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Crisis Management and Recovery at News Corp.

8/22/2011 --

News of the World scandal demonstrates how unattended problems can grow into a major crisis.

ANN ARBOR, Mich.—Media conglomerate News Corp. publishes some of the best-known newspapers in the world, namely The Times (London) and the Wall Street Journal, but a scandal at one of its British tabloids, News of the World, not only has eroded trust in the company's leadership, but opened new questions about the role of media in a free society.

What started as an apparently isolated incident years ago — a reporter and private investigator hacked into royal family voicemail — grew into a major scandal this year when the practice was revealed to be more widespread at the paper. That's after the company and police reported the case as an anomaly. Executives were fired, reporters and editors were questioned by police, and News of the World was shut down after nearly 160 years. Parliament even summoned Chairman and CEO Rupert Murdoch to answer questions before a committee. So what happened, and where do we go from here?

Professor Lynn Perry Wooten is an expert in crisis leadership and says the News Corp. scandal is a classic case of management denial, which allows a problem to smolder. Wooten, co-author of Leading Under Pressure, says News Corp. can repair the damage if management develops an action plan and communicates it the right way. Perry Wooten shares her expertise on leadership in the Ross Executive Education course Positive Leadership: Leading Positive Change. She is scheduled to teach in the course's next offering Dec. 4-9.

In the following Q&A, Perry Wooten shares her thoughts about News Corp. and how management can repair the damage going forward.

The seeds of this crisis were planted years ago, but in recent months the situation really blew up. What happened from a management standpoint?

Wooten: It's called a smoldering crisis. In our book we talk about crises being either sudden or smoldering. The majority of crises, maybe as high as 75 percent, are smoldering. There's something that management ignores and it keeps growing and growing. The News Corp. crisis is an example of that. They ignored the initial warnings, which isn't uncommon. A lot of times management will hope the problem goes away, and sometimes it does. But most of the time it doesn't and it keeps developing.

This one seemed to go away, but then came back into the public eye in a big way.

Wooten: And there were huge consequences. In addition to smoldering, it seemed to be a case of denial. They kept saying this was an isolated case, a rogue reporter. Often management will try to deny the problem's magnitude, and that makes the case worse. The other component is ethics. Was the behavior ethical? Many crises are a failure in management or ethics.

When you say ethics, do you mean the ethics in response to it?

Wooten: Yes. We all agree that breaking into voicemail and email is unethical. But as managers what matters is what we do about unethical behavior. You have to think about how you're going to correct the behavior, who will take the action steps, and how to make sure that behavior doesn't become institutionalized in the organization. What is going to be the change mechanism? When you think of the tabloid culture, they build a business model around getting the juicy story first. A lot of crises come from the competitive pressure of business models. When Toyota talks about their crisis, they talk about trying to compete to become the largest auto manufacturer in the world and then neglecting quality.

From a crisis standpoint, how well or not well was this one handed through the various stages?

Wooten: I think time will tell. I hope as it unfolds from here it's handled better from a crisis standpoint. I think it was poorly managed at first and there were several issues. First, they let it smolder. Second, there didn't seem to be a leader who would hold people accountable for their behavior. Third, once the crisis spread the organization didn't want to take ownership. Nine times out of 10 when we see a crisis the organization in some way had a role in that crisis. We know from our research the best thing to do is to take ownership, see what you can learn from it, and make the changes needed.

So the crisis really came to a head this year when it was revealed there were more instances of hacking and more employees involved than initially disclosed. During the Parliamentary hearings in the U.K., News Corp. CEO Rupert Murdoch apologized but noted that he has 53,000 employees around the world and News of the World was one percent of that, so he shouldn't be held personally responsible. Does he have a point?

Wooten: There are two things at play here. When you apologize, to have legitimacy for your crisis management strategy, people have to believe the apology is sincere. When your CEO says, "It's not my responsibility," or "I'm just as stressed as you are," that becomes an issue. Yes, it's hard to manage 53,000 employees and only a few them did something wrong. But as a leader, at the end of the day, most things become your responsibility.

The other thing is that you can say you have 53,000 employees and only a handful went rogue, but then add that you realize it's a problem and outline what you're going to do about it so it doesn't happen again. What I want to see is sincere remorse and an action plan so we know the steps they're going to take next time, or so that it doesn't happen again at News Corp.

News Corp. shut down the newspaper in question and got rid of some executives and editors. What's the next step?

Wooten: We use the analogy that they gave antibiotics for the infection, now what's the treatment? How do you build a system, infrastructure, and practices so the organization is not as susceptible next time? Once you build those systems and practices, how do you convey them to stakeholders so they know what you're doing? They are going to have to rebuild their reputation and that's what makes this crisis even more complex: the global nature of the company. They closed the paper, fired the key executives, and now they must find a way to make sure this doesn't happen again and show that to everyone.

My initial research was on discrimination crises and a lot of times companies brought in somebody to consult with them, developed practices on diversity and discrimination, and created an external committee to make sure they developed practices. In News Corp.'s case, it may be the board of directors which oversees that. But there has to be somebody who holds them accountable as they embrace organizational change to prevent future crises.

How should the rest of the media industry react?

Wooten: This is a wake-up call for news and media companies to review their practices and learn. Don't wait until this type of crisis hits your company. If I were the CEO of any news media company, at my board meetings I'd be talking about this crisis as a case study from which we can learn as an organization.

If you are another media company, how do you review something like this with your employees and be proactive without making reporters and editors feel like suspects?

Wooten: You don't want the employees to feel like criminals, but you do want to ask your leaders on the ground about their oversight and communicate that this type of behavior isn't acceptable. You want to create a psychologically safe space so that if anything unethical is happening, it is reported to senior management and they start to fix it. You have to have a work environment where people feel trust. Part of resolving a crisis involves trust. Think of some places like a manufacturing floor where employees can ring a bell, stop the line, and fix a problem. How do we create that environment in our organization?

News Corp. is a large, global company. When you say it should communicate its action plan to stakeholders, does that include the public?

Wooten: Yes. They are in the business of legitimacy. So it should be communicated to the public, on their website, with board endorsement. It should be very transparent and the company should try to be an industry leader. A crisis is about learning and resilience so you come out a better organization. News Corp. has to do that. If they take actions in the next year, it can emerge as a better organization.

Terry Kosdrosky



For more information, contact:
Bernie DeGroat, (734) 647-1847, bernied@umich.edu