Murdoch's World

by David Folkenflik

  James remained hidden from view amid the company’s first quarterly report since the scandal, in early August. The initial questions from investment analysts involved profit margins for News Corp’s cable holdings, advertising rates on those channels, the company’s appetite for buying back stock (a way to increase the value of each stockholder’s shares), what News Corp would do with the $5 billion it set aside to acquire BSkyB, the local TV business, the struggles of Fox Business Network, the prospect of newspaper profits in Australia. One analyst asked Rupert Murdoch whether he might split publishing off from the rest of the company; the chairman again knocked it down in no uncertain terms.

  A reporter from Reuters asked, Would the board support Murdoch’s wish for James to succeed him as CEO at some stage in the near future?

  Murdoch hedged. “Well, I hope that the job won’t be open in the near future,” he said. “Chase [Carey] is my partner. If anything happens to me, I’m sure he will get it immediately, but—if I went under a bus, but Chase and I have full confidence in James. But I think that’s all I need to say about it. In the end, the succession is a matter for the Board.”

  Meanwhile, James Murdoch trod a delicate path. “I acted on the advice of executives and lawyers with incomplete information, and that’s a matter of real regret for me,” he said in the sole interview he granted. British police officials had exonerated the company: “We now know that was an inadequate investigation, and that is a matter of profound regret for me, as well.”

  The subject of that investigation continued to haunt News International and its parent company. (In one sign among many, New York State’s controller killed News Corp’s $27 million educational software contract late that month.) The problem was no longer that a prominent reporter had hired a private investigator to hack into the private voice mails of the royals but that the private investigator, Glenn Mulcaire, had done the job too well and too often for too many masters at News of the World.

  THE PARLIAMENTARY committee on media reconvened in September 2011. HR executive Daniel Cloke claimed in his testimony that Crone, Hinton, and Myler—basically the paper’s entire hierarchy and its corporate bosses—had known of Clive Goodman’s 2007 accusations that reporters and editors routinely commissioned phone hacking. But the company had not pursued the larger allegation. The former general counsel for News International, Jonathan Chapman, cited a “feeling of family compassion” at the company, which tempered the impulse to punish those who had committed crimes on the paper’s behalf. He described a form of mateship.

  As Crone and Myler addressed the committee, however, they felt bound by no such kinship. Instead, they told a relatively simple story: things were going south. They had told James the risks. James Murdoch had received the email from Julian Pike and Tom Crone, who told him about the “for Neville” email. Crone and Myler met with Murdoch to make sure he understood the stakes, and he authorized them to settle the lawsuit swiftly and silently for anything up to about £500,000. The News International executives had minimized the importance of the meeting in earlier testimony. Now it was the hinge on which their testimony swung.

  “If it all went public with Mr. Taylor, we were at risk of four other litigants coming straight in on top of us, with enormous cost,” Crone testified. “If we have to pay way over the odds for Mr. Taylor, especially if there is a confidentiality clause . . . that is a good course of action. If it is £415,000 or £425,000 to settle one case, thereby avoiding being sued by four other people who might have similarly high demands and huge legal costs, that is the right decision to take from my point of view.”

  News International kept much of the British media legal establishment on retainer at one time or another but had agreed to waive lawyer-client privilege over past conduct of the cases, part of its effort to demonstrate to American and British authorities its willingness to cooperate. The waiver of legal privilege meant all those deliberations were now cascading into public view.

  In their testimony, Crone and Myler often sidestepped questions to stick to their main and most damaging point: “There was no ambiguity about the significance of that document [the ‘for Neville’ email] and what options there were for the company to take,” Myler said. Given their earlier, contradictory testimony, the two men had trouble convincing parliamentary committee members to rely on their account, especially of James Murdoch’s state of mind. Conservative MP Louise Mensch turned to Crone: “I have to say, sir, that your evidence has really been as clear as mud.”

  JAMES MURDOCH’S status remained clouded as the date of News Corp’s annual shareholder conference neared. The event was scheduled for Los Angeles in mid-October on the Fox Studio lots at the 476-seat Darryl F. Zanuck Theater—a secluded spot on a site controlled by the company. Protesters would have a much tougher time disrupting the meeting than they would in New York’s Upper West Side, where the meetings were usually held. Security was tight.

  Along with James’s leadership, Rupert’s acumen had been called into question too. External analysts looked at a trail of misdeeds and misjudgments—from the acquisition of Elisabeth Murdoch’s Shine for a very generous price, to the $2.8 billion write-down of the Wall Street Journal, to the purchase of MySpace and its fire-sale disposal a few short years later.

  “We have consistently given Mr. Murdoch’s board an F since they first incorporated in the US, and that’s only because there’s no lower grade,” Nell Minow of GMI Ratings, a firm that assesses integrity in corporate governance, said ahead of the company’s annual meeting. Amid the hacking revelations, Murdoch’s leadership is “a big, big mess,” she said. “Rupert Murdoch went to testify before Parliament and he said, at the same time, ‘I didn’t know this was going on’ and ‘I’m the guy to fix it.’ Those are two incompatible statements. Anybody who is swayed by that is not paying attention.”

  “If you had this happen in a normal company, in theory, the board would have required the CEO to resign,” said Laura Martin, senior media analyst for the investment bank Needham and Company. But she said investors believed News Corp’s shares would rise more with Murdoch steering the ship than someone new.

  At the shareholders’ meeting at the theater tucked at the back of Fox Studios, Rupert Murdoch carried himself with a confidence laced with bravado. He started his address by calling News Corp’s history “the stuff of legend.”

  “The company has been the subject of both understandable scrutiny and unfair attack,” Murdoch said. But his voice was not the only one that shareholders heard. Union critics who held News Corp shares gave Labour MP Tom Watson their proxy, and in the process gave him a soapbox from which to speak. “I think I’ve got a duty to bring that to the shareholders’ attention, because, after all, they are also responsible for what this company does,” Watson said. “And I think the board have let them down.” The board was stacked with Murdoch’s children, former executives, political allies, and current or former business partners. The Murdoch family trust held about two-fifths of all voting shares, which gave it near control of all stockholder decisions. Like almost everyone else who came into Rupert Murdoch’s orbit, the board members found it difficult to distinguish between the interests of the family and the company.

  At the session, Watson informed Murdoch and shareholders there would be a new front on the parliamentary inquiry he was helping to direct: email and computer hacking. The company paid more than $5 million that day to the Dowlers, much of it earmarked for a charity of their choice, to settle their claim against the company.

  The day proved arduous for Rupert Murdoch. Officials from institutional investors such as the California state pension fund demanded that he separate the roles of chairman and CEO. Murdoch became testy, cutting off his former Australian editor turned corporate activist Stephen Mayne: “Stephen, I’d hate to call you a liar, but you’re wrong.” To a representative from the Church of England, Murdoch snapped, “Your investments haven’t been that great, but go ahead.” Why the Church of England invested in a company
that had topless girls on the third page of its most profitable publication every day was a separate question. Perhaps it showed the modernity, or the erosion of standards, of British institutions. Perhaps it merely underscored the ubiquity of Murdoch’s presence in British commerce.

  Rupert Murdoch easily enough won reelection to his corporate board. Saudi prince Al Waleed bin Talal had promised to cast the 7 percent of voting shares he held following the Murdoch line. (Murdoch had invested News Corp money in Waleed’s Saudi media enterprises.) Yet the day proved an embarrassment. James Murdoch lost nearly 35 percent of the vote for reappointment to the board—a majority of all non-Murdoch votes cast. Lachlan, who had never run the British enterprises, lost a third of the vote.

  AT THE outset of November, just days before appearing yet again before the parliamentary committee, James stepped down from the boards within News International that ran the two tabloids (News Group Newspapers) and the Times of London and the Sunday Times (Times Newspapers Ltd). He was disengaging from the UK.

  Lawmakers on the parliamentary committee investigating News of the World experienced something out of the movie Groundhog Day. In 2010 the committee unsatisfyingly concluded that News International had suffered from “collective amnesia.” On November 11, 2011, one question dominated the conversation: was James Murdoch a fool or a knave?

  He did learn of the “for Neville” email, the younger Murdoch admitted to the MPs, before authorizing Crone to pay enough money to make Gordon Taylor’s complaint disappear. But he had only understood half the email’s import. Crone and Myler told him it contained transcripts. They never called it the “for Neville” note, nor did they mention Thurlbeck at all, he said. By Murdoch’s account, he knew only that the transcripts proved the existence of a second specific instance of hacking, not that it was commonplace at his paper. Myler should have told him more. The lawyers failed him. The police gave him false assurance. He never received the outside lawyer’s doomsday assessment of the culture of criminality alive in the newsroom.

  “If there was a mistake or a shift that we need to focus on, it was the tendency for a period of time to react to criticism or allegations as being hostile or motivated commercially or politically,” Murdoch testified. “What we did not necessarily do was reflect as dispassionately as we might have, among all the din and clamor that surrounds a large business such as this.”

  Watson baited Murdoch amid the exchange. “Are you familiar with the word mafia?”

  MURDOCH: “Yes, Mr. Watson.”

  “Have you ever heard the term omertà? It is the mafia term for the code of silence.”

  “I am not an aficionado of such things,” Murdoch replied.

  “Would you agree that it means a group of people who are bound together by secrecy, who together pursue their group’s business objectives with no regard for the law, using intimidation, corruption, and general criminality?”

  “Absolutely not,” Murdoch said. “Frankly, I think that that is offensive and it is not true.”

  Watson then reminded him of the bill of particulars in the hands of police and prosecutors: “There are allegations of phone-hacking, computer-hacking, conspiring to pervert the course of justice and perjury facing this company and all this happened without your knowledge. Mr. Murdoch, you must be the first mafia boss in history who didn’t know he was running a criminal enterprise.”

  Watson had gone a step too far. But other MPs, including Conservatives, also took tough shots. Watson’s Labour colleague Paul Farrelly challenged James Murdoch’s competence. Why hadn’t he asked to read the lawyer’s reports? Why would he authorize such big payments? Why did he fail to realize that the hacking of Gordon Taylor’s phone meant the illegal practice stretched beyond coverage of the royals? Why did he not take the Guardian’s 2009 report on the Taylor settlement seriously?

  “So even at that stage in the middle of 2009 as the executive chairman of News International,” Farrelly asked, “you are possibly the only person in London who still thinks that there is [only] one rogue reporter and one private detective?”

  More odious developments surfaced before the cameras. The public learned of the private eyes following the lawyers and MPs. Every MP on the House of Commons committee conducting the investigations in 2009 and 2010 had also been followed by private investigators seeking dirt. Murdoch apologized profusely.

  The committee could not land the knockout punch. Then again, James Murdoch could not make the bleeding stop.

  The MPs were not the only ones investigating News International’s behavior. Prime Minister Cameron had created an inquiry to be run by Lord Justice Brian Leveson. The judge and his lead interrogator, attorney Robert Jay, were taking a hard look at the press’s relationship with police, politicians, and power. As they did so, additional disclosures came to light.

  At the outset of 2012, the Times of London admitted that in order to disclose in print the identity of an anonymous police blogger known as “Nightjack,” it had hacked his email. In court, lawyers for the newspaper had deceived the judge, maintaining that the reporter deduced his identity from publicly available information. Meanwhile, the Sunday Times acknowledged subjecting Gordon Brown to “blagging,” a broad term encompassing deception by journalists to obtain information illegally. The Guardian had earlier posted audio of a con man posing as a lawyer to persuade Brown’s attorneys to hand over private terms about the sale price of Brown’s flat. The paper’s editor, John Witherow, confirmed that incident, but also said one of his employees had impersonated Brown in a call to Abbey National Bank in order to get confidential financial figures. In the middle of February, police arrested a handful of employees at the Sun on suspicion of bribing police officers and military personnel for information.

  Later that month, Rupert Murdoch returned to London to oversee the printing of the first edition of the Sun on Sunday, the new tabloid to replace News of the World. The paper felt distinct from the one it replaced. The first Sun on Sunday was light on scandal, heavy on sports, inspiration, celebrity gossip (but not too mean), and a scattering of politics and world affairs.

  Murdoch beamed for the cameras. The new publication was a welcome distraction that would restore some of the advertising and circulation revenue lost when he shut down the News of the World. James was nowhere to be seen.

  Only twenty-four hours later, one of the most senior police officials at Scotland Yard testified that Sun journalists had made illegal payments to a broad swath of public officials in a half-dozen or more government agencies. “It reveals a network of corrupted officials,” deputy assistant police commissioner Sue Akers testified before Judge Leveson. “There also appears to have been a culture at the Sun of illegal payments, and systems have been created to facilitate those payments whilst hiding the identity of the officials receiving the money.”

  The cancer at News Corp’s British holdings had metastasized.

  20

  AILES SEEKS A LEGACY

  LIKE RUPERT MURDOCH, ROGER AILES insisted he had no time for people who obsessed on status such as college pedigrees, big journalism awards, or invitations to fancy, high-powered dinners on Manhattan’s Upper East Side. Periodically he would register his disdain for such attributes while attending fancy, high-powered dinners on Manhattan’s Upper East Side.

  By 2011 Roger knew what kind of mark he had made at Fox News, an organization shaped in his own image, a concoction of show business, populist conservative politics, pugilism, and reporting. But there was the question of legacy—what would endure.

  Ailes’s channel had helped conservatives push news coverage to the right. Fox made the news business, especially television news, brasher, more opinionated, and splashier. It brought local television news judgments and Hollywood sensibilities into the national and political arenas. MSNBC had found profit for the first time by banking hard left, but that was no rebuke of Fox; it was an homage.

  Ailes had subtly steered his channel to shift with the times. To harness anti-Obama senti
ment, he had dropped the outmatched liberal Alan Colmes from Hannity & Colmes, added Glenn Beck, and created Fox Nation, a red-meat, red-state online offshoot for those who found the Fox News website too evenhanded. Yet in the summer of 2010, Ailes decided to create another brand on the web that might prove more welcoming to the nation’s quickest growing demographic: Hispanics.

  He turned to Francisco Cortes for help. A Bronx native of Puerto Rican descent, Cortes started at Fox after a stint in the US Army as one of the first enrollees in the Ailes Apprenticeship. Ailes wanted to create a new Fox-friendly pipeline of young African American, Asian, and Latino journalists to help stock the newsroom with a diverse crew trained in the Fox way. He decided to create a new website called Fox News Latino, aimed largely at English-speaking Hispanics. The site incorporated pieces from freelancers and a dozen staffers with the aggregation of news coverage from other sources, particularly in Latin America.

  Ailes agreed with Ronald Reagan’s aphorism that Latinos’ faith, whether Catholic or evangelical, their patriotism, their service in the armed forces, and their aspirations to become small business owners made many Hispanics potential conservative converts, despite strong affinities for Democrats at the ballot box. Ailes believed the site served an important purpose on business, journalistic, and ideological grounds.

  Latinos make up one-sixth of the nation’s population, but accounted for more than half of the country’s population growth between 2000 and 2010. What was considered left or liberal on Fox News represented mainstream views for a site aimed at Latinos—even a site with the Fox brand. Ailes’s relatively low-cost initiative paid off. Hispanic activists praised Fox News Latino even as they attacked coverage on Fox News. The site beat the similar ventures from the Huffington Post and NBC News to the punch.