Corporate Governance

News International Ltd is a United Kingdom based company that publishes newspapers. The company is part of the News Corporation. The company changed its name from News International in the year 2002. The company has other three publishing subsidiary companies namely News Group Newspapers, Times Newspapers Ltd, and NI Free Newspapers Limited. The Times Newspapers Ltd is involved in the publication of a daily newspaper known as the Times and publication of a broadsheet commonly known as the Sunday Times. The Times newspaper started functioning in the year 1967. The News Group Newspapers Ltd started is operation in the year 1969 and it involved with the publication of the famous and prestigious United Kingdom tabloid newspaper, the sun. The company also publishes another type of a tabloid newspaper known as the News of the World. This company was however closed in July 2011 following allegations of phone hacking by the newspapers. Its official closure came on 10 July 2011. Finally, NI free newspapers limited were involved in the publication of another prestigious and famous newspaper known as the London paper. It should also be noted that the London paper was the News International first newspaper to publish since the others were adopted from the previous owners of the company or being bought. The London newspaper was launched as an evening free sheet. The company used to distribute copies of the London paper during the evenings at rail and bus nations in London. However, the London paper was to experience and face tough competition from other papers that were being distributed free of charge. This stiff competition forced the company to close its doors in the year 2009, three years after the launch of the London Paper (Knell 2006, p.42). 

 

Background and outcome of the illegal phone hacking allegations

The smooth running and operations of the news group papers were one day to be brought to a stand still by allegations of phone hacking. This scandal was later to be known as the News of the World phone hacking scandal. The company was accused of illegal access to voicemails of mobile phones. The staff was accused of accessing personal voicemails of politicians, celebrities and other public figures. Among the accused staff was Clive Goodman, and he was later jailed in the year 2007. Clive Goodman was accused of hacking mobile phones belonging to three royal staff members and this was an offence committed under the regulations of investigatory powers act. The company, News International, defended itself that   it was not aware of Goodman’s action and that no other members of the staff were involved in that scandal. The Guardian, a commonly known newspaper published by the Guardian media group, revealed that other news group staffs were involved in the scandal. Those revealed by the Guardian investigations were Lenny Henry, John Prescott, Nigella Lawson, Gwyneth Paltrow, Tessa Jowell, and Boris Johnson. All these figures were subject of the phone hacking and were accused of police bribery and the use of illegal and improper sources of information for publishing (Caldey 2008, p.69). 

The News International earlier denial in participation and having no knowledge on the phone hacking scandal was later to be proved false by the Guardians future and in depth investigations. The Guardian revealed that the News of the World’s staff, especially those from the editorial department, were illegally doing business with private investigators. The private investigators were mostly engaging in unauthorized and illegal phone hacking. In this business deal, some of the News of the World staffs especially the executives and the reporters got commissions for the purchase of the confidential information derived from the phone hacking business. To the public surprise, all these transactions were all known in the whole News of the World fraternity and even the payments were being processed and made through the accounts and finance departments. Investigations from the year 2005 to the year 2007 showed that the staffs were mostly involved in the hacking of phones belonging to the British royal family members, politicians, and celebrities. The Guardian was later to reveal other illegal phone hacking by the News of the World staff. The Guardian on 4 July 2011 revealed an illegal phone hacking of a murdered teenager by a private investigator from the News of the World Company (Turner 2009, p.32). This illegal phone hacking of the murdered young Amanda misled both the police and the teenagers’ parents. The police investigating the young girls’ murder were faced with a great challenge since the illegal phone hacking made them believe that the girl was still alive. Other revelations were the hacking of phone belonging to the relatives of deceased British soldiers and the victims of the seven London bombings. It should be noted that this incident occurred during the reign of Rebekah Brooks as the editor. As she resigned, she said that she was very sorry and deep sense of responsibility for what the company had done the big number the company had hurt including the public. She was also sorry for the inconvenience that had been caused by the illegal hacking. Following the revelation of the illegal phone hacking scandal and eventual closure of the News of the World, other high profile resignations followed. Those that followed were Dow Jones who was the chief executive. Tom Crone who was the Legal Manager for News International also resigned to give way for investigation. Sir Paul Stephenson resigned his post as the commissioner for the London’s metropolitan police service. Others were arrested or summoned to give evidence. Those arrested were Andy Coulson, who was News of the World former managing editor and Neil Wallis who was a former executive editor. Those summoned to give evidence were Murdoch and James, his son. The two were to testify before a Parliamentary Media Committee (Yocam & Choi 2008, p.12).

Other important and shocking revelations were later to be released by a British newspaper, the daily telegraph. The daily telegraph, on 7 July alleged private investigators associated to the News of the World to be behind the families of dead British service personnel. This affected the smooth and long lasting relationship that had existed between the royal British legion and the News of the World newspaper. This allegations and boycotts by the public were too much for the News of the World executive to handle. This raised many accusations from the public against the newspaper and its owner Rupert Murdoch. On 7 July, the executive had no choice but to declare that the final edition of that paper would be published on the Sunday of 10 July the same year (Naidoo 2002, p.92).   

There we see a number of revelations concerning the News of the World staff involvement in bribe. For instance, the Guardian, in July 2009 revealed that the News of the World had paid money amounting to one million Euros to settle pending cases in court. The News of the World had been taken to court due to its repeated use of illegal and unfair means to get information and stories for publication. In the year 2008, the News of the World was forced by circumstances to pay damages to Gordon Taylor amounting to four hundred thousand Euros. Mr. Gordon, who was then the chief executive officer for the professional footballers association, had sued the News of the World newspaper for an illegal hacking of his mobile phone text messages. The Guardian newspaper states that the compensation of Gordon denied the public access to hundreds of pages containing evidence that had been revealed in the Taylors case. The negative image created by the illegal phone hacking by the News of the World reached the News Corporation headquarters in the United States (Mallin 2007, p.62). This saw the Federal Bureau of Investigation (FBI) launch investigations to find out if the News Corporation had accessed the voicemails of the September 11 victims. This was followed by the addition of the department of justice to investigate if News Corporation had violated the United States foreign corrupt practices act (Macey 2010, p.58).

Financial reporting council (FRC), the United Kingdom Corporate Governance Code

According to the United Kingdom corporate governance, the purpose of effective corporate governance is to create a room for facilitating an entrepreneurial, effective and a proper management geared towards the achievement of a continued success and growth of a company. The United Kingdom Corporate Governance Code was first developed by a select committee named Cadbury committee in the year 1992. The united kingdom Corporate Governance Code sets out guidelines that can be applied and implemented for remuneration, effective leadership, accountability, good practice and the enhancement of a long lasting relationship between the company and its stake holders. The United Kingdom Corporate Governance Code applies to all companies and businesses with premium enquiry shares in the United Kingdom. These rules have to be applied by the companies and businesses in their annual accounts and reports. The United Kingdom Corporate Governance Code has a number of principles and creates a room for provisions and adjustments. All the companies governed by this code are supposed to apply the main principles and should be able to highlight and prove how they have used and applied them. 

How the News of the World deviated from the United Kingdom Corporate Governance Code

First, the News of the World went against one of the principles of the United Kingdom Corporate Governance Code (Joshi 2004, p.49). 

The News of the World did not abide by the principle of leadership. The principle of leadership says that ever company or corporation be headed by effective board of directors who would work as a team to achieve the success of the company. The board of directors in the News of the World did not work together. This is evident when the board of directors denies allegations of illegal phone hacking and goes further to say that the accused did the hacking on his own and that the company was not aware. The United Kingdom Corporate Governance Code states that the board of directors should have a clear division of responsibilities for the smooth running and operations of the company. This was not the case with the News of the World board of directors. The top most management is meant to provide positive direction and leadership for all the junior employees. In the case o the News of the World, the top most executives engaged the junior in illegal phone hacking business. The executives failed to provide direction and engage the reporters in finding and coming up with proper ways of sourcing for information as compared to illegal phone hacking. The United Kingdom Corporate Governance Code also states that it is the responsibility of the chairperson or the chief executive to set agendas and discussions for all projects geared towards the growth of the company. The chief executive should also strive and create a culture that promotes openness and debate where the other employees would be able to air their views. In the case of the news for the world, the chief executive relied mostly on engaging the staff on an illegal phone hacking. This diverted the attention of all the other staff. The United Kingdom Corporate Governance Code states that the junior workers in any company or corporation should make sure that they meet the company’s goals and all the set objectives. They should also strive to satisfy the integrity of the company. The News of the World junior staff did not strive and act according to the laid down rules of the company. Instead, they abided by the executives new rules that were against the code of conduct for the company. This affected the company’s integrity and code of conduct that eventually created a bad impression of the company to the public (Lehman 2005, p.65).  

 The News of the World also did not abide by the United Kingdom Corporate Governance Code principle of effectiveness. The News of the World did not provide a transparent procedure for seek, sourcing and getting information for publication. The News of the World staff relied on illegal phone hacking to source information for publishing. The principle of effectiveness ensures that the company’s operations do not come to a standstill. When the News of the World failed to abide to this principle, the company got in to trouble and eventually led to its closure. The company failed to assign duties to those charged with the responsibility of investigating cases and information but instead started on illegal phone hacking to source information for publishing. This may have worked for the News of the World in the initial stage. When it broke loose, all the smooth running of the News of the World entire company were brought to a standstill. Illegal phone hacking cases pending in court stalled the smooth operations as much time was being spent in the courtrooms. This slowed business hence affecting the News of the World business. The public developed a negative attitude towards the company and it’s the News of the World news paper and this reduced the sales and in the long run affected the company’s turn over, again, huge sums of money were drawn from the company’s account to pay compensation to those who had taken the company to court for illegal phone hacking. For effectiveness to be achieved, all the working mechanisms of the company should be focused on a positive direction and the commitment of both the top most executives and the junior workers is expected and this eventually yields positive results. It should be noted that corruption affects the smooth running of a company and makes it ineffective when it comes to execution of policies. This is because everyone is afraid of the other and is afraid that a conflict of interests can lead to the revelation of the corrupt deals (Prasad 2006, p.61).

 The News of the World management also went against the principle of accountability. The United Kingdom Corporate Governance Code required all companies under the code to exercise some form of accountability during unclear circumstances. When the News of the World management got the allegation news on illegal phone hacking, the management went on   to denial instead of accepting accountability and pave way for further investigations. The News of the World also did not abide by the principle of remuneration. The United Kingdom Corporate Governance Code says that all the remunerations and packages should be structured to attract all the employees and every payments proceeds by the accounts department should be clear. The News of the World managements processed invoices and commissions derived from the illegal phone hacking business freely in the business premises. According to the United Kingdom corporate code, accountability and responsibility should go together. The United Kingdom Corporate Governance Code also says that in the event of the uncertainty, everyone should be responsible for his or her deed and should not play a blame game. When the illegal phone hacking scandal was revealed, no one was willing to take responsibility and accountability. The executives blamed the other for phone hacking and in turn started bribing those who raised voices on the issue. Lack of accountability is also seen when the top most executives resort to resigning instead of staying in office and wait until the investigations are over. Resigning means leaving the burden, the one you have created, to those in office (Tricker 2010, p.52). 

 The last principle that the News of the World went against is the relationship with its stakeholders. As discussed earlier, stakeholders of any company include every one interacting with the company for its success and growth   irrespective of the form of the interaction. The News of the World did not respect the public who happened to be the company’s key stakeholders. The public were the end users of the News of the World newspapers but the company went ahead and betrayed the trust the public had on the company. Illegal phone hacking of the public phones created a legacy of mistrust and suspicion between the company and the public. Illegal phone hacking of the public mobile phones was against the United Kingdom Corporate Governance Code where the code expects the company to respect and appreciate all its stakeholders. The United Kingdom Corporate Governance Code also calls for commitment between the company and its shareholders and stakeholders. This was not the case with the News of the World staff. The News of the World staff showed no commitment in serving their customers. Instead, the News of the World staff went ahead and exploited customers confidential information, interfered with their privacy and the freedom of speech. One example is when the News of the World staff hacked the phone of a murdered pupil. This interfered and delayed police investigations since the process of hacking made the police believe that the girl was alive. In this case, the News of the World staff denied the girl’s parents justice in knowing the fate of their daughter. The News of the World, being a prestigious newspaper, should have played an important role in investigating the case as compared to hiding the information. The united kingdom corporate governance code stipulates that all companies under it should apply principles that are geared towards the recognition of the stake holders rights. The principles should also ensure that they safeguard the stakeholder’s rights and should put into account the stakeholder’s legitimate interests and the proper provision of all necessary information that may be required by the stakeholders from time to time. The news of the world did not put this into consideration. Instead of providing the necessary information to the public, the company and its top most executives hide vital information and continued to hack public members’ phones to get information through illegal means. The United Kingdom corporate governance code still calls all the board of directors to be truly accountable to all the company’s stakeholders and that the executives should always take the ultimate responsibility in ensuring that the relationship between the company and the stakeholders is well maintained. The United Kingdom corporate governance code says that proper responsibility of the top most executives towards the company stakeholders is a key way of achieving and maintaining a high degree of corporate ethics, behavior and code of conduct. When the company stakeholders are negatively affected by a company’s actions, this trickledown effect comes back to the company and most of the times it is the company that suffers since the customers have other alternatives to choose from. In order for any organization to increase its relationship with its stakeholders, all the company stakeholders should be highly interconnected (Baker & Anderson 2010, p.43).

Conclusion and recommendations

The effect caused by the illegal phone hacking scandal by the staff of the News of the World staff has raised much debate. Many questions have been questioned on the ethics and the code of conducts of the companies ran by Murdoch. The scandal also raised concerns on the effects it can have on the print journalism and on the entire world of journalism. Prior to the illegal phone hacking scandal, Murdoch business had previously been accused to lack ethics and instead governed by controversy, sensationalism and gossip. The management and conduct of the News of the World can be described as been corrupt, unprincipled, and dishonest. 

A number of events followed the scandal. The first was the second resignation of Coulsons on the 21st day of January 2011. The other one was the official closure of the News of the World. This closure happened after one hundred and sixty eighty years in publication. The News Corporation also withdraws proposal to bid for the full control of BSkyB television broadcaster. This was because the News Corporation name had already been tarnished. Wireless generation, a company under News Corporation lost a tender in the united states for building a system meant to track down students performance. Resignations, dismissals, cautions, and suspensions also followed. The company also made apologies for what had been caused by the scandal.

There is still room for change, development, and advance for the News of the World. Time heals wounds and the trust that was lost can be won back. The News Corporation has already apologized for the inconvenience and loss of trust it had caused. The company has already started paying compensations of those affected. The company can still work on a plan to restore that lost glory. The management can hire other topmost executives who have vast experience in the world of journalism. The company should also reconcile with it past executives and utilize them as consults or even absorb them to the management in order to utilize their experience. The company can start and implement training programs for its entire staff. For instance, the staff needs to understand what is contained in the United Kingdom Corporate Governance Code. The journalists need to be educated on all the professional ethics and code of conduct that govern the field of journalism. They need to enlighten on the need to source their own materials using proper ways and technology. All the company’s business transactions should be made clear and transparent and the company should not rely on illegal sources of information for publication. The entire employee should works towards a common goal and one common goal here will be restoring the integrity of the News Corporation that had been ruined by the News of the World staff. The company should also start on a worldwide marketing of its goods and services. The company needs to create a new impression to the public in order to build the mutual trust again. The News Corporation can retain the same objectives and goals for the News of the World. The name of the newspaper can be changed from the News of the World to another one that signifies change. The company can also do aware with the newspaper completely and adopt a sister newspaper from its company.

It should be noted that there were a number of companies that were doing all their advertisements through the News of the World newspaper. Such companies included Ford, a car manufacturing company in the United Kingdom. Ford had already suspended all its advertisements with the News of the World but was willing to resume the contract after the investigations were over. Ford had taken this move since it is a company that cares and respects behavior standards of its stakeholders and other people it interacts with externally. The ford did not cancel its contracts with the News International group; it just suspended its adverts in the News of the World. Other big companies advertising with the News of the World included T-Mobile, PC World, Currys, Halifax, and Npower. The News of the World can still link with these companies, apologize to them on what happened, and start businesses afresh. With the help of such companies, the good reputation of the News of the World that had lost can be restored hence building trust with the public once again. The company should come up with ways and means of combating corruption in its entire business premises. Setting up of anti-corruption measures will strengthen and build a long-lasting relationship with the public. The  news of the world need to be aware that winning back public trust will not come easy and that other measure apart from anti-corruption and accountability need to be taken into place. From this News of the World illegal phone hacking scandal, a number of lessons can be learnt from the experience. Companies should be able to adopt and abide by their affiliated Corporate Governance Codes in order to maintain the reputation of the company and ensure a continued growth. The companies should ensure that the employees follow the company’s laid down professional ethics and the code of conduct in all what they do, whether inside or outside the company’s premises. With this in place, the public will always be royal to the company, the company’s sales will go up, and these will eventually lead to the overall growth of the company.