Bloomberg News

News Corp.’s Internal Hacking Probers Confuse Skeptics

July 02, 2012

U.K. Metropolitan Police Deputy Assistant Commissioner Sue Akers

Sue Akers, deputy assistant commissioner of the Metropolitan Police. In 2006, the firm’s stonewalling strategy succeeded, but by April 2011, Akers was threatening to bring obstruction charges if the company didn’t begin to provide meaningful cooperation. Photographer: Peter Macdiarmid/Getty Images

If there was any doubt about the gravity of the mission facing the three members of News Corp. (NWSA:US)’s management-and-standards committee, board member Viet Dinh dispelled it at a meeting held a year ago in a 13th-floor conference room with a panoramic view of London.

A scandal threatened not just the company’s U.K. newspapers, which had been accused of using hacking and bribery to gather news. It also jeopardized the very future of Rupert Murdoch’s News Corp. as a global media player, Dinh said, according to two people familiar with the session.

The committee, constituted to help police in London investigate the allegations, wasn’t to flinch from its duty and should call him about any resistance, said Dinh, an outside director, according to the people.

“You are insuring that there is a license to operate for anti-establishment companies like ours,” Dinh told the men, with the houses of Parliament and London’s new Olympic Stadium as a backdrop, according to one of the people, who asked not to be identified because of the confidential nature of the meeting.

Since the pep talk by Dinh, an assistant attorney general during the George W. Bush administration, the committee has gone from being dismissed by critics as a Band-Aid on a mortal wound to being accused of leading a witch-hunt. Its willingness to help the once-hostile Scotland Yard has so far shielded the parent company, Murdoch, and his son James, the former chairman of the company’s U.K. unit, from criminal charges.

Aggressive Approach

The tale of the group’s aggressive approach was compiled from background interviews with current and former News Corp. executives, outside advisers and former employees. The story details how an incremental, seat-of-the-pants reaction to damaging revelations last year at News of the World, a problem- child newspaper, evolved into an effective legal strategy.

The approach was judged so successful that some U.K. law firms have asked for information on how they might use it as a model for internal investigations of misconduct, the people said.

Dinh’s meeting with the committee took place two weeks after revelations that reporters employed at News of the World had hacked into the voice-mail account of Millie Dowler, a murdered schoolgirl. The public shock from that story demolished the company’s five-year defense that any phone-hacking had involved only one “rogue reporter” who’d been fired in 2006.

Before the meeting, which took place in the East London corporate office tower of News International, the company’s U.K. unit, police officials had accused that publishing arm of a cover-up that had started in 2006. They threatened to file obstruction charges. Sparked by the Dowler incident, a more intense investigation by Scotland Yard loomed.

BSkyB Impact

The scandal also scuttled Chairman Rupert Murdoch’s attempt to acquire the 61 percent of British Sky Broadcasting Group Plc (BSY) that News Corp. didn’t already own, causing dismay among investors keen on the profit-boosting idea.

The week of the Viet Dinh meeting, the Murdochs said at a Parliamentary hearing that the company’s London operations had made grave lapses in handling the scandal and promised that News Corp. would undertake a thorough review of its U.K. newspapers, a reference to the committee’s assignment.

In the year since the Dinh meeting, the management-and- standards committee, or MSC, has turned over evidence to the police that has resulted in arrests and charges against News International executives and journalists.

“In terms of corporate governance, the MSC has turned into a great piece of crisis management,” said Louise Mensch, a member of a Parliamentary committee that conducted its own probe into phone hacking at News Corp.

Skepticism

“There was a lot of skepticism from people, not just the congenitally anti-Murdoch people,” she said. “The doubters have been proven completely wrong. In the hardest cases, the MSC has gone against the interests of Mr. Murdoch. They’ve put the interests of News Corp. at the front of their agenda.”

Well before he arrived at News International, William Lewis, one of the MSC members who met with Dinh, was a well- known figure on London’s Fleet Street. In 2009, as editor of the Daily Telegraph, he presided over the news scoop of the year.

The paper was approached by a source who claimed to have detailed information about expense account abuses among lawmakers. Lewis approved a payment of 150,000 pounds ($235,000) for the data.

The subsequent publication of stories highlighting the venality of members of the House of Commons touched off a national scandal and helped boost the Telegraph’s circulation. In March 2010, Lewis was named “journalist of the year” at the British Press Awards for presiding over the reporting effort.

He was hired by Rebekah Brooks, chief executive of News International, to be general manager of Murdoch’s U.K. newspapers in September of that year.

Friend Hired

In January 2011, Lewis helped persuade Brooks to hire a longtime friend, Simon Greenberg, to head up communications and corporate strategy at News International.

Then came the phone-hacking crisis. After a lawsuit revealed that an editor at News of the World had been involved in voice-mail hacking, the police opened a new investigation, Operation Weeting.

For several months, News International’s law firm, BCL Burton Copeland, provided minimal cooperation with the police, frustrating Deputy Assistant Commissioner Sue Akers, who was in charge of the inquiry.

In 2006, the firm’s stonewalling strategy succeeded, but by April 2011, Akers was threatening to bring obstruction charges if the company didn’t begin to provide meaningful cooperation.

Brooks dispatched Lewis and Greenberg, new hires having no historical involvement with the company’s phone-hacking situation, to meet with Akers. They promised full cooperation.

The Trio

Lewis and Greenberg, along with Jeff Palker, News Corp.’s general counsel for Europe and Asia, were to respond to Akers’ requests for information. At Murdoch’s direction, Brooks would continue to be responsible for the efforts of the committee.

The plan changed on July 4, 2011, when The Guardian revealed that phone-hacking at News of the World extended back to the period when Brooks was editor, citing the example of Dowler, the 13-year-old who was abducted and murdered in 2002.

The story propelled News International’s involvement in phone-hacking and police bribery into an issue of widespread outrage in Britain. It became clear to Murdoch that Brooks could no longer be in charge of the company’s interactions with Scotland Yard. She resigned July 15.

Legal Adviser

Murdoch turned to Joel Klein, head of News Corp.’s education division and his primary legal adviser at the time, for counsel. The company’s top officials looked at the crisis- management responses of beleaguered U.K. firms, including BP Plc, which is still contending with the fallout of the 2010 Gulf of Mexico spill, and BAE Systems Plc, a defense contractor that had been accused of political corruption.

Forced to take remedial action, Murdoch approved the creation of a quasi-independent committee to review journalistic behavior at all of his U.K. newspapers. The committee would report to Klein and be managed by Lewis, Greenberg and Palker.

In order to give the unit some instant credibility, Murdoch and Klein recruited Lord Anthony Grabiner, a widely respected commercial lawyer in London, to serve as chairman. Grabiner retained the Linklaters law firm to assist. For good measure, the group’s findings would be reported to Dinh, 44, rather than to Murdoch.

Scotland Yard

Klein, 65, paid a visit to Akers at Scotland Yard. He gave her his card and told her that if she ever had reason to doubt the efforts of Lewis and Greenberg, who accompanied him on the visit, she should call him directly. Akers said she didn’t want News Corp. to interview or even notify any employees who came under suspicion as a result of the evidence generated by the company’s internal probe.

Over the next seven months, the committee demonstrated its independence from the personal interests of New York-based News Corp.’s management. In December, senior lawyers from Linklaters reviewed a printout of an e-mail that undercut James Murdoch’s testimony before Parliament regarding what he knew about phone- hacking at News of the World.

Although a Parliamentary committee ultimately made no judgment as to whether James Murdoch had been truthful in his testimony, several News Corp. executives who asked not to be identified point to the production of the e-mail itself as something that wouldn’t have happened in previous years.

Bribery

Meanwhile, a committee review of accounting records at The Sun, another Murdoch paper, revealed evidence that bribery of government officials was a widespread practice there. After the management-and-standards unit gave evidence to Scotland Yard, nine journalists from The Sun were arrested on suspicion of bribery in January and February.

Trevor Kavanaugh, an associate editor of The Sun, wrote an article in the Murdoch-owned paper describing the committee’s efforts as a “witch-hunt” and claiming that the paper’s “journalists are being treated like members of an organized crime gang.”

Rupert Murdoch arrived in London in February to oversee the start of The Sun on Sunday, a paper to replace the News of the World, which had been shuttered because of the scandal. He found employees at News International were irate about the management- and-standards committee’s work.

Geoffrey Robertson, a human-rights lawyer who describes himself as an expert on protecting journalist’s sources in Britain, criticized the committee’s willingness to hand sensitive material over to Scotland Yard.

A Betrayal

“Technically, and substantively, they are betraying their journalistic mission,” Robertson said. “They are handing over to the police what their journalists have a duty to keep secret, namely their sources of information.”

On March 7, former News of the World reporter Neville Thurlbeck posted an item on his blog in which he repeated a claim that two arrested Sun journalists had attempted suicide. Thurlbeck reported that Lewis had hired a security firm to protect himself, and published the name of the street where Lewis lived in North London.

The reaction from Scotland Yard was swift. Thurlbeck removed the address from his blog post within hours. A week later, he was arrested on suspicion of intimidating a witness.

Akers defended the committee’s work while testifying before a judge-led inquiry into media ethics. Armed with information from the committee she told investigators: “There appears to have been a culture of illegal payments” at The Sun.

The alleged bribery went beyond the occasional wining and dining of sources and included retainer payments which, in some cases, exceeded $100,000, Akers said.

Police Praise

Akers was asked whether the committee had been of assistance in uncovering evidence of bribery.

“They have,” she said. “That’s because of their independence from News International, and it’s that set-up that I hope goes a long way to allay some criticisms that have been made about how it’s perceived that it can’t be necessarily an independent inquiry. The fact that we are dealing with the MSC directly and not News International I think should make any contention that it isn’t independent without foundation.”

The reaction in Parliament was similar. “They’ve been doing an unpleasant job, but doing it well,” lawmaker Louise Mensch said. “The MSC provided us with key pieces of evidence that could not have been obtained any other way,” she said, referring to the James Murdoch e-mail.

Challenges Ahead

News Corp. and Chairman Murdoch still face serious challenges. The 81-year-old chief executive has been declared “not a fit person” to lead an international company by Labour Party members of the Parliamentary committee that conducted its own phone-hacking probe, a declaration that threatens the company’s minority stake in BSkyB.

Criminal charges have been filed against Brooks, 44, the former chief executive of News International, and Andy Coulson, former editor of News of the World. Other lower-ranking Murdoch journalists in London will probably be charged with phone- hacking or bribery based on their arrests. More than 50 persons have been arrested in a 17-month investigation.

The judge-led inquiry into media ethics in the U.K. could produce recommendations that curtail Murdoch’s publishing empire there. Much of his political clout in the U.K. has already disappeared as a result of the phone-hacking scandal and the muzzle it put on his once-politically dominant newspapers.

U.S. Investigation

In the U.S., federal prosecutors in Manhattan are monitoring News Corp.’s cooperation with British authorities, under the theory that bribery of police officials in the U.K. could constitute a violation of the U.S. Foreign Corrupt Practices Act.

Julie Henderson, a spokeswoman for News Corp., declined to comment.

For all the legal obstacles still facing Murdoch and News Corp. today, the financial future is brighter than it appeared a year ago, during the depths of the phone-hacking crisis, when Murdoch’s leadership was being questioned and investors knocked the share price down 25 percent in just over a month to $13.62 on Aug. 8.

Since then, the share price has soared, closing up 56 cents to $22.85 yesterday in Nasdaq Stock Market trading, partly because of the impact of a plan announced last week to spin off the troubled publishing operations from News Corp.’s entertainment and television businesses.

Split-Up Plan

As a side benefit of the committee’s work, News Corp. didn’t have to deal with the distraction of accusations of foot- dragging and cover-up about hacking and bribery when it announced the plan.

The committee’s work is in wind-down mode after its primary mission was completed in May, according to the people familiar with the matter. Joel Klein, the News Corp. executive in charge of the committee, handed over his responsibilities to Gerson Zweifach, the company’s general counsel, in June. Lewis and Greenberg expect to leave their positions later this year, according to the people.

Still, the perceived success of the management-and- standards committee may change with time, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

“The mere fact that they were accused of cooperating with police means nothing,” Elson said. “We have to wait until we know all the facts. Until then it’s premature to declare it a success.”

To contact the reporters on this story: Greg Farrell in New York at gregfarrell@bloomberg.net and; Erik Larson in London at elarson4@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Anthony Aarons at aaarons@bloomberg.net.


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