Rupert Murdoch's News Corp. Scandal

05.01.12

British Lawmakers: Rupert Murdoch Unfit to Run News Corp.

In a bombshell report, British lawmakers said that Rupert Murdoch is ‘not a fit person’ to run News Corp. and he turned a ‘blind eye’ to phone hacking. Peter Jukes and Mike Giglio report.

In a devastating report by British lawmakers, James Murdoch dodged a bullet of being accused of misleading Parliament—but a bigger missile was lobbed at News. Corp and his father, Rupert.

The final conclusions of the report, released this morning, go well beyond the issue of phone-hacking that has created such a crisis in News Corp.’s British media empire, News International, and target the senior Murdoch directly—declaring him “not a fit person to exercise the stewardship of a major international company.”

From an issue of lawbreaking and intrusions into privacy in Murdoch's newspaper holdings in the U.K., the British lawmakers have now made it a case of corporate governance in the media conglomerate, and directly confronted those in the News Corp. HQ in New York.

The Culture, Media and Sport committee—which has been investigating the scandal following the crusading Labour M.P.s Tom Watson and Chris Bryant—summoned the Murdochs before Parliament last summer, and it heard the two claim they had not been aware of the extent of the phone-hacking scandal that had festered under their watch. Some critics had hoped the committee would find that testimony misleading, which would in turn suggest that either James or Rupert Murdoch had acted to cover up the crisis in the past.

Instead, the report declined to rule on what they might have known about the problem and when, instead calling their governance of the company to account. “On the basis of the facts and evidence before the committee, we conclude that, if at all relevant times Rupert Murdoch did not take steps to become fully informed about phone-hacking, he turned a blind eye and exhibited willful blindness to what was going on in his companies and publications.”

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What British lawmakers’ bombshell report means for Rupert Murdoch.

The accusation of “willful blindness” could be damaging to the reputation of News Corp.’s chairman and CEO, who underwent a two-day grilling before a public inquiry into the British press last week. Though neither of the Murdochs was accused of misleading Parliament (a technically jailable offense), the conclusion about the culture their leadership had fostered did not mince its words: “This culture, we consider, permeated from the top throughout the organization and speaks volumes about the lack of effective corporate governance at News Corporation and News International.”

The amendment about Rupert Murdoch’s capacity to run his company inspired some dissension within the committee, and was passed only on a 6 to 4 vote. One member, Tory M.P. Louise Mensch, noted that all four of its Conservative M.P.s dissented on that language, which she said was “carried on political lines” and "stuck in on the basis of no evidence presented to the committee whatsoever." However, dissenting M.P.s did not issue their own minority report.

The strong language targeted something much more important and lucrative than any of News Corp.’s newspapers in the U.K.: the controlling interest it still holds in the country’s largest pay-TV broadcaster, BSkyB. The term “fit person” expressly refers to broadcast regulator, Ofcom, which last week stepped up its investigation into News Corp., and whether its directors passed the “fit and proper” test required for a broadcast license. In 2010 News Corp. launched a $16 billion bid for complete control of BSkyB, which had been seen as Rupert Murdoch’s long-term ambition and, if successful, his son’s route to ensure his eventual succession to head the company. This bid was abandoned during the height of the hacking scandal last summer.

News Corp. issued a statement saying it was reviewing the committee’s findings and would be shortly issuing a response. “The company fully acknowledges significant wrongdoing at News of the World and apologizes to everyone whose privacy was invaded," the statement added.

One member noted that all four of its Conservative M.P.s dissented on that language, which she said was “carried on political lines.”

Labour M.P. Tom Watson added his own personal statement to the report: "Everybody in the world knows who is responsible for the wrong-doing at News Corporation. Rupert Murdoch. More than any individual alive he is to blame, morally the deeds are his, he paid the piper and called the tune. It is his company, his culture, his people, his business, his failures, his crimes, the price of profits and his power." 

Claire Enders, a London-based media analyst who follows News Corp. closely, says that the report, while damning in its language, might be seen as good news for the company because of what it didn’t find. “It’s not helpful, but it’s the best outcome for them,” she said. “The alternative outcomes were that the committee found that James Murdoch or Rupert Murdoch misled them deliberately.”

At issue was the question of what the younger Murdoch knew about the extent of the phone-hacking problem gripping News International—and when.

James Murdoch took the reins at News International in 2007, when the hacking scandal was already brewing at the company’s News of the World tabloid. Months later, he authorized an unprecedented multi-million-dollar settlement to a hacking victim whose lawsuit had unearthed an internal email suggesting hacking was widespread, not confined to a lone reporter as the newspaper had long claimed. Critics have suggested that James approved the massive payout in order to keep news of the email under wraps.

But when James appeared with his father before Parliament this summer, he testified that he had been unaware of the full scale of the problem when he approved the settlement.

Both Colin Myler, who was News of the World editor at the time (and now edits the New York Daily News), and Tom Crone, its senior legal manager, have contradicted James’s testimony, saying they had informed him of the now-infamous email before the settlement. And it has since been revealed that Myler forwarded James an email chain that contained details of the extent of the problem. James claims he didn’t read the full email chain.

Instead, James has suggested company executives worked to keep him out of the loop, while he apologized for not doing enough to root out the scandal unfolding under his watch. James resigned from his post at News Intenrational in February.

The committee report did not contradict James's version of events, stopping short of accusing him of a cover-up, but offering harsh criticism for his failure to uncover the problem. “His lack of curiosity—but willful ignorance even—subsequently is more astonishing,” the report says.

It went on to accuse the company itself of misleading the committee and acting to cover up the scandal. “Corporately, the News of the World and News International misled the committee about the true nature and extent of the internal investigations they professed to have carried out in relation to phone-hacking,” the report says. “Their instinct throughout, until it was too late, was to cover up rather than seek out wrongdoing and discipline the perpetrators, as they professed they would do after the criminal convictions.”

Particularly harsh criticism was reserved for Myler and Crone—who the report said had “answered questions falsely”—as well as Les Hinton, the former publisher of the Dow Jones and longtime confidante to Rupert Murdoch, who it called “complicit in the cover-up.” All three could now be held in “contempt of Parliament,” although there is no clear-cut legal punishment for such an offense.

The report was limited in its ability to discuss two other key players—Rebekah Brooks and Andy Coulson, the News of the World editor who went on to become Prime Minister David Cameron’s public-relations chief—as both have been arrested and face potential criminal charges. Brooks, it said, “should accept responsibility” for the scandal, even if she weren’t aware of what was going on under her watch. Brooks edited both The Sun and News of the World before becoming chief executive of News International.

The irony for Rupert Murdoch is that the last person to be ruled unfit to run a public media company was his old rival Robert Maxwell, who was censured by the Board of Trade in the 1970s. The two publishers fought bitterly to take control of News of the World in 1969, a battle that Murdoch won with the backing of the banks. Maxwell continued the rivalry with his ownership of the New York Daily News which competed against Murdoch's Post, and by taking over the Mirror Group Newspapers in the U.K., which fought a circulation war with News Corp.'s British tabloids. Maxwell’s empire unraveled after his 1991 death, when it was revealed that its assets were vastly outweighed by its debts.