Murdoch's World

by David Folkenflik

  The liberals were joined by congressman Peter King, chairman of the House Homeland Security Committee, a center-right Republican who generally made common cause with the New York Post and Fox News. King wrote to FBI director Robert Mueller: “It is revolting to imagine that members of the media would seek to compromise the integrity of a public official for financial gain in the pursuit of yellow journalism.” More than 150 of his constituents had died in the 9/11 attacks.

  The FBI should pursue any such offenses aggressively and make sure they were prosecuted to the fullest extent of the law, King wrote: “The 9/11 families have suffered egregiously, but unfortunately they remain vulnerable against such unjustifiable parasitic strains.”

  Lawyers for News Corp in New York spotted dangers on two fronts. Any prosecution could give grist to those who wanted to challenge the ongoing waivers that the Federal Communications Commission had granted News Corp, including those regulations about owning too many stations in the same town. They barred networks from owning a stake in the production companies that created the television shows on the air and banned “cross-ownership” of newspapers and major TV stations in a single metro area.

  At various points, Murdoch circumvented, challenged, and even arguably violated these rules. When Murdoch created a fourth network from the core of Metromedia’s television stations, he had to become a naturalized US citizen. The new Fox network did not air a full slate of shows, a technicality that enabled him for a time to sidestep the financial syndication regulations (preventing a network’s ownership of TV production companies that create the shows it broadcasts). Later, News Corp won a waiver from the FCC to produce shows it had developed. Murdoch sold the Chicago Sun-Times in 1986, after owning it just two years, to acquire a station in that city; he later sold the Boston Herald after Senator Ted Kennedy inserted language into a spending bill banning the ownership of a TV station and a newspaper in the same city. (The Herald retaliated by publishing every unflattering shot of Kennedy it could find of the senator’s shirttails askew, his jowls flapping.) In 2001 the FCC gave Murdoch yet another waiver when he acquired ten television stations held by Chris-Craft, including WWOR, which served New York, despite already owning WNYW and the New York Post there. He held on to WWOR after the waiver lapsed.

  Those rules, in Murdoch’s estimation, stood for the kind of government interference that had complicated his company’s growth in Australia, primarily for the benefit of the public broadcasters and the establishment papers that competed with his properties. Lobbyists helped the company skirt such regulations, which the company saw as archaic given the proliferation of digital media, as well as cumbersome.

  During the scandalous summer of 2011, regulators might well become less pliant. Under federal law, the possibility of prosecution loomed as well. The 1977 Federal Corrupt Practices Act banned US companies from bribing government officials abroad. Such payments were felonies, though hard to prove. But illegal payments to police officers fell squarely within that definition.

  A second provision of the law did not require so complicated a burden of proof. A company whose shares were publicly traded in the US had to register bribes to public officials in publicly filed documents. A failure to do so represented a violation of civil law. In 2008, the German conglomerate Siemens reached a settlement with the federal government for $800 million to resolve charges that it had paid bribes and kickbacks abroad. (Siemens did not admit having paid bribes.)

  In mid-July 2011, News Corp stock dropped more than 11 percent in a week, as major investors proved jittery not just over the fate of the BSkyB acquisition but also the costs of legal implications in the UK. The corporation lifted its expansion of an already planned stock buy-back program to $5 billion from $1.8 billion, a quick boost for the value of shares.

  SUCH WERE the pressures that coalesced around News Corp by mid-July. Questions were becoming increasingly urgent for Murdoch’s closest executives in the US and the UK, Les Hinton atop Dow Jones and the Wall Street Journal, and Rebekah Brooks was in the thick of it. Hinton, at worst, was accused of misleading Parliament in assuring lawmakers that such wrongdoing was limited. Brooks was in the thick of it. (The settlements by News International went a long way toward convincing the public of its guilt.)

  MPs who had earlier concluded they had been deceived were angered again. On Thursday, July 14, John Whittingdale, the Conservative chairman of the investigating committee before which Brooks and Hinton had previously appeared, told reporters that Brooks had agreed to testify again. But Murdoch father and son had told the committee they were too busy, Whittingdale said, though James offered another day in August.

  “It is James Murdoch who has said publicly that executives from the News of the World misled [P]arliament in the evidence that they gave to the committee in our previous inquiry,” Whittingdale said. “Therefore we are extremely anxious to ask him about that, and we did not feel it was justified to delay until August.”

  The Parliament’s deputy sergeant at arms delivered summonses to the offices of the two Murdochs and Rebekah Brooks at Wapping. It was the first time Parliament had ordered a summons to compel testimony in almost two decades.

  By the next day, News Corp stock had fallen an additional 5 percent. Sky’s market cap had dropped about 16 percent in just eleven days. Within hours of each other on Friday, July 15, Brooks and Hinton resigned. “I have believed that the right and responsible action has been to lead us through the heat of the crisis,” Brooks wrote to News International employees. “However my desire to remain on the bridge has made me a focal point of the debate. This is now detracting attention from all our honest endeavours to fix the problems of the past.”

  Hinton, too, protested his innocence and ignorance once more. “I believed that the rotten element at the News of the World had been eliminated; that important lessons had been learned; and that journalistic integrity was restored,” Hinton told his staff. He testified in good faith, if wrongly, but his ignorance was irrelevant: “It is proper for me to resign.”

  Hinton and Rupert Murdoch exchanged statements of warm appreciation. But Hinton was stunned. “Resignation” was a kind gloss to put on his firing. “All the executives used to have a joke within News Corp: Rupert will be loyal to you right up until the very day when he’s not,” a former senior official at News Corp told me. Over time Hinton and others understood not to take their ousters personally. You signed up for it.

  Brooks’s departure was accompanied by a new mechanism for overseeing the internal corporate inquiry. News Corp created a new independent management and standards committee to investigate possible criminal activity and present it to the authorities. The two former assistant US attorneys general already linked to the company—Joel Klein and Viet Dinh—would oversee the review.

  But Murdoch also revived a bit of swagger. “The Company has made mistakes,” he said. “It is not only receiving appropriate scrutiny but is also responding to unfair attacks by setting the record straight.” The Murdochs gave warning: as they prepared to step into the halls of Parliament, they would once more exercise what they felt was their right to determine what constituted fair criticism.

  16

  “MOST HUMBLE DAY”

  THAT SWAGGER DIDN’T LAST FOR long.

  Police arrested Rebekah Brooks on July 17, a Sunday, and questioned her on suspicion of involvement in illegally intercepting electronic communications (the hacking into mobile phone voice mails) and corruption (illegally paying police and public officials). She had planned to submit to an arrest two days later, on Tuesday. By this point, however, police had dispensed with all manner of courtesies.

  On July 19, the day the Murdochs were to testify, the morning papers were stuffed with reports of a confrontation between Charlie Brooks and security guards at a parking lot near their luxury apartment overlooking the Thames. A passerby had given security guards two briefcases containing a laptop, an iPhone, and a stack of documents, all of which had been retrieved from a plastic s
ack dumped in a trash bin at the parking lot. What happened next is a matter of some dispute. What is known is that Charlie Brooks did not emerge from the lot with the computer; a spokesman told papers a friend had left it there by accident. Murdoch’s tabloids did not display the ferocity of interest that the episode might have engendered had the person involved been someone else.

  But that was low farce. The arrest played into a plot with high drama, underscoring the personal ties involved. As Rupert and James Murdoch entered the hearing room in Portcullis House, a modern wing of Parliament, protesters outside chanted, while a pair mocked father and son by donning oversize masks, Rupert denoted by his exaggerated, furrowed brow, James by his high-tech glasses frames.

  The hearing room could have been a newish criminal courtroom in any midsize American city, except instead of jurors seated in a box, lawmakers were arrayed in horseshoe fashion, facing the witnesses.

  Rupert Murdoch’s wife, Wendi Deng, sat behind him, as did Joel Klein. Murdoch had wooed Klein to serve as a chief adviser and to lead the company’s push into educational software. Now Murdoch had tapped him to lead internal affairs. He had appeared that day in a show of support for his corporate chairman and to witness the process playing out.

  Klein, a slender man with a crown of graying hair and nasal accent reflecting his childhood home of Queens, New York, was nobody’s idea of a pushover. Two years earlier, Rupert Murdoch had personally called Klein while he was still chancellor of schools in New York City to suggest he consider coming into the fold. Once Klein left public office, the decision and announcement were swift: he would lead News Corp’s revitalized educational division. But as an executive vice president, Klein reported directly to Murdoch in the office of the chairman. Concurrently, Murdoch appointed him to the corporate board. Klein could have become rich at any number of Manhattan law firms, but this arrangement nonetheless rewarded him handsomely. His compensation was worth at least $4.5 million in 2011, his first full year, plus a $1 million signing bonus and $18,000 toward car expenses. The pay bought his legal counsel and loyalty, but Klein did not want to lose his reputation as a lawyer known for tough-minded independence.

  Now, Klein’s overriding aim was to convince authorities in the US and the UK that the company would tear itself apart to satisfy them of its determination to root out corruption—short of the chairman’s office.

  The Murdochs had been carefully coached and knew they were addressing different audiences, in testimony broadcast live in the UK and the US. Both men wanted to convey to investors that the fever had broken, that sound management would once more be the order of the day.

  Rupert needed to preserve his company’s reputation and show contrition and to argue he had no involvement in an operation of such small importance to the company’s bottom line. James Murdoch needed to show he was not a callow youth in his father’s shadow, but a capable executive who could handle this and other scandals and surprises, a worthy heir to the corporate throne. In short, he needed to salvage his career.

  James Murdoch first attempted to read from a prepared statement, as witnesses typically do in congressional hearings in Washington. John Whittingdale told James he could read the statement at the end if adequate time remained. Police removed a group of vocal protesters who leaped up from their seats and started to shout at the Murdochs; Whittingdale then reminded the Murdochs, the committee members, and the public that the committee in 2010 had concluded it was “inconceivable that only one reporter had been involved” in phone hacking and reiterated that “it is also clear that Parliament has been misled.”

  Whittingdale began by asking what James Murdoch meant when he acknowledged that the company had made statements to Parliament “without being in full possession of the facts.” James offered a note of contrition and regret, on behalf of himself, his father, and the employees of News Corp.

  Just as he began to explain the context and thrust of his comments, he was interrupted. “Before you get to that, I’d just like to say one sentence,” Rupert Murdoch said, reaching out his hand and resting it on his son’s arm. “This is the most humble day of my life.”

  The phrasing of that interjection had been scripted for Murdoch by his advisers, especially his new team of crisis management experts, including senior figures from the giant public relations firm Edelman and Steve Rubenstein of Rubenstein Associates. Several days earlier at One Aldwych Hotel in the heart of London, Murdoch sat perched on the white-fabric chair, his head in hands, repeating his sorrow for the Dowlers. His PR consultants recommended that Murdoch similarly needed to convey his humility once more before Parliament. Yet by interrupting his son at the outset, Murdoch’s commanding nature trumped that message of regret and undermined James’s standing. He demonstrated that even in crisis, News Corp, a publicly traded company, was propelled by the vision of a single man. And despite Rupert’s aspirations for his son, that man wasn’t James. If what he said damaged his son’s standing or independence, he really didn’t care. His message would be heard.

  THE TWO Murdochs jointly attempted to sketch out a defense, in which the company had relied on the police, the Press Complaints Commission, and outside lawyers hired by News International to perform a thorough review, to tell them what had happened inside their own newsrooms. The police had publicly cleared them. So had the PCC. James said he should have pushed harder to challenge those assumptions. But he said he had been told a thorough inquiry had been conducted and found only limited wrongdoing. The oversight was regrettable, he said. But he left the implication hanging that anyone could have fallen through the same trapdoors.

  Labour MP Tom Watson refused to allow James Murdoch to answer for his father. Why, Watson asked Rupert Murdoch, didn’t News Corp instantly investigate reports that the paper’s reporters bribed police for information?

  “I didn’t know of it. I’m sorry,” the senior Murdoch said. “If I can just say something, and this is not as an excuse, maybe it’s an explanation of my laxity: The News of the World is less than 1 percent of our company. I employ 53,000 people around the world who are proud, and great and ethical and distinguished people.” Yet Murdoch was not known for laxity—he was a notoriously involved CEO, especially when it came to his tabloids.

  The younger Murdoch said he had only learned of the seriousness of the problem less than a year before. “As soon as we had that new information at the end of 2010, that indicated to us there was a wider involvement,” James Murdoch told MPs, “We acted upon it immediately.” He was referring to the lawsuit filed by actress Sienna Miller. The twists and turns of her stormy relationship to fellow film star Jude Law were the stuff that tabloid dreams are made of.

  But the year before that “new information” surfaced—in 2009—the Guardian exposés indicated that dozens of celebrities and politicians had been targeted illegally by the tabloid and revealed James Murdoch’s approval of the secret payment to Gordon Taylor. There were only two interpretations of what had occurred. If they conceded knowing what was going on, they had condoned or intentionally ignored activities that were clearly criminal. James Murdoch in particular confronted the Hobson’s choice of managerial incompetence or acquiescence to widespread criminality.

  The Conservative MP Louise Mensch was someone who tried over the course of hearings to make the case that hacking was endemic to the British tabloid industry, not simply the Murdoch stable. An author of young adult books who had made a fortune before entering Parliament, she had married the manager of the heavy metal band Metallica and found her own behavior as a twenty-something under scrutiny from critical blogs. As Mensch noted, Piers Morgan, who came up in the Murdoch tabloids and was briefly editor of News of the World before he led the rival Daily Mirror, had spoken several times cavalierly about phone hacking as a routine practice, though Mensch misstated some of the details.

  Yet when Rupert Murdoch appeared, she did not relent. “Is it not the case, sir, that you are the captain of ship?” Mensch asked the older Murdoch. “You are th
e chief executive officer of News Corp, the global organization.”

  “A very much larger ship,” Rupert Murdoch replied.

  “It is a much bigger ship, but you are in charge of it,” Mensch said. “And as you said in earlier questions, you do not consider yourself a hands-off chief executive. You work 10 to 12 hours a day. This terrible thing happened on your watch. Have you considered resigning?”

  Murdoch said he hadn’t. “People I’ve trusted—I’m saying not who, I don’t know what level—have let me down, and I think they behaved disgracefully, betrayed the company and me, and it’s for them to pay,” he said. “And frankly, I’m the best person to clean this up.”

  Rupert appeared tired, deflated, even old. Tom Watson emerged as the Murdochs’ chief antagonist. “It’s revealing in itself what he doesn’t know, and what executives chose not to tell him,” Watson told James Murdoch, in explaining his focus on the father.

  Watson asked Rupert Murdoch, “Did you close the paper down because of the criminality?”

  “Yes, we felt ashamed at what had happened and thought we ought to bring it to a close,” Murdoch replied. “We had broken our trust with our readers.”

  That sacrifice did not endure for long. Reporters at rival papers confirmed rumors that a “Sun on Sunday” had been under consideration for some time; the printing of a seventh daily edition of the tabloid, the most profitable major paper in the country, would have achieved savings by consolidating staffs anyway. Forty-eight hours before James Murdoch announced the end of the News of the World, two domain names were registered with a familiar sound: sunonsunday.co.uk and thesunonsunday.co.uk. Within a few days, News International was identified as the entity holding title to those domains.