News Corp. and Enron: scandals with much in common

By: Philip H. Hilder

Corporate culture takes root in the statements, behavior and tolerances of those at the top. Honesty and honor can flourish in a business when practiced by its leaders. And deceit and concealment can become the mores of a company when employees are led in that direction.

When captains of industry build a corruption-endorsing culture, they seem to also later disavow responsibility and knowledge. So it goes right now for Rupert Murdoch in the News Corp. phone hacking scandal and so it went a decade ago for the late Ken Lay in the Enron financial scandal.

From the vantage point of people in the corporate ranks who saw trouble brewing, the current News Corp. disgrace has a lot in common with Enron’s 2001 fall. As the current lawyer for Robert Emmel, a News America (a News Corp. subsidiary) whistle-blower, and the former lawyer for Sherron Watkins, an Enron vice president who famously warned of impending doom at the company, I see unpleasant similarities too.

Emmel, who believed he had evidence of anti-competitive wrongdoing at News America, provided information to federal authorities. After Emmel testified in a suit brought by rival company Floorgraphics, he was sued by his ex-employer over revealing what he saw as corruption in the company. Rather than using Emmel’s knowledge to help clean up the company, which is being investigated for having hacked into Floorgraphics’ computer, News America attempted to destroy Emmel by engaging in character assassination and ultimately helped drive him to bankruptcy.

Similarly, years ago at Enron, Watkins found that after she warned of bad deals that could implode the company, those above her considered retaliating by having her fired and attempting to discredit her.

Murdoch echoed the late Ken Lay when he recently testified before Parliament. Though Murdoch said it was the “most humble day” of his life, he denied knowledge of the phone hacking scandal, said the responsibility lay elsewhere, and claimed ignorance of a prior police payoff scandal. So far 16 have been criminally charged in the phone hacking scandal.

Lay refused to testify before Congress by taking the Fifth Amendment. But after he was indicted, he held a press conference, participated in a series of media interviews, and eventually testified in his own trial that he knew of no wrongdoing, Enron’s problems were all the fault of others, and he himself was forced to sell millions of dollars’ worth of his own stock while he was encouraging others to buy. His lawyers worked hard to keep the jury from hearing how Lay had helped hide a previous scandal with an Enron trader in Valhalla, N.Y., years before.

In both cases, corruption raised its head years before the main scandal and the bosses let it slide. In both cases, the bosses sought to punish those who stepped forward, though News Corp. and News America have been far more successful than Enron ever was.

If Emmel had come forward to U.S. authorities in 2011 instead of 2007, he might have had an easier time revealing the company’s culture of corruption.

Though business interests are trying to fight new whistle-blower bounties in the courts, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules promulgated from it could put money into the hands of whistle-blowers sooner and in meaningful amounts.

We need these rules in this country and elsewhere. There are clearly corrupt corporate cultures that society has an interest in exorcising. We must value the honest employee or executive who is willing to stand up and say “No.” We need to encourage and protect those who internally or externally make the effort to correct the wrongs that those who get rich at the top refuse to even acknowledge.

Hilder is a former federal prosecutor and Houston-based white-collar crime lawyer who has represented whistle-blowers in Enron, News America, the Abramoff lobbying scandal and other matters.