“Either…this was in effect a cover-up, or you weren’t told, or you didn’t read your emails properly, and there is a failure of governance within the company. Do you accept that?”
Sound familiar? Barrister Robert Jay QC asked James Murdoch this question in the Leveson Inquiry into the culture and ethics of the press this month. Murdoch’s answer was, in essence, that he was kept in the dark by his direct reports.
The phone-hacking scandal at News of the World has led to a raft of other allegations against the Murdochs and News Corp: that favourable media coverage was traded for Tory support of key media policies; that newspapers actively worked to destabilise the government; whether James Murdoch was aware of allegedly illegal activity at the News of the World which resulted in the arrest of more than 20 people; the extent of the cover-up of phone-hacking and the failure to warn shareholders, the parliament and the public. All this begs the question: when, if ever, can leaders rely on ignorance as an excuse for unethical conduct in their organisation?
Of course, it is impossible for a leader to know every minor detail of the organisation’s activities. Time is short. Organisations are complex. Leaders and managers must trust their staff and give them some discretion, or else nothing would get done. The adequacy of risk management processes and compliance programs is key, including regular monitoring and reporting.
Is the organisation receptive to ‘red flag’ intelligence?
A crucial element to the success of any risk management process is the organisation’s response to ‘red flag’ intelligence. For instance, where an employee raises concerns about inefficient processes, bullying by their peers, or illegal activity in the workplace, does he or she genuinely trust that they will be protected and, ideally, thanked? While we may praise the person who foils a bank robbery, do we support the person who has the courage to blow the whistle on financial misconduct in their workplace? If a manager does not take seriously an allegation that is brought to his or her attention, or refuses to take responsibility for fixing the issue, the employee is unlikely to act alone to rectify risky behaviour.
A review of the official company values of some of Australia’s biggest employers shows that they all contain values that indicate a willingness to learn from mistakes, integrity or ‘practicing what we preach’, and accountability to shareholders, employees, customers and other stakeholders. If accountability, integrity and responsiveness do matter in an organisation, how can its managers ensure that they know what is really going on? How can the organisation be accountable if there are no processes in place for considering feedback? Can it have integrity if parts of the organisation are cut off or invisible from decision-makers? How can it be responsive if its employees, customers and other stakeholders have no clear way to report their concerns, their problems, and their ideas for improvement? What measures has the organisation implemented to ensure that its decision-makers are getting the right information?
Fundamentally, no matter what the company values and vision statements contain, does the organisation want to hear from individuals about concerning behaviour and rectify any problems, or does it want to remain ignorant of those problems at whatever price?
Welcoming criticism and feedback… Whose responsibility?
Responsiveness to feedback from employees has recently been identified as one of the key elements of building a high performing workplace. Research carried out in 2011 by the Australian School of Business at the University of New South Wales has identified that high performing workplaces have in place a number of key characteristics. They have more mechanisms (e.g. town hall meetings, innovation zones) for capturing ideas from employees (19% higher), more formal processes for systematically assessing and responding to ideas from employees (5.1% higher), and are better at acting on suggestions and feedback received from customers (17.1% higher). Managers and leaders of high performing workplaces were found to welcome criticism and feedback as learning opportunities (20.4% higher). The authors of the study identified these factors, among others, as distinguishing high performing workplaces from low performing workplaces. Another factor was profitability. The low performing workplaces in the study had an average profit margin ratio of 5.44%, whilst the high performing workplaces had an average profit margin of 15.63% – a notable correlation between profitability and responsive management practice.
In the Leveson Inquiry, Murdoch claimed, in defence, that he wasn’t told about phone-hacking at ‘News of the World’ newspaper, and that his direct reports did not give him sufficient information “to go and turn over a whole lot of stones”. Murdoch gave evidence that he didn’t read emails, that he didn’t read all of his company’s newspapers, that he didn’t choose the newspapers’ editors, that he didn’t ask why a settlement of a half million pounds was paid to avoid litigation. (One wonders what he did do, in his highly paid executive position at News International.) Murdoch said he “struggled with” understanding why his direct reports allegedly didn’t tell him about the seriousness of the ongoing phone hacking: “Why wouldn’t they tell me? They didn’t. I don’t want to conjecture but I think that must be it, that I would say ‘cut out the cancer’ and there was some desire not to do that”, that is, Murdoch’s known ethical stance might have discouraged people from bringing lucrative but potentially illegal practices to his attention. What Murdoch seems to have missed here is that it is was his responsibility, as chairman of News International, to build a workplace culture that was not only ethical but also open to feedback and criticism, in which employees dealt with problems cooperatively and constructively, and without retribution.
Murdoch acknowledged that in hindsight, there were deficiencies in News International’s controls for identifying legal risks He said, however, that “at the time I didn’t have the view whether they were insufficient or not”, and that “newsroom governance… was really an issue for the editor and the legal manager to be responsible for”. Was it Murdoch’s responsibility to turn his mind to this? Murdoch apparently didn’t ask what governance processes had been implemented, or turn his mind to whether or not the ‘strengthened governance’ described by his direct reports would actually be effective in its prevention of further allegedly illegal activity. Ultimately, the lack of controls meant that a newspaper under his ultimate control closed down, many people lost their jobs, and many employees were arrested.
Ignorance can be very expensive
James Murdoch’s defence here could be described as wilful blindness: it appears that he knowingly turned a blind eye to the possibility that serious wrongdoing was continuing. He was aware of the possibility, but says he thought others would manage it. In law, the term ‘wilful blindness’ describes the state of mind of a person who, suspecting the truth, deliberately shuts his or her eyes to a particular fact. A defendant’s suspicion, when coupled with a failure to inquire, may be evidence which a jury can infer actual knowledge of illegal activity. Wilful blindness is a weak defence.
There are many reasons why a manager might close their eyes to a risk. They might do it unconsciously, because they hate dealing with that subject matter. They might knowingly turn a blind eye – ‘Do what you have to do to fix this, but I don’t want to know about it’ – because they don’t want to be associated with a botched job, poor results or unethical activity. Whatever the reason, fundamentally, a disinclination to manage the failures, as well as enjoy successes, is a failure of leadership.
At the very least, leaders should be held accountable for taking action when problems are brought to their attention. Lessons can be learned from the exchange between Jay and Murdoch about an organisation’s openness to addressing warning signs and investigating allegations of wrongdoing. Part of the problem, according to Murdoch, was where the allegations came from. The allegations about ongoing phone-hacking at News of the World had come from a competitor newspaper, The Guardian. Murdoch said, “The culture between these papers is very tribal … that might lead to a culture of knocking back allegations and not being as thoughtful and forensic about allegations”. Murdoch went on: “One of the big lessons learned here, no matter where something comes from, even if it’s a commercial rival or someone who has a political gripe… those circumstances don’t make an allegation untrue.”
One of the benefits of having an external whistleblower service that employees can access – which BHP, ANZ, Rio Tinto and other large Australian companies have – is that a person external to the immediate team makes a decision about what will happen with the allegations. The person receiving the complaint has nothing to do with the subject-matter. They have no concerns that the allegations will reflect poorly on them. It is not in their interests to silence the person making the report, to quash the information or explain away the issue. The outcome might have been very different for News of the World, News International and the Murdochs, if the allegations of ongoing criminal activity had been made through an external whistleblower service and reported to the full board, instead of being raised in a meeting with only the chairman.
Wilful blindness vs Mindful leadership
None of us will end up facing the public in as sensational a manner as the Murdochs and News Corp in the Leveson Inquiry, but all managers and leaders face consequences of their actions in one way or another. Their choice is clear.
Leaders can choose not to know, and allow misconduct and illegal activity to occur in the organisation without their knowledge. If they choose this path, they should prepare for the judgment of staff, shareholders and others, in case they are later accused of allowing it to happen. They will have little defence to accusations of wilful blindness.
The alternative is to ensure that the organisation’s governance and management processes will bring any misconduct or illegal activity to the leaders’ attention. If such activity is brought to light through these processes, the leaders will be among the first to learn of it, and can decide how to deal with it. Ideally the leaders’ management of the matter will take place behind closed doors, before the matter is brought to the attention of the media, the union, regulators and other outside decision-makers.
This latter approach might be described as mindfulness: deliberately seeing what is in front of you, being fully present, and noticing what you’re doing, thinking and feeling in the moment. Mindfulness, based in eastern philosophy, is gaining recognition as an approach to business and to risk management. One could argue that a culture of mindfulness is valuable to achieving all of our organisational goals. Dr Ellen Langer, Professor of Psychology at Harvard University, writes: “In more than 30 years of research, we’ve found that increasing mindfulness increases charisma and productivity, decreases burnout and accidents, and increases creativity, memory, attention, positive affect, health, and even longevity. When mindful we can take advantages of opportunities and avert the dangers that don’t yet exist.” The rapid pace of modern business means none of us can afford to stand still, to take things for granted, to ignore warning signs.
The very nature of work continues to shift, as the boundaries of medium, time-zone and ‘industry’ dissolve. Without mindfulness, we risk doing the same thing over and over again. We miss opportunities, overlook risks, and potentially deliver our competitors a huge advantage.
If leaders choose to ignore a risk in an organisation, they should do so deliberately and mindfully. If the risk eventuates and the organisation and its people suffer harm, at least the leader will be able to defend their choice. The Occupational Health and Safety legislation is the perfect example when the potential damage is high and criminal sanctions might apply. Leaders must be able to prove that they turned their minds to the risk, and that they had good reason not to act. In leadership and in management, ‘wilful blindness’ is no excuse.
 Leveson Inquiry into the Culture, Practices and Ethics of the Press. See http://www.levesoninquiry.org.uk/
 See http://www.guardian.co.uk/media/2012/jan/28/operation-elveden-weeting-full-arrests
 We considered the values statements of BHP Billiton, ANZ, Wesfarmers, Telstra, Queensland Health and Australia Post.
 C Boedker, R Vidgen, K Meagher, J Cogin, J Mouritsen and J M Runnalls, (2011) ‘Leadership, Culture and Management Practices of High Performing Workplaces in Australia: The High Performing Workplaces Index’, Society for Knowledge Economics and University of New South Wales.
 See http://www.guardian.co.uk/media/leveson-inquiry
 For more on the impact of non-conscious processes on behaviour and decision-making, see http://blogs.hbr.org/imagining-the-future-of-leadership/2010/06/nonconscious-leadership-proces.html
 Dr Ellen Langer (2010), ‘A Call for Mindful Leadership’, Harvard Business Review, http://blogs.hbr.org/imagining-the-future-of-leadership/2010/04/leaders-time-to-wake-up.html