The scandal that has battered News Corp. shares and given legendary leader Rupert Murdoch a black eye could be remembered as the moment that corporate reputation became really important.
That’s the argument Geoff Colvin, Fortune magazine senior editor-at-large, made in the publication’s Aug. 15 issue. I agree.
Colvin notes that News Corp. lost about $5 billion of value in the few weeks after phone hacking and alleged bribery by the company became headline news.
“Previous major scandals were mostly financial: the numbers were lies. Not this time. The damage so far derives entirely from behavior—phone hacking and possible police bribery—that appears to be illegal but has nothing to do with reported financial results,” Colvin writes. “Whether it’s illegal doesn’t matter anyway; it’s slimy, and that’s enough. News Corp. is deeply tarnished, and the financial effects could be significantly bad.”
That privacy invasions and the possibility of bribery could so badly damage News Corp.’s stock and its prospects dovetails with our belief that the business world is at the dawn of the “Worthiness Era.” In this new economic epoch, people are setting higher expectations for the companies in their lives. A reputation for upstanding behavior, for example, is becoming a key part of consumer calculations.
Consider a 2009 paper by researchers Remi Trudel and June Cotte. They found that customers will pay a premium for ethically produced goods and punish companies (by demanding a lower price) that are not seen as ethical. What’s more, Trudel and Cotte discovered, a bad rep is particularly bad for business: “The negative effects of unethical behavior have a substantially greater impact on consumer willingness to pay than the positive effects of ethical behavior.”
How did News Corp. get into unethical habits? Colvin says one answer is the “one-man problem.” That is, too much power has been concentrated in the hands of Murdoch himself, which led good-governance group the Corporate Library to give News Corp. an “F” grade for six years straight.
Thus far into the controversy, not much has been written about the long-term effects on the News Corp. corps of employees. But that too is likely to suffer. People—especially civic-minded Millennials—are going to think twice about casting their lot with Murdoch and his sullied empire. A 2009 study by public relations firm Edelman found that globally, 56 percent of people want a job that allows them to give back to society versus 44 percent who value personal achievement more. Slimy stuff like hacking into the phones of families of slain soldiers is like the opposite of giving back to society.
When public outrage persisted despite his shutting down a tabloid and dropping a bid for greater control of a satellite TV firm, Murdoch turned to Edelman itself to help manage the hacking scandal. It’s not clear whether that move will salvage the company’s reputation. But it’s another sign that a good name now matters like never before.
This post originally appeared at Ed’s Work in Progress blog at Workforce.com.