The History of the Decline and Fall of News of the World
- How Legitimacy Upholds the License to Operate
Department of Business Studies.
Master Thesis, 30 ECTS, Spring 2013.
Authors: Elfgren, Kaj. Meharena, Million.
Thesis supervisor: docent Lampou, K.
Abstract: This thesis provides a biographical case study of the crisis faced by News of the World, after revelations of unethical journalistic practices within the newspaper. A scandal that rapidly moved up the organizational hierarchy and spread globally, affecting stakeholders amongst all its networks from local British communities to its parent company News Corporation and its main owners, the Murdoch family. Corporate social responsibility and stakeholder management is presented as a key factor in order to uphold and obtain the society’s permission to operate. The study shows the importance of being a good corporate citizen, not solely as goodwill but in order to gain a parachute that can moderate the fall when facing a crisis.
Keywords: News of The World, News Corporation, News International, Murdoch, News Media, Case study, Organisational Crisis, Legitimacy, Corporate Social Responsibility (CSR), Ethics, Corporate Citizen, Stakeholder management.
1. INTRODUCTION 4
2. THEORETICAL FRAMEWORK 6
2.1 THEORETICAL BACKGROUND 6
2.1.1 EARLY STAGES OF CSR 6
2.1.2 WHY ENGAGE IN CSR? 7
2.1.3 LEGITIMACY THEORY 8
2.1.4 ETHICS OF CSR 9
2.2 BACKGROUND TO CSR COMMUNICATION TOOLS 10
2.2.1 GLOBAL CSR STANDARDS 10
2.2.2 CSR AND COMMUNICATION 11
2.2.3 COMMUNICATION CHANNELS FOR CSR 12
2.2.4 DECEPTIONS IN STAKEHOLDER COMMUNICATION 14
2.3 DISCOURSE ANALYSIS FRAMEWORK: LEGITIMACY CRISES AND STRATEGIES 14
2.3.1 DEFINITION OF ORGANISATIONAL CRISIS 14
2.3.2 STAKEHOLDER RESPONSE TO CSR IN TIME OF CRISIS 15
2.3.3 STRATEGIES ON HOW TO BUILD LEGITIMACY IN TIME OF CRISIS 16
2.3.4 CRISIS COMMUNICATIONS STRATEGIES 16
2.4 SUMMARY OF THEORIES 17
3. RESEARCH DESIGN 18
3.1 SUPPORT FOR DATA COLLECTION AND FOCUS OF CASE DEPICTION, USING GOOGLE TRENDS 21
4. CASE PRESENTATION OF THE NEWS OF THE WORLD 23
4.1 BACKGROUND OF NEWS CORPORATION, THE MURDOCH FAMILY DYNASTY 23
4.2 CHEQUEBOOK JOURNALISM -‐ BACKGROUND TO THE NOW SCANDALS 24
4.3 ROYAL AND CELEBRITY PHONE HACKING SCANDAL 25
4.4 PHONE HACKING OF MEMBERS OF THE PUBLIC 26
4.5 TERMINATION OF NOW 27
4.6 EXCERPTS FROM JAMES MURDOCH STATEMENT WHEN ANNOUNCING NOW TERMINATION 28
4.7 RUPERT MURDOCH’S WRITTEN APOLOGY 29
4.8 PARLIAMENTARY HEARINGS 30
4.9 FURTHER CONSEQUENCES 32
4.10 THE INTERNATIONAL SPREAD OF THE SCANDAL -‐ U.S. 33
4.11 THE INTERNATIONAL SPREAD OF THE SCANDAL -‐ AUSTRALIA 33
4.12 THE SUN ON SUNDAYS 34
4.13 THE ETHICAL REPUTATION OF NOW 35
4.14 CSR & PROACTIVE MEASURES/POST SCANDAL 36
4.15 NEWS CORPORATION -‐ GLOBAL ENERGY INITIATIVES 37
5. ANALYSIS 38
5.1 DISCOURSE ANALYSIS OF STATEMENTS OF THE MURDOCH FAMILY 38
5.1.1 JAMES MURDOCH STATEMENT ANNOUNCING THE CLOSURE OF NOW 38
5.1.2 RUPERT MURDOCH APOLOGY LETTER 40
5.2 ANALYSIS OF THE PHONE HACKING SCANDAL 40
6. FINAL REMARKS 44
REFERENCES 45
1. Introduction
In these times the heavy presence of corporations have become an aspect of daily life, through various transaction we interact with companies almost constantly. Although companies in many ways influence our lives today, the idea of the corporation as we know it today is from a historical perspective a fairly new concept. Corporations as legal people furthermore carries rights not granted to human people, such as for example limited liability.
Corporate social responsibility (CSR) may best be understood as companies’ way of maintaining their legitimacy towards greater society, to uphold the licence to maintain operations.
Legitimacy theory according (Dowling & Pfeffer, 1975) has its essence in the idea that there are a form of social contracts between the organisation and the rest of society. When there is a disparity, actual or potential between the value systems of the company and society, there is a threat to the entity's legitimacy. The “society” and its power may be best illustrated by the stakeholder model of Freeman (1984), which defines stakeholders as any actor or institution in society that is affected by the company. We note that today, stakeholders are not restricted to a specific society, multinational companies are affected by stakeholders from a global perspective.
This phenomena acts as a driver for CSR, as multinational companies have to adapt to a global standard of ethical and social conduct.
To build or retain legitimacy is a critical and complex task and in a time of crisis this issue becomes even more problematic. An organisational crisis is defined by Mitroff and Pearson (1993) as an event or incident that threatens the reputation and viability of an organisation, in other words a threat against the legitimacy of the organisation. According to Arvidsson (2010) proactive measures are the foundation of managing a crisis, a company that goes into a crisis with strong legitimacy is more likely to manage a crisis well. The stakes at hand when going in to a legitimacy crisis are substantial, a legitimacy crisis may even lead to termination of the company’s operations. This thesis provides a biographical study of the crisis faced by News of the World (NoW) after revelations of their unethical journalistic practices.
NoW was a Sunday tabloid newspaper operating in England from 1843 to 2011. NoW
was at a certain period the biggest selling English language newspaper, at the time of the closure
NoW sold approximately 2.8 million copies per week, a reliable cash cow for its owners. NoW
was in the business of writing about celebrity based scoops and populist news. The papers journalistic focus on exposing celebrity scandals in most cases involving sexual peccadilloes earned the paper the nicknames “Screws of the World” and “News of the Screws”. (BBC News Online, 2011:A)
In 2005 it was discovered that individuals employed at the newspaper had hacked the cell phones of members of the royal family and celebrities. In 2011, the phone hacking scandal culminated when it became confirmed that phones had been hacked of the family of murdered schoolgirl Milly Dowler and victims of the 7/7 terrorist attacks in London. Sharp criticism was directed to the officers of the newspaper and towards the Murdoch family - owners of the British mother company News International and the international media holding company News Corporation - who was called to appear before the British Parliament. The scandal spread to members of the government and police officials resulting in arrests and resignations of several high profile persons in the British public, corporate and governmental sectors. In early July 2011 major advertisers such as Ford, Sainsbury’s, O2 and T-Mobile withdraw their advertisements from NoW. 7th of July 2011 the owners announced that the newspaper would publish its last edition the 10th of July. (Ibid)
The NoW phone hacking scandal and the subsequent spread of blame to its parent
companies and the Murdoch family makes for an interesting case study of the importance of
legitimacy. News travels fast especially when it covers an event within in the newspaper
business. The 24/7 news cycle escalated the NoW crisis when the tipping point was reached, as
information was revealed about the journalistic methods of NoW and how they infringed on to
the privacy of regular citizens. The fast turns and the relatively short span between events,
actions and consequences in the NoW case makes for an illustrative example of the phenomena
of legitimacy in a time of crisis, which could serve to understand other cases of legitimacy crises
that are not as well documented and which timeline is more prolong. The purpose of this thesis is
to examine how legitimacy concerns affect an organisation after a crisis. By analysing the phone
hacking scandal of NoW and the implication on its owners the Murdoch family and their holding
company News Corporation and British subsidiary News International. By looking into this case
study we will illustrate how companies build, retain and manage issues in legitimacy.
2. Theoretical Framework
The first part of the theoretical section,”2.1 Theoretical background”, presents underlying arguments and concepts of CSR, ethics and legitimacy theory. The second part, “2.2 Background to CSR communication tools”, provides an introduction to the frameworks and tools used by organisations to communicate their CSR actions and engage in stakeholder communication. The third part,“2.3 Discourse Analysis Framework: Legitimacy crises and strategies”, presents Coombs (1998) framework for Crisis communication strategies, which is our main model used for the discourse analysis, as well as providing theories on organisational crisis and stakeholder response in time of crisis. For an overview of the theories covered in this thesis see “2.3 Summary of theories”.
2.1 Theoretical Background
2.1.1 Early Stages of CSR
There have been examples of individual companies taking social responsibility since the industrial revolution, when the modern form of corporations rose to power, although companies in these days not necessarily communicated their actions. Early examples of CSR in the beginning of the 2000th century included securing humane working conditions, supply employees with accommodation, health care and contributing to charity, (Crane, et al., 2008). In 1946 Fortune Magazine commissioned a survey among business leaders from the largest corporations in the U.S. in order to map out their view on the social responsibility of corporations, 93,5 % of the respondents answered that they considered that companies had a social responsibility beyond that of the core economic task of business (Carrol, 1999).
In Sweden, the origin of social responsibility may be traced back to the industrialisation. An
early example is LM Ericsson initiatives in the 1940s. The company supplied childcare for the
employees’ children, which at the time was clearly beyond the common norms for corporate
responsibility (Graftström, et al., 2008).
CSR as an academic research topic was formalised during the 1950s and 1960s. Howard R. Bowen sparked light on the subject in his book Social Responsibility of the Businessman (1953). Keith Davis (1960) early defined CSR as companies taking responsibility beyond the original task of making profits.
2.1.2 Why Engage in CSR?
In the 1970s the topic of CSR spread out from the academic arena and into the public sphere, when shareholders and other stakeholders joined the debate. There were clear resistance among the neo-liberals, economist Milton Friedman (1970) penned a sharp criticism to companies engaging in CSR in his widely read and accessible column in the New York Times Magazine.
According to Friedman (1970), the only responsibility of the company is to maximise shareholder value within the limits of the free market and the laws of the society. In doing so the company contribute to society in the form of employing people, paying taxes, pushing the boundaries of technology and by supplying good and cheap products to the consumers.
There are however CSR schools of thought that argue that there are none trade-off between shareholder value and social responsibility. This instrumental view of CSR argue that CSR-activities has the ability to drive revenue, lower cost, or both and as such could increase profitability (Wood, 1991). There is however poor empirical proof for CSR as a profit maximiser.
There is often a disparity between different actors stated will to contribute to society and their actual behaviour. According Graftsröm, et al. (2008) this gap is best exemplified by looking at the last tier consumers, which often state that they are willing to pay a premium for a substitute product manufactured according to good social and environmental standards but rarely reinforce this when doing the transaction. According to Challener (2009) this may however alter if a new generation of socially and environmentally minded consumers create a real demand.
In light of recent corporate scandals - such as Enron, News of the World, BP, et cetera -
there have been a shift from reactive CSR activities to a more proactive approach. Companies in
this way aims to prevent legitimacy problems that may arise (Arvidsson, 2010). Some CSR
theories view corporate responsibility as a form of strategic risk management, a focus on how to
protect current and future and cash flows rather than on how to use CSR as a profit maximiser.
Freemans (1984) stakeholder model have greatly influenced this tradition. Freeman’s (1984) model explains how different stakeholders in the organisations close and distant environment affect the organisation's operations, values and policy. In order to survive in modern and turbulent times, companies need to adapt its tactics and strategy to its stakeholders (Freeman, 1984). The positive branch of stakeholder theory argue that competing demands from stakeholders act as a driver for CSR and CSR reporting and communication (Tilt, 2010). The actor perspective of stakeholder theory provides a basic framework for understanding legitimacy theory.
2.1.3 Legitimacy Theory
Legitimacy theory postulate that organisations aims to make sure that they operate within the bounds and norms of society. These change over time, the organisations therefore need to be responsive in order to uphold its legitimacy toward society. Legitimacy theory springs from the tradition of contract theory, the notion that there is a “social contract” between the organisations and those stakeholders that are affected by its actions. The organisation as such agrees to perform various social desired actions in order to legitimise its existence, objectives and rewards (Shocker & Sethi, 1974).
The organisation needs to disclosure enough CSR related reporting that the stakeholders can assess if and how good of a corporate citizen the organisations is (Lehman, 1983). Corporate disclosure, such as CSR related social and environmental reporting, reacts to environmental factors (political, economical, social and technical) and disclosures furthermore legitimise actions of the organisation (Preston & Post, 1975), (Hogner, 1982), (Lehman, 1983) and (Lindblom, 1983). The communication of the organisation’s CSR actions thus functions as the continuous approval process from society, the on going transaction that upholds the social contract between the organisations and society.
There is two main approaches of legitimacy theory, strategic legitimacy and institutional
legitimacy. The strategic legitimacy approach view legitimacy as an operational resource,
extracted from the cultural environment, that the company utilise to reach their goals. The
strategic approach depicts legitimacy as an instrumental and calculated tool in the pursuit of their
ambitions. The institutional approach view legitimacy as a congruence of the institutional environment of the corporation, institutional norms that originate from such as: public opinions, educational systems, professions, ideologies and certification bodies (Du & Viera, 2012).
If there is failure in legitimacy, in other terms a mismatch of organisational behaviour and performance expectations is a concept known as legitimacy gap. The legitimacy gap may occur due to two different factors; society's expectations are modified and the organisation fails to adapt to the new requirements and secondly when new information about the organisation that was previously unavailable becomes public and society perception is altered (Lövbrand, et al., 2009).
Pfeffer and Salancik (1978) developed the concept of resource dependence theory (RDT).
A fundamental theory used in numerous organisational and strategic management theories and this approach elaborates on stakeholder analysis whereas different levels of relationships require stability to handle the uncertainty effectively. The RDT identifies the influence of external factors on organisational behaviour, and management should aim to control environmental influence and dependence. The agency theory is most used concept in research of board members, and Pfeffer and Salancik (1978) argue that board of directors is the key influence where businesses may modify dependence or resources. Authors suggest the management brings four main advantages to firms; information in the form of consultancy, access to information about business and environment contingencies, privileged access to resources and legitimacy.
2.1.4 Ethics of CSR
Corporate ethics can be portrayed as a subjective concept in any perspective but according to Brinkman (2004) the main essence of ethical practices is not exploiting or harming exploitation of humans, animals or the environment. Ethical CSR goes beyond fulfilling the economic and legal requirements of a business and focus on ethical responsibilities to avoid harm or social damage, even if profits are not generated (Lantos, 2002).
Ethical CSR is strongly linked to utilitarianism, a concept that aims to benefit the greater
happiness for the greatest number. In other terms, CSR practices involve businesses to
concentrate on the well being of the society as whole. Lantos (2002) highlights two main
concepts of basic moral theories. Teleological ethics are based on the assumption that moral is judged by the consequence of actions taken. The other concept is deontological, a duty based concept, that involves an ethical evaluation that is centred on legal systems (justice, rights and duties) and that morality is based on the rules of the market; thus permissible or punishable (Blackburn 2003, pg. 75). The stakeholder perspective states that the way businesses operate may be determining factor in their current and/or future operations.
CSR is a modern and common business practice that involves a risk of mismatching intrinsic and extrinsic motives and may generate contra productivity for the entire business. A firm risk its credibility when CSR are excessively focused on i.e. PR instead of actions, and therefore CSR investments must be natural and fit with the business and respond to actions taken historically in the frame of already established responsibility (Arvidsson, 2010). When a firm promotes moral arguments but does not invest or take necessary actions to the consequences of those moral arguments; known as moral hypocrisy (Batson, et al., 1997; Batson and Thompson, 2001; Batson, et al., 2002; Batson, 2008). Arvidsson (2010) illustrates two different approaches of achieve legitimacy in CSR communication. Firstly, companies may communicate information reactively, as a response to a crisis occurred. The second approach is proactive, which is designed to prevent legitimacy concerns that may arrive in prior. A company may choose to communicate CSR with a proactive or reactive approach, however both strongly connect to consequentialism. This allows firms to respond to an event in prior or post occurrence but nonetheless within the essential context that is believed to be right or wrong
2.2 Background to CSR Communication Tools
2.2.1 Global CSR Standards
Honhen and Potts (2007) argue that there is no one size fits all approach amongst firms and their responsibility. Every business has its own structure and unique characteristics, Ameer and Othman (2009) argue that corporations engage in CSR either out of interest or due to legislation.
In 1997, the Global Reporting Initiative (GRI) was established on the basis of creating guidelines
in sustainability amongst stakeholders. The essential goal of GRI is to promote engagement in
frequent dialogues amongst firm and its relevant stakeholders. Ameer and Othman (2009) states that the main benefit of GRI is that represents a common and mutual reporting standard for businesses to follow. Subsequently, it brings a common reporting issuing standard with similar level of features and potentially further meaningfulness and credibility across the organisation.
The GRI is divided in four different categories: strategy, economic, environmental and social areas. Authors Othman and Ameer (2009) propose an alternative reporting format on the grounds of that GRI is extensive and complex guidelines that may be time consuming for business and therefore presents a more detailed and independent reporting model; the corporate accountability result card (CARC). This reporting model is more frequent reporting system (quarterly) that focuses on the factors of Earth, Water and Air, and may relate to several industries.
2.2.2 CSR and Communication
As mentioned above interacting in CSR activities should generate desirable stakeholder attitudes and enhance support behaviours and build corporate image, strengthen stakeholder relationships in the longer perspective. CSR communication amongst stakeholders is argued as a central denominator for CSR activities and reaching legitimacy. Communicating CSR is a complex factor, finding the key factor on how to minimise stakeholder scepticism and create intrinsic goals to match a company's extrinsic activities (Du, et al., 2010). Sen, et al. (2006) studies confirmed that stakeholders are often more tolerant to extrinsic motives as long as CSR initiatives are in line with the fundamental intrinsic motives. Meaning that when stakeholders are more aware of the extrinsic motives of a company the stakeholders’ willingness to adapt increase.
This is due to CSR motives are established to serve both ends, society and bottom lines of firm, a win win perspective. Forehand and Grier (2003) findings suggests that stakeholders do not solely react on extrinsic motives but to the overall market strategies of a firm that may be interpreted as manipulative or deceiving. Stakeholder scepticism is when customers feel deceived and may therefore result in negative reactions. Through merging intrinsic and extrinsic motives in firms communication could balance scepticism and strengthen credibility.
2.2.3 Communication Channels for CSR
CSR communication can be provided through a variety of streams, the most common way of distributing is via official documents such as press releases, annual sustainability reports. Certain companies deliberately choose to include a specific CSR division in their business model, for instance by a CSR sections online or engaging in different digital platforms; TV, magazine, radio, billboard advertising, product packaging to highlight their social responsibility actions. CSR reporting is a growing trend, by late 2008, 250 of the worlds largest firms voluntary released their annual reports. This constant evolution of CSR initiatives has generated a substantial growth of external communicators of CSR (media, customer, monitoring groups) that are not entirely influence by the firm (Du, et al., 2010). Firms may influence the content of their reports through its own communication channels and others members of its value chain but usually lack control of the external communication channels. There is various communication of CSR that are likely to differ in the extent to which they are controllable by the business (Du, et al., 2010) . As a result, a trade off may exist in CSR communication between the balance of control and credibility. The less control of the content of the CSR information, the more credibility exists.
For instance, a weapon manufacturer or alcohol or tobacco company that communicates and promotes health motives in their CSR reports may lack credibility and raise scepticism by their external stakeholders. People tend to be more critical of messages from corporate information channels due to perceiving this information as none neutral and being self interested or biased, (Wiener, et al., 1990).
To enhance the credibility of CSR content, firms should aim to cooperate further with independent and unbiased sources. Although this is a complex situation, companies should aim for positive media coverage through independent media sources. Du, et al. (2010) states that one should not underestimate the “power and reach of employees as CSR communicators” (Ibid, pg.7). Employees usually have a wide reach amongst stakeholder-groups through social bounds and therefore may be perceived as credible sources. Findings suggest that approximately 1/3 has been advised to choose a company due to the fact that they acted responsibly (Dawkins, 2004).
Dawkins (2004) divides stakeholders in two different categories. Firstly, business press,
investors and NGO's as opinion leader audience. Secondly, the general public that includes
customers and local communicates, to distinguish the complexity of differences amongst stakeholders groups and interpretation of CSR communication. He suggests that CSR communication has different meanings depending on the opinion leader audience. Investors are more focused on shareholder value maximisation, whilst NGO and business press may proactively participate in seeking information of company to give a transparent image of the company and its CSR reports. Nonetheless, the CSR must fit with its initial target, external stakeholder wants hard evidence of the social impact of a company's reports. Global Reporting Initiative or ISO 26000 are standards set by independent bodies for business to engage in and possibly increase its credibility in their reports. The ISO 26000 define their goal as guidelines for firms in which they should operate in and simultaneously monitor responsible actions taken, established for firms to act in an ethical and transparent way that contributes to the health and welfare of society, The fundamental guidelines involves: Organizational governance, human rights, labour practices, the environment, fair operating practices, consumer issues, community involvement and development, (Castka & Balzarova, 2012).
CSR reporting refers to a corporation's disclosure of information regarding the environmental and societal performance to the general public. This information is examined by a variety of stakeholders. Historically managers have been accountable only to the financial performance indicators, there is however a growing stakeholder pressure for a wider scope of corporate disclosure (Otman & Ameer, 2009).
In prior to the presentation of case study, it is important enhance our coherency of CSR, ethics and our chosen field of study. The Press Complaints Commission (PCC) is independent self regulatory body in the United Kingdom which deals with complaints about editorial content of newspapers, magazines and websites. The purpose is to provide guidelines for media centres, train journalist and promote proactive interaction to prevent unethical behaviour, avoid harassment and media intrusion. The PCC website provides specific guidelines for newspapers and readers and the editor code of practice section highlights the most important segments for journalist and discusses matters of accuracy, opportunity to reply, privacy, harassment, intrusion, children, confidentiality, as core aspects.
Since the PCC is positioned as a centre between the stakeholders, paper and reader, it
allows the public to file complaints against the content of any media, has a well structured
process of complaints and provides a public verdict of the matter. The various PCC cases are released as frequently public documents to identify an understanding amongst these stakeholders on what is considered as acceptable (Press Commission's Complaint, 2013).
2.2.4 Deceptions in Stakeholder Communication
Stakeholders are engaged in market relationships, these relationships are constructed by governed and trust. The common denominator for engaging in these relationships is usually the transaction benefits serving both ends. Keep and Schneider (2010) examines the ethical norms in market relationships and tries to identify the use of deceptions and ethics defections by partners and aims to allocate which specific situations partners are willing to deceive one another.
Trust and honest communications stabilises and maximises the benefits of relationship. Partners are more likely to deceive or lie to stakeholders when the following four conditions are at place;
avoiding conflicts, weak commitment to their work, high performance pressure or have a high reward incentives for doing so (Keep & Schneider, 2010; Grover & Hui, 1994, 2005).
Keep and Schneider (2010) contribute that deceptions are common business practices to gain control of market in certain given situations, which includes a probability of high financial return and low probability of disconfirming information becoming available. Their findings argues that the main motivation or ethical justification is that deception and lies in market relationship is mainly due to protecting existing relationship, build new relationship, ensure product or service quality and enhance control over relationship.
2.3 Discourse Analysis Framework: Legitimacy Crises and Strategies
2.3.1 Definition of Organisational Crisis
An organisational crisis is an event or incident that threatens the organisation’s reputation and
viability. A crisis breaks down the external stakeholders beliefs and values of the organisation
(Mitroff & Pearson, 1993). Stress, instability and an undetermined relationship toward the
stakeholder is typical characteristics of a corporate crisis. In short: a crisis is a threat to the
relationship between the organisation and it’s stakeholders (Marra, 1992). A crisis severity is defined as to which degree stakeholders blame the company (Coombs, 1998).
2.3.2 Stakeholder Response to CSR in Time of Crisis
Companies engage in CSR to legitimise their operations toward its stakeholders. Studies show that the stakeholder response to an organisation’s CSR-activities is dependent on a number of factors. The larger the company the more visible it is for the public eye. A number of empirically focused studies have concluded that company size greatly influence CSR-reporting and stakeholder response (Cowen, et al., 1987), (Hackston & Milne, 1996), (Adams, et al., 1998) (Neu, et al., 1998), (Gray, et al., 2001) and (Cromier & Magnan, 2003). The type of CSR-actions is another factor that affect the public perception. Carroll (1991) divides corporate responsibility actions into four dimensions, economic, legal, ethical and philanthropic. The type of situation also affects the stakeholder response. Public accusations of misbehaviour, guilty or not guilty, serve to show how fragile a company’s image can be when tested. Any negative publicity damages the stakeholders’ perception of the company (Vanhamme & Grobben, 2009). When an event is negative, unexpected or important people tend to casually make judgements about the events occurrence and what caused it (Weiner, 1986). This psychological behaviour can also often be observed among a company's stakeholders in time of crisis (Kim & Yang, 2009).
Cho and Hong (2009) analysed CSR-related articles in two Korean online newspapers and the response commentary on the articles. In non-crisis situations the level of corporate fame had a slight reverse effect on the comments, the more famous a company is the more negative the comments are. In cases when companies were involved in highly publicised crises, the study concluded that readers were more inclined to be negative in their comments towards the company. Readers tend to be more cynical when companies that had not been a good corporate citizen historically, tried to regain legitimacy by mere philanthropic contributions. The public tend to be suspicious of all CSR-activities after a crisis, especially toward one time donations.
Only philanthropic contributions solve a corporate crisis and in order to restore the legitimacy
toward stakeholder, the company need to form or restore a long term plan of CSR-activities,
which is to act as a good corporate citizen (Cho & Hong, 2009).
2.3.3 Strategies on How to Build Legitimacy in Time of Crisis
Traditionally scholars and practitioners of CSR have focused on how to use CSR to encounter negative publicity when it occurs (Coombs, 1995). A more proactive strategy is to use CSR as a way of building legitimacy and prevent negative publicity (Varadarajan & Menon, 1988). A historical commitment to CSR helps to guard a company in a crisis toward accusations that CSR- initiatives made during in the crisis is only a consequence of the company’s current situation (Ashforth & Gibbs, 1990). A vested interest in CSR raises the chance of effectively using CSR- actions to regain legitimacy when going into a crisis (Vanhamme & Grobben, 2009).
The media tend to focus on crises, as they are newsworthy events (Heath, 1998). Short- term commitment to CSR, tend to act as a catalyst for more negative publicity. Companies with high legitimacy may utilise their historical track record and dismiss a crisis as a one of incident.
This is however an action that needs to be carefully tailored. The stakeholders often perceive too much defensive protesting from the company negatively. Excessive promotion about the company's CSR-actions opens up for attacks (Vanhamme & Grobben, 2009). To avoid the backlash that CSR communication becomes leverage for the media in a crisis, the company need to make sure that they can disclosure and live up to their communication, the rule of thumb is that actions speaks louder than words (Graftström, et al., 2008).
2.3.4 Crisis Communications Strategies
Crisis communication is the actions a company utilise to address a crisis and the goal of crisis communication is to minimise the damage of a crisis and to retain or build legitimacy (Hearit, 1994).
Coombs (1998) have integrated previous research and different crisis-response strategies
in a model, containing seven categories. The categories are arranged in a scale from defensive
response to accommodating response. The defensive responses seek to protect the organisation,
the accommodating responses on the other hand aim to address the victims of a crisis. The
categories are as follows:
1. Attack the accuser, aggressively denying claims and argues for persecution of the accuser.
2. Denial of claims, argue that there is no crisis or that the organisation isn’t involved.
3. Excuse, admits the existence of a crisis, but response minimise the organisation's responsibility for it.
4. Justification, admits a crisis but downplay it severity.
5. Integration, create a positive image of the organisation by reminding of past activities, associating the organisation with positive attribution, or both.
6. Corrective action, attempts to repair crisis damage and prevent a new crisis.
7. Full apology and mortification, take full responsibility for the crisis.
2.4 Summary of Theories
Theoretical background
CSR: Instrumental view (CSR as a profit booster)
VS. risk management view (how to protect future cash flows rather than increasing them).
(Wood, 1991) (Challener, 2009) (Tilt, 2010)
Legitimacy theory: The social contract between
organisations and society. The organisation's licence to maintain operations.
(Shocker & Sethi, 1974) (Hogner, 1982) (Lehman, 1983) (Lindblom, 1983) (Du & Viera, 2012)
Legitimacy gap: A mismatch between society’s
expectations and organisational behaviour. (Lövbrand, et al., 2009)
Ethics of CSR: utilitarianism vs. duty. The risk ofusing CSR as PR tool rather than focusing on actions. The importance of matching CSR activities with business. The diffusion of responsibility.
(Lantos, 2002) (Blackburn, 2003) (Arvidsson, 2010) (Batson, et al., 1997) (Batson & Thompson, 2001) (Batson, et al., 2002) (Batson, 2008) (Darley & Latane, 1968) (Arendt 1994) (Staub &
Mosotvicz, 1992)
Background to CSR communication toolsGlobal CSR standards: Description of the
reporting standard GRI, which was initiated by the United Nations.
(Ammer & Othman, 2009)
CSR and Communication:
stakeholder communication, minimise scepticism and create intrinsic goals from extrinsic motives.
(Du, et al., 2010) (Sen, et al., 2006)
Communication channels: Corporate reporting,
media, et cetera. Less control more credibility. (Du, et al., 2010) (Wiener, et al., 1990) (Dawkins, 2004) (Otman & Ameer, 2009)
Deceptions amongst stakeholder relationships:
Breaking the relationship governed by thrust by deception and lies.
(Keep & Schneider, 2010) (Grover & Hui, 1994, 1995) (Ekman & O’Sullivan, 1991)
Discourse Analysis Framework: Legitimacy crises and strategies
Organisational crisis: A breakdown in thestakeholders’ beliefs and values of the organisation.
(Mitroff & Pearson, 1993) (Marra, 1992) (Coombs, 1998)
Stakeholder response in time of crisis: The size
and public familiarity of the organisation affects the response, often negatively. The public often makes causal judgements of organisations in a crisis.
(Cowen, et al., 1987) (Hackston & Milne, 1996) Adams, et al., 1998) (Neu, et al., 1998) (Gray, et al., 2001) (Cromier & Magnan, 2003) (Carroll, 1991) (Vanhamme & Grobben, 2009) (Weiner, 1986) (Kim & Yang, 2009) (Cho & Hong, 2009)
Corporate strategies how to build/regainlegitimacy in time of crisis: Proactive vs. reactive
measures. Do not promise what you can’t deliver, actions speak louder than words.
(Coombs, 1995) (Varadjan & Menon, 1998) (Asforth & Gibbs, 1990) (Vanhamme & Grobben, 2009) (Heath, 1998) (Grafström, et al., 2008)
Crisis communication strategies: Response
strategies that ranges from defensive to accommodating response.
(Coombs, 1998)
3. Research Design
This research started with providing an overview over the case of NoW to persuade the line of
interest that is targeted in the outcome; the termination of NoW operations. To support our
hypothesis of the significance of engaging in stakeholder dialogues to control the legitimacy gap
in times of crises may or in this case determine a business’ operations. Scholars argue that CSR
activities are a vital component of businesses responsibility beyond profit maximisation and that
the legitimacy gap is the denominator for balancing between actions and expectations. The
closure of NoW and the parent company’s struggle to reclaim legitimacy throughout the global
scene, are variables that enhances previously mentioned theoretical framework in regards of
assumptions ignoring responsibility and the importance of upholding the social contract between
a firm and society.
Case study methodology connects to a bounded object or process specific to time and space (Rain & Becker, 1992), in the case of NoW from early stages of accusations to termination of paper. This specific case study is chosen to illustrate the complexity of one single case that includes broad and deep overview and aim to understand different angles. Robert Stake (1998) pointed out that case study is best described as interest in individual scenario and involves an intense analysis of an specific case or an event influence changing factors related to given context. Our chosen case is an intrinsic case study involving a research where the crisis of NoW is main target of interest in the exploration. Along NoW accusations, our field of research will look into various media channels to see the development and outcome to gain as much objective information as possible, using multiple data sources is commonly used to enhance credibility in case studies research (Baxter & Jack, 2008). The documentation of the case is to a large extent built upon articles and texts in newspapers, weekly journals and other popular media. We choose this focus as we deem that the media to a large extent yield the most power in terms of shaping the consensus that makes up what is seen as legitimate or not. Furthermore it’s mainly through these channels that other power brokers such as politicians, state representatives and victims from the public voice their opinion. That the media often operate and report in the grey zone of truth, by publishing gossip et cetera, is not problematic for our case depiction. We are interested in the depiction of truth the public are presented rather than what really happened or not. For the documentation of the case study we mainly use footnotes to refer to the sources, in order to not break the flow of the case presentation.
We furthermore conduct a discourse analysis of the statements of James and Rupert
Murdoch from the perspective of Coombs (1998) categorisation crisis responses strategies. Our
analysis of the NoW phone hacking case are influenced by critical discourse analysis
methodology, an analysis method described by Hodges, et al. (1972) as an analysis of all the
social practices, individuals and intuitions that make it possible or legitimate to understand a
phenomenon. To understand the actions, behaviour and result of the actions of the people in the
centre of the NoW scandal we believe that this methodological scope of research is helpful. The
actions, behaviour and consequences sprung from and are fostered in a social context, or more
exactly a number of societal contexts, which we aim to capture in our depiction of the case. The
difference between what is said and what is done is central to critical discourse analysis. In line
with Fairclough (2000) study, of the difference between New Labour’s campaign promises and what they actually did, we analyse the difference between the rhetorics and actions of NoW, News International and News Corporation.
Discursive analysis according to Boréus and Bergström (2005) aim to describe the relations between different statements and their depictions of truth. The NoW phone hacking case involves actors from a large number of spheres: government officials, politicians, NGOs, the press, the public, the Murdoch Family. All of these actors, perhaps best comprehend by thinking in terms of Freeman’s (1984) concept of stakeholders, have their own view of the truth.
To connect this to the main theoretical topic of this paper, an organisation attain legitimacy when operating according to the bounds of norms of society which could be understood as some form of social consensus of the view of all the involved stakeholders.
Discursive analysis can furthermore according to Boréus and Bergström (2005) be described as a system of rules that credit some views and discredit other and that identifies which actors that can be attributed authority to their statements. The matter of authority helps us to identify which stakeholders that really has the ability to affect the consensus of what makes up legitimacy in the NoW case. Some actors in the case hold authority strictly by virtue of the office, title or role they have been granted by society, our depiction of the NoW scandal for example include police officers, politicians, members of the judicial branch and even a heir apparent to the crown of the U.K. The NoW phone hacking case is at the same time a scandal committed by members of the media that is portrayed and driven by media, there is no question that the media possess considerable authority in the NoW case. The sources for the case depiction is to a large extent articles from other newspapers and media, which is natural as the media to a large extent drive and tells the story of a legitimacy crisis. The media as the fourth pillar of society have historically carried a lot of authority. With authority comes responsibility which can be connect to legitimacy theory and the idea of a social contract between an organisation and the rest of society, as the organisation is granted certain rights by society it has to live up to the norms of the society to uphold legitimacy. The NoW case show how of competition and business interest corrupted the practices of members of the media.
Wodak (1996) describes critical discourse analysis as an instrument whose purpose is to
expose veiled power structures. NoW’s high circulation in terms of readership and access to cash
gave the publication power to influence politics, both in terms of policy and maybe more in terms of pushing individual politician. Members of Parliament and Prime Ministers have constantly been taking turns but Rupert Murdoch have been standing in the centre of British public life for over 50 years. It may argued that the power of NoW at certain times has been so great that it influenced the norms and standard of society, the phenomena this paper aims to study, through it’s high readership. This problem is however we argue always present in social science. We furthermore note that it can be seen as problematic to apply ethical norms and discuss legitimacy when analysing an organisation that trade in rumors, gossip and nasty scandals. Boréus and Bergström (2005) state that the discursive process has a dynamic element to it, as the relations’ changes between actors in the phenomena. Although NoW in terms of the final product they supplied was rewarded by the marketplace for 168 years it’s clear that the stakeholder perception altered when the working methods of the publication appeared before the public eye.
3.1 Support for Data Collection and Focus of Case Depiction, using Google Trends
Figure 1. Google Trends Graph
The graph shows the frequency of search terms in Google’s search engine. The horizontal axis of
the graph represents time and the vertical axis illustrate how often a term is searched for relative
to the total number of searches globally. In other words the graph show the publics interest in the
NoW scandal, the spikes representing the significant events. The graph as such quantifies the
crisis and captures it’s highlights and moments of escalation. An organisation's’ biography can
according to Kimberly and Rottman (1987) be conceptualised as a succession of decision and their consequences, with some having a major long term influence on the direction taken by the organisation and its effectiveness. This type of biographical case study according to Kimberly and Rottman (1987) provides a more dynamic approach for explaining organizational outcomes in terms of linking organisational decision making to the environment and social structures, which makes for a suitable fit to the legitimacy framework of this thesis. In our case depiction we have mirrored these significant events, illustrated by the spikes in the diagram, by collecting articles that describes them chronologically, as well as presenting the background and consequences before and after these spikes. The Google Analytics tool even provides directs links to popular and significant articles and websites, that show when you move the cursor over different parts of the line of the which we have used as a starting points for the documentation.
The spikes for NoW search term follow the pattern of controversy depicted in our case presentation, starting with the Royal phone hacking scandal in 2006. As the graph show the Milly Dowler and 7/7 victim’s scandal in June 2011 escalated the frequency index for Rupert Murdoch and James Murdoch, at which point our case depiction slightly shift focus to the connections and legitimacy implications for the Murdoch family and it’s holdings companies regarding the NoW scandal.
Figure 2. Google Analytics Source Map
The world map of Figure 2 breaks down the results showed in the graph of Figure 1 in terms of
countries. As the diagram shows the three search terms was most frequently searched for in the
U.K., The U.S. and Australia. These are also the main markets of News Corporations, which is to say the societies most important for News Corporation in terms of legitimacy and stakeholder management. Our case depiction is focused on the events in the U.K., being the society NoW operated in, however it also describes the consequences News Corporation faced in Australia and the U.S.
4. Case Presentation of The News of the World
4.1 Background of News Corporation, the Murdoch Family Dynasty
To understand the spread of the matter of News of world phone hacking scandal and its consequences, its vital to comprehend the underlying importance of various stakeholder and broad network of News of World parenting company, News Corp. Arsenault and Castells (2008) illustrates the power relations amongst News Corporation networks as solid and states that the media giant is a key social and global actor because “News Corp help to shape the social world by exerting control over issue framing and information gatekeeping” (Arsenault & Castells, 2008, pg.488). News Corp does not solely operate as business and media centre but control a large part of numerous communication platforms where power is distributed.
News Corps' 2005 Annual report stated “The eyes of the world is upon us”'(Ibid, pg. 494) and their global operations reaches out to approximately 75 percent of the worlds population, serving five continents and being the largest in terms of funds and number of employees, in which Rupert Murdoch and his family owns 31 percent of total voting shares (Ibid, pg. 493).
News Corp owns 40 percent of the U.S. market, meaning that 1/5 households watch a show
produced or distributed by News Corp (News Corp, 2005). Another major News Corp subsidiary
is HarperCollins, one of world's largest publishing companies with 15 offices worldwide. In
2007, News Corp owned approximately 1445 subsidiaries in 50 countries (News Corporation,
2007) and a large scale of these subsidiaries are registered in regions with no or low income and
corporate tax such as Cayman Islands. A research showed that although News Corp earns 75
percent of the income via the U.S. market, still News Corp has managed to avoid paying annual
US federal taxes twice (Becker, 2007), which indicates how broad and skilful News Corp is in
terms of scale and managing operations. The United States, United Kingdom and Australia are portrayed as News Corp largest markets and Murdoch and News Corp has on several occasions been labelled as having a political agenda combined with News Corp financial strength. For instance, supporting the Bush administration's invasion of Iraq, in relation to Rupert Murdoch said “ $20 a barrel for oil is bigger than any tax cut in any country” (Bullentin, 2003). During the initial stages of the Iraq Fox News audience share grew by 288 percent during the beginning stages of the Iraq war (Arsenault & Castells, 2008).
The Nation defined News Corp strategies and acquisitions based one the 'four S' model of journalism: 'scare headlines, sex, scandal and sensation'. Centring around the 'four S' is to gain advertisers with access to specific markets and has been highly beneficial for News Corp, and resulting in The Sun being the largest selling English newspaper in the world (Page, 2003).
4.2 Chequebook Journalism - Background to the NoW Scandals
Private investigator Jonathan Rees began selling illegal procured private information to journalists in the early 1990s. According to his former associates, Mr Rees started this business after he was initiated into the Freemasons and came in contact with masonic police officers.
During the years, Mr Rees built up a network of informants including police officers, customs officers, VAT-inspectors and bank employees. He also used so-called blaggers, that by deceiving authorities and companies on the telephone, obtained confidential information.
1On suspicion that Mr Rees was bribing police officers and further information linking him to the 1987 murder of his former colleague, in 1999 the Metropolitan Police initiated Operation Nigeria. Mr Rees’ office and telephones was secretly tapped for 6 months. The case was closed after the police picked up conversations of Mr Rees conspiring to plant cocaine on the wife of one of his clients in order to settle a child custody case, after which Mr Rees was arrested and sentenced. During Operation Nigeria (1999) the police furthermore concluded that Mr Rees was in frequent contact with Alex Murnachek of NoW and that Mr Rees was routinely selling him private information. Links was furthermore drawn between Mr Rees and employees at The Daily Mirror and Sunday Mirror. The Police investigation did not however provide
1 Davies (2011).
enough information to arrest journalists, nor became the dealings between journalists and Mr Rees public. Mr Rees served 5 years in prison and thereafter resumed his work for NoW, its estimated that he received more than GBP 150,000 a year from the newspaper.
2In 2002 The U.K. Information Commissioner Office raided the offices of several newspapers and private investigators. By request of British Parliament under the Freedom of Information Act the findings of the raids was later in 2006 put forward in a report called “What Price Privacy Now”. The report concluded that the practice of publishing illegal confidential information was widespread in the British newspaper industry already by 2002. The report identified 30 major publications and hundred of journalists that in some way paid or involved in gathering illegal private information.
4.3 Royal and Celebrity Phone Hacking Scandal
On the 13th of November 2005, NoW royal editor Clive Goodman published an article that claimed that the British heir apparent Prince William had borrowed photo editing equipment from ITV reporter Tom Brady. This leak confused Prince William as only he and Mr Brady knew about the arrangement, the Prince had recently been the target of an improbable leak regarding an appointment with a knee surgeon
3. After internal investigation by Prince William’s security officer, it was concluded that it was likely that the Prince’s voicemail had been hacked
4. The Metropolitan Police started an investigation and later searched the London office of NoW.
In August 2006, NoW editor Clive Goodman and private investigator Glenn Mulcaire was arrested and later charged of hacking the voicemail of Prince William’s aides
5. NoW had paid Mr Mulcaire, who conducted the phone hacking, GBP 104,988 plus an additional GBP 12,300 paid in cash by Mr Goodman who had hidden the transaction in his expense account by using the code name “Alexander”
6. In the court hearings it was revealed that Mr Mulcaire had hacked
2 MacLagan (2002).
3 Daily Mail Online (2006).
4 Day (2006).
5 BBC News Online (2006).
6 Tryhorn (2007).
several other high profile celebrities
7. Both pleaded guilty to the charges, Mr Goodman was sentenced to four months in jail and Mr Mulcaire to 6 months jail. Mr Goodman furthermore resigned his post as editor of NoW
8.
4.4 Phone Hacking of Members of the Public
After the revelation of new significant information regarding NoW’s involvement in phone hacking, The Metropolitan Police announced On 26 January 2011 that it would renew the investigations in collaboration with the Crown Prosecution Office
9. On the 5th of April in 2011 NoW news editor Ian Edmondson and chief reporter Neville Thurlbeck was arrested on suspicion of illegal phone hacking
10.
On the 8th of April in 2011 News International, the English parent company of NoW, announced that it offered an unreserved apology to eight of the claimants, which all were celebrities or public figures, with 16 cases still pending
11. Members of Parliament (MP):s from the Labour Party spoke about the settlement calling it a cynical attempt to protect the editors of the paper, they called for a full parliamentary investigation
12. The Observer published an article claiming that Rupert Murdochs had approached the Prime Minister Gordon Brown, which however was denied by representatives of both parties
13.
On the 4th of July 2011, the on going Police investigation found evidence that NoW had hacked the cell phones of the relatives of murdered schoolgirl Milly Dowler in 2002. The controversy escalated when it became clear that they had hacked Ms Dowler’s cell phone when she was still alive and that several messages had been deleted, which misled the Police to believe that she was still alive and gave false hope to the family and potentially destroyed valuable evidence
14.
7 BBC News Online (2007).
8 Ibid.
9 Media Spy (2011:A).
10 Lyall (2011).
11 Ibid.
12 Kennedy (2011).
13 Media Spy (2011:B).
14 Fiveash (2011).
