Murdoch Beats Banks in Ethics Department

(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.

There was a fair-sized ruckus when Goldman Sachs ( GS) was found to have collaborated with John Paulson, the hedge fund manager, to design an asset-backed security that Paulson intended to short while it was being touted to Goldman clients. The "consequence" for Goldman was a $550 million penalty in settlement of Securities and Exchange Commission charges, which wasn't sizable enough to cause any actual harm to the company. More recently, JPMorgan Chase ( JPM) was found to have done precisely the same thing, and paid a far smaller SEC penalty, $153.6 million. But where was the moral outrage in either instance? Where was the imposition of actual pain, actual consequences? There wasn't any.

Ditto when Morgan Stanley ( MS) recently settled a municipal bond bid-rigging case by paying a $211 million penalty. When corporations open up their checkbooks, it seems, journalists' eyes glaze over. Morgan pointed out in a statement that it "does not tolerate anticompetitive activity" -- except when it's caught, it might have added.

Nobody in the press pointed out that Goldman and JPMorgan committed serious ethical violations. What they did was simply wrong. The word was almost never mentioned in the context of their behavior, which was usually framed in terms of strict legality and the pragmatic impact on the firms.

Hewlett-Packard ( HPQ) similarly escaped much in the way of consequences for its own spying scandal in which HP's chairperson, Patricia Dunn, and its general counsel conducted a Nixonian hunt for people leaking information to journalists. The company recruited private detectives and engaged in pretexting, a type of spying that uses lies and deception. Criminal charges against Dunn were dismissed, and the most that ever happened was that a private detective pleaded guilty to identity theft charges. The company itself skidded off into the sunset, the stench of its unethical conduct having no lasting impact.

An even grimier pretexting scandal involving Overstock.com ( OSTK) -- I know a lot about this because I was one of the targets -- also went nowhere. An employee of Overstock CEO Patrick Byrne, who has since been put back on the company payroll, used pretexting to invade the privacy of journalists on Facebook, as part of a years-long campaign by the company to intimidate its critics and bully journalists. Some negative publicity eked out, but no lasting consequences. Indeed, journalists have gotten so used to unethical conduct from Overstock and Byrne that it just isn't news anymore. So when a blogger revealed on Monday that Overstock disclosed in a court case that it had posted deceptive pricing information on its Web site, it was ignored by the press.

But, at least for the time being, the News of the World revelations have prompted an enormous journalistic feeding frenzy. That's all for the best. But we in the media have to ask ourselves: Why does it take a Rupert Murdoch to get our juices flowing? Why do we deal with more routine cases of unethical corporate conduct as if it was just so much elevator music?

Gary Weiss has covered Wall Street wrongdoing for almost a quarter century. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, �The Mob on Wall Street,� which exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond-trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage. He was a contributing editor at Conde Nast Porfolio, writing about the people most intimately involved in the financial crisis, from Timothy Geithner to Bernard Madoff. His book "Born to Steal" (Warner Books: 2003), described the Mafia's takeover of brokerage houses in the 1990s. "Wall Street Versus America" (Portfolio: 2006) was an account of investor rip-offs. He blogs at garyweiss.blogspot.com.

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