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Murdoch Beats Banks in Ethics Department

Stocks in this article: NWS GS MS JPM OSTK HPQ CQB

(Adds that News Corp. has pulled its BSkyB bid.)

NEW YORK ( TheStreet) -- As I review the constant drumbeat of revelations vomiting forth from the News of the World spying scandals, I'm seeing a silver lining in this immense journalistic pile-on. I don't see this as a Rupert Murdoch issue or a journalism issue. What I see is something that's rarer than Halley's Comet: At last, moral yardsticks are being applied to corporate behavior! Journalists are actually getting mad at a company for doing something rotten.

The outrage is so immense that Murdoch's News Corp. (NWS) may ultimately lose its bid to acquire British Sky Broadcasting Group (BSY). Today, the company said it would table its offer.

Think a bit about what we are seeing: The media is actually making moral judgments. Spying on people is wrong. Bribing people is wrong. Hacking into telephone accounts is wrong. And what's more, actual consequences are a serious possibility. Murdoch is seemingly losing out on the BSkyB deal because of ethical lapses.

Remember that there is nothing in our legal system that requires companies to be ethical. If they are unethical, they can escape scot-free unless there is some collateral issue, such as fraud. From a securities law perspective, it's fine to be a skunk if you disclose that you are a skunk. Sarbanes-Oxley requires that corporations disclose that they have codes of ethics, and to disclose board approval of waivers therefrom. But SarbOx has been only rarely enforced by the Securities and Exchange Commission, and not at all, as far as I know, where it touches on corporate ethics. Even if it did, the impact would be marginal because SarbOx treats lack of ethics not as something intrinsically bad, but as a form improperly filled out.

The sad fact is that nobody much cares when corporations act unethically. There's a host of examples of this. On the other hand, journalist malfeasance tends to get a lot of attention, because journalists love feeding on their own.

A good example dates back to the late 1990s when a Cincinnati Enquirer writer named Michael Gallagher was found to have repeatedly broken into the voicemail system of Chiquita Brands (CQB). That example of journalistic wrongdoing has been mentioned in connection with the News of the World scandal. Gallagher was fired and then prosecuted for his misdeeds. But what about Chiquita paying $25 million in 2007 to resolve Justice Department charges that it paid off members of a terrorist group in Colombia? That flitted by practically unnoticed, because, as was demonstrated by the Gallagher case and now the Murdoch scandal, journalists view themselves as clean and pure but view corporations as intrinsically tainted. We get cynical about ordinary corporate abuses, rather than outraged.

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