“For a CEO to say, ‘I didn’t know’, I think is quite unacceptable. I think either the person intentionally didn’t know or, alternatively, wasn’t doing the job.” (Professor Thomas R. Piper, Harvard Business School, 2002, re: Enron.)

How much responsibility do CEOs have when scandals engulf their companies? How accountable are they for systemic problems, rather than the actions of a single, unethical employee? Where does the buck stop for a culture that not merely permits but facilitates unethical and illegal behaviour?

The term “willful blindness” was bandied about frequently around Enron, the giant energy company that became a byword for corporate malfeasance and greed after its collapse in 2001. It refers to executives choosing not to be aware of systemic problems. More specifically, it’s a term used in law to refer to an individual seeking to avoid civil or criminal liability for a wrongful act by intentionally putting themselves in a position where they will be unaware of facts which would render them liable.

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Someone tell James Murdoch. When asked about the concept by MP Adrian Sanders he denied any knowledge of the term.

Rupert interjected — as was his wont over his three hours in front of the culture select committee — to say that he was familiar with the term, but “we were not ever guilty of that”.

Whoever words James up on willful blindness should also whisper in his father’s ear about executive accountability, given this exchange:

Jim Sheridan: Mr Murdoch, do you accept that you are ultimately responsible for this whole fiasco?

Rupert Murdoch: No.

JS: Who is responsible?

RM: The people that I trusted to run it and the people they trusted. I worked with Mr Hinton for 52 years and I would trust him with my life.

The Murdochs’ stance is based on the idea of plausible deniability, that each layer within News International and News Corporation operated without consulting higher levels even on important decisions, allowing Rebekah Brooks, and James Murdoch, and Rupert Murdoch, all to claim they knew nothing about phone hacking and the ensuing cover-up.

The problem with plausible deniability is that it leads to moral hazard. It frees executives to permit riskier behaviour without any of the consequences that would come from being held accountable for the actions of subordinates.

Indeed, moral hazard is a consistent theme in the phone-hacking scandal, from the journalists and editors who outsourced their information-gathering to external private investigators, thereby relinquishing any accountability for how information was obtained by bottom-feeders, to the executives who claim to have delegated financial responsibility down the lines and remained oblivious to how it was used, to Rupert Murdoch, who claims to have remained in splendid ignorance of the whole affair even as it wreaked havoc on his companies’ reputations.

Indeed, it extends even to the News Corporation board, which has in effect outsourced all control to the Murdoch family and an aging patriarch obsessed with continuing a dynasty.

The Murdochs and the directors of News have now discovered that moral hazard is not merely a theory conjured up by economists, but a real-world phenomenon that has been at work within their company for years. Their willful blindness hasn’t protected them from the consequences of a corporate culture that encouraged lawbreaking.

Either they intentionally didn’t know, or they weren’t doing their jobs. Neither is acceptable.

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Peter Fray
Peter Fray
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