Tuesday, 12 July 2011

Corporate governance at News International

The news media and blogosphere is full of the goings on at the News of the World, where there is evidence of journalists writing stories based on unlawful hacking into the telephone messages of private individuals. Subsequently there has been evidence emerging of money being paid to police officers for information that subsequently has formed the basis of articles.

I will focus on just a very small area of this wide ranging scandal, an area that has clear corporate governance lessons. That is the response of News International to developments. In January 2007 the royal reporter of News of the World, Clive Goodman, was sentenced to four months in prison for procuring phone hacking by a private investigator, who was also jailed. The Sunday Times (also part of the News International empire) reported last Sunday that "The case triggered a thorough review at News International" But what follows is interesting, the article reports that "Colin Myler, who replaced Coulson as editor at News of the World was tasked with the enquiry".

The board, in such circumstances, will want to make sure that they incur no personal legal liabilities through inaction: for example, The Regulation of Investigatory Powers Act 2000 covers the interception of mail or telephone conversations and provides for directors of offending companies to be, themselves, liable to criminal prosecution in the event of consent, connivance or neglect. The board will also want to protect the value of their company from reputational damage or the consequences of further prosecution. However, if you are a director, you may face a dilemma; suppose you know or suspect that such practices are widespread industry practice? In such circumstances you can be pretty confident that a proper investigation will damage the business by its revelations but if you do not investigate properly then you face possible personal liability and the risk that the damage will be worse if it is revealed by someone else or by legal processes. If you suspect that all outcomes will be bad, how do you determine which is least bad?

Now, as a director of News of the World, if you were serious about investigating this matter, would you appoint your new editor as the man in charge of the enquiry? Colin Myler is a very experienced newspaper editor. Of all people he would know about industry practice in the tabloid press.

At this point we can jump to the outcomes, of which there are two;
  • Firstly, in 2009, Myler and Crone (head of legal affairs at NoW) assured the culture, media and sport parliamentary sub committee that the investigation had not revealed any wrongdoing by other reporters.
  • Secondly there is the report itself, which has apparently now been handed to police.

The Sunday Times quotes a source about this report
"It is a reasonably decent investigation and either they were idiots for not having acted on it or they deliberately didn't"..."They got very strong indications of all sorts of dodgy behaviour. It revealed [possible] police payments and indicated enough about phone hacking to be of serious concern."
Myler and Crone now claim they had not read the final report they had commissioned and, apparently, overseen or the data attached but relied upon an audit carried out by external lawyers. That beggars belief. There is this really serious matter you have been tasked with looking into and you don't want to know the detailed findings? You have no conversations with the people you had delegated to carry out the work and nor would you stay up all night poring over the pages?

But over and above that, what about the board and their governance responsibilities: was this report an agenda item at board meetings; did the board rely upon a brief audit letter from outside lawyers that reported on the report and if so, why? What about individual directors, did none of them want to see the report itself? If these matters of board responsibility are ever pursued in court I find it hard to imagine that a court would conclude the board had been other than negligent if they really did not see the original report of their internal investigation into this serious matter.

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