when Buffett – as a minority shareholder – stepped in as Chairman, he said this to a committee of the US House of Representatives in 1991:

In the end, the spirit about compliance is as important, or more so, than words about compliance.

I want the right words and I want the full range of internal controls. But I also have asked every Salomon employee to be his or her own compliance officer.

After they first obey all rules, I then want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be read by their spouses, children and friends, with the reporting done by an informed and critical reporter.

If they follow this test, they need not fear my other message to them: Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm and I will be ruthless.

Buffett lives and breathes his ethics in his actions, and expects others to do so. The best the Murdochs seemed to manage today is that they issue a pamphlet with details of the company’s code of conduct to all employees. I think this was one of the most telling details revealed today; if they really cared the pamphlet would be just be the written backup of a policy and attitude which pervades the culture of the company. Instead the culture seemend to be of ambition, greed, and success with exclusive stories and increasing circulation at all costs.

The reality is that words are cheap, and actions are everything; Murdoch should play a round of golf with Buffett and take some tips from someone who understands that.

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6 Responses to What can Rupert Murdoch learn from Warren Buffett on how to handle the News Corp scandal?

  1. alykassam says:

    Great contrast in personalities Scott. Ethics win every time – I’d rather sleep soundly than be up counting my money, but as Buffett proves – you can have both!

  2. A passing note, but Glenn Mulcaire’s legal bills are probably being paid because of a contractual term saying that NI would pay legal bills for any legal action arising from work he did for them. So they cannot be criticised for paying them on that basis.

    However… This is actually more interesting: it suggests that the standard contracts for private investigators working for newspapers included such a clause; NI wouldn’t have allowed such a clause otherwise, like all media organisations they have a lot of lawyers who would have objected to a clause that wasn’t normal (or in NI’s favour!).

    A standard clause for the paying of legal bills has a strong implication that newspapers were complicit in private investigators committing acts that were illegal. That’s some ethics for you…

    Isn’t that accessory before the fact? Just asking…

    • Surely though such a contract term would no longer apply once he was a convicted criminal? Definitely seems after yesterday’s vague and at times clueless answers that there was a culture where illegality, although maybe not encouraged, was ignored/tolerated/condoned. I look forward to eventually, one day, finding out!

  3. Roy Lauder says:

    I agree with Chris that the ethics of the newspaper industry in general maybe the backdrop to this. A deeper question is the customer (us) – who rewards sensational news – bad news and sex sells – good news doesn’t apparently. Does this shape the nature and ethics of the media – I suspect so.

    On the comparison point of Berkshire Hathaway and News Corporation the point is very well made that culture is vital to managing huge organisations. Warren Buffet set a simple ethics test for his Salomon employees. Presumably in his role as chairman he oversaw the remuneration committee and ensured that salaries and bonus incentives were in line wth his ethics demands. This it seems to me is where many corporations come apart – high minded ethics are undermined by reward procedures that encourage the opposite behaviour.

    A culture needs to be set by example from the top and reinforced through demonstration. I am aware that National Australia Bank set out some years ago to build a positive culture from top to bottom. In this attitudes, behavior as well as performance are all measured in annual reviews. Some senior personnel who have not shaped up have been asked to leave. It has been largely successful and certainly in comparison to some UK competitor banks its more prudent culture has saved it from commercial disaster.

    • I completely agree with your point of the ethics in the newspaper industry as a whole; clearly there’s a lot of other newspapers who are going to be dragged into the mire in the coming months. You are also quite right about the public encouraging it all. If the NOTW had continued I’m sure their circulation would’ve dropped, but not by that much I suspect. Until the Milly Dowler revelation two weeks ago no one seemed to care about the phone hacking of celebs, politicians, and people with a high profile. People seemed to consider it all “fair game”. If it weren’t for the fact Cameron employed Andy Coulson then perhaps the Guardian would’ve given up and this scandal would’ve remained buried.

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