The chairman and the top executive are gone, having resigned to deflect criticism from the organization and take responsibility for its mistakes. A high-profile staffer has left, too; whether he was forced out or volunteered to go remains unclear. A 740-page report by a senior judge has detailed a raft of errors. And a sterling reputation may have been tarnished by accusations of shoddy work and a lack of professionalism.


Enron? Arthur Andersen? Tyco? ImClone Systems? 


No, it’s the British Broadcasting Corporation – known affectionately as the “Beeb” to millions of Britons. And the publicly chartered company, which broadcasts via television and radio and is funded with a tax on televisions, is embroiled in the biggest management crisis in its 80-year history.


Experts in business and journalism are split over whether the controversy will do long-term harm to the BBC’s reputation for credible, balanced news reporting. But they agree that the broadcaster, like companies lately facing ethical crises in the United States , could have limited the damage by better handling the early stages. Instead, the BBC compounded its woes by publicly rushing to defend a report by one of its staffers before adequately assessing that report’s accuracy. When it was proved wrong, the organization was left, at best, embarrassed and demoralized.


“What’s happened is unprecedented,” says Patrick Barwise, professor of management and marketing at the London Business School . “This is the first time the BBC has lost its chairman and director general. The BBC is a very strong and trusted brand, but it screwed up on some aspects of this story, and that hasn’t been good for its credibility.” 


In May, a BBC reporter named Andrew Gilligan said on an early morning radio broadcast that the government of Prime Minister Tony Blair “probably knew” that its assertions, before the Iraq War, that Saddam Hussein had weapons of mass destruction were incorrect. Gilligan also said that the Blair government had “sexed up” its allegations in a publicly released dossier that it used to bulwark its case for going to war. 


The Blair government reacted with fury, repeatedly lambasting the BBC and eventually calling for an independent investigation by senior judge Lord Hutton. The source of Gilligan’s story was later revealed to be David Kelly, an arms expert for the British government. Soon after the revelation, Kelly committed suicide.


Hutton published his report last month in which he accused the BBC of sloppy reporting and weak editorial oversight. He said the broadcaster redoubled its errors by scurrying to defend Gilligan without verifying the facts of the story. He also exonerated the Blair government and the British intelligence service, saying, in essence, they did the best they could with the information they had and didn’t intentionally mislead the public.   


Within days, the chairman of the BBC’s board of governors, Gavyn Davies, had resigned, as had its director general, Greg Dyke. The BBC also apologized publicly – twice. It had previously announced that it was changing some of its editorial policies to ensure that an incident such as this one wouldn’t recur. 


Since publication of Hutton’s report, British polls have shown that a larger percentage of the public still trusts the BBC more than the Blair government. And Blair opponents have continued to call for his resignation because of his support for the Iraq War, which is unpopular in Britain .


In a written commentary released by the London School of Economics, Patrick Dunleavy, a political-science professor, called Hutton’s report “a complete whitewash. The basic facts underlying the whole row between the government and the BBC have essentially confirmed the erroneous nature of the government’s [weapons of mass destruction] intelligence and the extraordinary inaccuracy of the government’s published dossier. Hutton treats this as incidental, something which for many people will not seem an entirely rational thing to do.”


Regardless, the BBC could have handled its part of the crisis better, says Martin Conyon, a Wharton management professor and a U.K. native who earned his doctorate at the University of Warwick . “If politicians start attacking you, the natural reaction is to come out fighting and to support your people at all costs. But that also strikes me as an inappropriate way to handle this” from a management point of view.


“You want an environment in which employees feel supported so they can do their tasks,” Conyon adds. “But when there was an accusation that Gilligan was involved in slipshod journalism, the BBC’s response should have been, ‘Until we understand the full facts, we are supporting him. But if he has breached our codes, appropriate disciplinary procedures will be brought.’” 


In fact, Gilligan may have violated BBC guidelines, according to Dick Wald, a journalism professor at Columbia University and a former news executive with NBC and ABC. “The BBC had a rule that said you shouldn’t ad lib in important stories. When Gilligan said, ‘Probably knew,’ it was an ad lib, and it was wrong. The chances of getting it wrong would have been enormously diminished if he hadn’t been winging it a little bit on the air.” Many broadcast companies have rules that require editors and producers to approve scripts for sensitive stories and reporters to stick to those scripts, Wald adds.


Like Conyon, Wald says the BBC should have taken time to figure out who was right before responding. “The first rule in any crisis is to understand what happened.” If you’re a media outlet and you learn that you’re wrong, “the second thing you do is make a correction and try to make the matter disappear as quickly as possible. Then you try to ensure it never happens again. Of course, human beings always invent a different way of screwing up.”


Failing to abide by their own ethical guidelines often gets organizations in trouble, says Michael Useem, a Wharton management professor and director of the school’s Center for Leadership and Change Management. People often know what they’re supposed to do; they just fail to do it.


Take Enron, perhaps the most prominent recent example of corporate chicanery and management shortcomings in the United States . Useem says that the Houston energy-trading company had to suspend its code of ethics when it approved the first off-the-books partnership proposed by then-CFO Andrew Fastow. The problem was that employees who reported to Fastow sat on both sides of the table when the partnerships negotiated with the parent company. The board therefore required that a deal memorandum signed by two top executives be prepared before any transaction between one of the partnerships and Enron. In fact, what happened, says Useem, “was that, in many cases, the deal sheet was never signed or even filled out until after the transaction was over. It’s like the BBC: It sounds like they had good procedures, but they weren’t carried out.”


Useem, too, believes that the BBC responded too slowly to the initial complaints about Gilligan’s report. In doing so, it missed an opportunity to enhance its credibility and stature, he argues. Organizations, like people, can distinguish themselves by their conduct in a crisis.


Perhaps the most famous example in American business is Johnson & Johnson’s handling of the famous Tylenol scare in 1982. At the time, seven people in the Chicago area died after swallowing Extra Strength Tylenol capsules that turned out to be laced with cyanide. It was unclear whether the capsules had been tampered with in the Johnson & Johnson’s factories or in the stores where they were bought.  


That didn’t matter to Johnson & Johnson. James Burke, who was then the company’s chief executive, “almost instantly intervened and ordered a complete recall of all Tylenol,” Useem notes. “Thousands of employees got involved, too. They were walking into stores on their own and taking the stuff off the shelves. There was no defensiveness on the part of Johnson & Johnson. An investigation later revealed that the tampering was done [after the capsules were sent to] a Chicago store. That has really become a gold standard for handling a corporate crisis.”


The BBC’s handling of its troubles hasn’t been as graceful, but its top executives did at least one thing right by resigning, Useem says. “They bore ultimate responsibility for the reporter’s mishandling of the report and the failure to investigate what happened.” Plus, top-management resignations send a strong message that lapses of a similar nature won’t be tolerated in the future. 


Not everyone agrees that such dramatic action was required. If anything, the BBC may have overreacted to the Hutton report, making its mistakes seem graver than they were, suggests Peter Cappelli, a Wharton management professor who earned his doctorate at Oxford University . “There are no allegations of the BBC reporter making things up,” as there were, for example, in a recent case involving a New York Times reporter, points out Cappelli, who is director of the school’s Center for Human Resources. “The reporter made a mistake. The Blair government alleged malicious intent, but that proved not to be the case.”


Consequently there is “a problem of the BBC protesting too much and apologizing too much,” Cappelli adds. “If they just said, ‘We stand by the integrity of our journalists,’ that would be better for them than [taking actions] that suggest this is worse than it is.”


Regardless of how one analyzes the situation, Barwise is confident about the BBC’s ability to endure the crisis with its credibility intact. “The BBC is a brand that’s chosen by the British people 60 million times a day,” he says. “The public doesn’t seem to think Hutton’s criticisms of the Beeb were wrong. But they do seem to think his lack of criticisms of the Blair government was.”