Phone hacking scandal: Rupert Murdoch's UK empire News International faces 'reputational risk'

LONDON: Claims by media baron Rupert Murdoch that he was not aware of illegal news gathering acts being committed in News International were not the end of the story for the purposes of corporate governance, according to a senior Cambridge University academic.

Professor Simon Deakin of the Cambridge Judge Business School says that a major question facing News International is around ' reputational risk', and whether, if the ongoing investigations go against the company, it will be able to maintain its existing activities in Britain.

During a recent hearing of the Culture, Media and Sport Committee of the House of Commons, Murdoch, his son James and former News International chief executive Rebekah Brooks claimed that they were unaware of dubious news gathering practices at the News of the World tabloid.

The parliamentary and police investigations into phone-hacking and corrupt practices involving journalists and their police sources will also call into question the corporate governance of not just News International but its parent, News Corporation.

According to Deakin, if investigations show that the companies' executives were unaware of illegal practices, the focus must then fall on the internal audit process and controls within the companies.

He said in a podcast, "It points to the importance of boards making sure, as far as possible, that their companies do not break the law and do not pursue business strategies which create an undue risk of either criminal or civil liability".

Deakin added, "The board must strike a balance between risk-taking for profit on the one hand and taking into account a wider range of relevant interests on the other.

In doing so, they must look to the long-term interests of the shareholders and to the need to maintain the company's reputation.

News Corporation has withdrawn its bid for BSkyB, but a number of companies within the News Corporation group continue to operate in various media contexts where they require regulatory licenses and/or wider public trust and support, he said.

Deakin said, "The executives will have to prove to the public that they dealt with these issues as quickly and effectively as possible".

Deakin is a founder member of the Centre for Business Research at Cambridge Judge Business School and leads the research in their Corporate Governance programme.