The News Corp. scandal, which we first wrote about last week, refuses to settle down, with CNN personality Piers Morgan, formerly editor of News of the World, the latest to get drawn into controversies over who knew what and when.
The Wall Street Journal, among other news outlets, has also pointed to an inattentive board of directors (a bit of an irony since the Journal itself has been pilloried for going soft on the story). “Corporate-governance experts have long criticized the board for being beholden to the company’s leadership,” the Journal reported. “Some of News Corp.’s nine independent directors have close ties to the company.”
Ineffectual, kowtowing boards were a long-standing aggravation to Peter Drucker. “Years of experience indicate that the board has become a roi fainéant, an impotent ceremonial and legal fiction,” Drucker wrote in a 1976 essay in The Wharton Magazine. “In every major business catastrophe of the last 40 or 50 years . . . the board members were apparently the last people to be told that anything was awry.”
Indeed, when bribery scandals engulfed sever major U.S. companies during that time, the boards claimed ignorance. “That Lockheed was handing out bribes, thinly disguised as ‘commissions,’ was an open secret long before it hit the headlines,” Drucker noted. “The only important people who did not know about it, apparently, were the Lockheed directors.” The same had been the case with the boards of Northrop and Gulf Oil.
Were any organizations doing things right? Well, yes. “To find a truly effective board, you are much better advised to look in the nonprofit sector than in our public corporations,” Drucker suggested. “Nonprofit directors tend to have a personal commitment to the organization’s cause.”
What steps should News Corp.’s board be taking to ensure the company cleans up its act?