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News of the World Fiasco Shows Importance of Governance

A lack of oversight may let illegal activities become a systemic problem.

When a corporation's executives fly too close to the sun and lose sight of what's going on at the ground level of their organizations, they risk having everything melt and fall apart.

For multinational companies, CFOs and other executives must ensure that all employees are complying with every host countries' regulations, CFO magazine reports. Failing to do so can lead to major scandals, such as the one that recently occurred within News Corporation.

Richard Crump writes for Financial Director that the phone hacking scandal at the News of the World "revealed a total collapse in corporate governance at News Corporation." The investigative hearings showed that executives Rupert and James Murdoch did not have much knowledge of how things were being run at the newspaper that comprised just 1 percent of their total global empire, according to the news source.

But the excuse that a top-level executive is too busy to know about every detail may not hold up, because "implementation of good corporate governance procedures and a strong ethical culture is an area in which the board, chief executive and finance director have to take a leading role," Crump argues.

Risk management and setting up a control system are two of the main responsibilities of the board, whether it is for a small company or a major global organization.