Inside Story Americas: Will the Murdoch hacking scandal spread to the US?

A damning report on the hacking scandal at Rupert Murdoch’s British newspapers concluding that Mr. Murdoch is “not a fit person” to run a huge international company has convulsed Britain’s political and media worlds and threatened a core asset of Mr. Murdoch’s American-based News Corporation.

The parliamentary report, issued Tuesday, found that three senior Murdoch executives misled Parliament in testimony. It also alleges that the company sought to cover up widespread phone hacking that Mr. Murdoch’s News of the World, a tabloid newspaper now shut down, used to gather information about politicians, celebrities and other people in the news.

It has opened deep divisions between the main political parties, accentuated the challenge Prime Minister David Cameron faces in explaining his past ties to Mr. Murdoch and some of his top executives in Britain, and added new momentum to regulators’ scrutiny of Mr. Murdoch’s controlling interest in the British Sky Broadcasting network, or BSkyB, which is one of the most lucrative Murdoch investments.

It also offers new details that suggest further damaging revelations may lie ahead. Sprinkled through its 121 pages are tantalizing references to potentially damaging sealed documents in dozens of lawsuits from the scandal, and an audio recording in police hands of a conversation between two News of the World journalists that may implicate an unnamed Murdoch executive.

The select committee that issued the report closed ranks in making many of its critical findings, but split, 6 to 4, on party lines over the specific censure of Mr. Murdoch as unfit for his responsibilities as head of one of the world’s most powerful media conglomerates. The governing Conservatives opposed it, while the Liberal Democrats, the junior partner in Mr. Cameron’s government, joined the Labour opposition in supporting it.

The partisan divide leaves Mr. Cameron as a de facto defender of Mr. Murdoch, while his Labour Party opponents have asked British regulators to move, on the basis of the report, toward reducing Mr. Murdoch’s 39.1 percent controlling interest in BSkyB, the satellite broadcaster that produces a hefty profit for the News Corporation.

The members of Parliament rejected the defense of Mr. Murdoch, 81, that his executives kept him in the dark about the hacking, saying he “exhibited willful blindness to what was going on in his companies and publications.”

It said the use of illegal reporting methods and the efforts to thwart inquiries into the practice came from a culture that “permeated from the top throughout the organization and speaks volumes about the lack of effective corporate governance at News Corporation and News International,” its British newspaper subsidiary.

“We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of a major international company,” the report said.

While the long-term impact on Mr. Murdoch’s United States-based News Corporation remains uncertain, the report at least initially cheered investors, some of whom have pressed for a change of leadership at the News Corporation and a reduced role for Mr. Murdoch and his family. The company’s share price rose about 1.25 percent in early afternoon trading on Wall Street.

 

 We discuss the consequences of a British parliamentary report labelling Murdoch unfit to run an international company. Will Murdoch's troubles cross the Atlantic? Guests: Jess Todtfeld; Jeremy Holden; and Paul Farhi.

The parliamentary findings increase pressure on Ofcom, Britain’s broadcast regulator, which since last summer has been assessing the News Corporation to determine whether it is “fit and proper” to hold the BSkyB television license. In the nine or so years of its existence, Ofcom has only once removed a television license on the basis that its owner had not met the “fit and proper” test — in the case of the broadcaster of a pornography channel.

Losing BSkyB would be a startling blow for the News Corporation, but one that could be mitigated by the reaction of analysts and investors, who have long urged that the company shed some minority-owned assets in an effort to raise its share price.

In its report, the committee did not use the full term “fit and proper” in condemning Mr. Murdoch, a distinction that John Whittingdale, the committee’s Conservative nonvoting chairman, told the BBC was significant. Media commentators said the phrasing appeared to be an effort not to throw the committee’s weight fully behind the Labour Party push for a regulator-ordered sell-off of News Corporation’s BSkyB interest.

Mr. Murdoch released a message to News Corporation employees that sidestepped the criticism directed at him, stressing instead the company’s cooperation with the inquiry and his recognition of “mistakes we have made.”

“I recognize that for all of us — myself in particular — it is difficult to read many of the report’s findings,” the memo said. “But we have done the most difficult part, which has been to take a long, hard and honest look at our past mistakes.

“There is no easy way around this, but I am proud to say that we have been working hard to put things right.”

In a statement from its New York headquarters, the company acknowledged “serious wrongdoing” but also said the committee was “wildly outside” its mandate in finding that Mr. Murdoch was “not a fit person.” It called that a purely partisan attempt to influence regulators.

In a statement on Tuesday, Ofcom said it was reading the committee’s report “with interest” and would use it, along with other evidence, to make its final judgment on the News Corporation. It gave no timetable, but some analysts say they expected the decision before the summer.

But it is significant, media analysts said, that Ofcom has openly discussed some of the evidence it is considering as it makes its assessment — evidence that at the very least presents an unflattering portrait of the News Corporation’s activities.

The committee report singled out James Murdoch, the second son of the media tycoon, who until recently was head of the family’s media interests in Britain, for failing to act much earlier. “Had James Murdoch been more attentive to the correspondence that he received at the time, he could have taken action on phone hacking in 2008, and this committee could have been told the truth” during an earlier inquiry in 2009, the report said.

It said the News Corporation had tried to blame lower-ranking executives while “striving to protect more senior figures, most notably James Murdoch.”

The panel raised the possibility that three senior former managers at News International, Colin Myler, Tom Crone and Les Hinton, could be cited for contempt of Parliament for misleading the panel in their testimony.

“I am shocked and disappointed by the culture, media and sport select committee’s allegations that I have misled Parliament and was ‘complicit’ in a cover-up,” Mr. Hinton said in a statement on Tuesday. “I refute these accusations utterly.” He said he would formally object to the findings.

Mr. Myler, now the editor of The Daily News in New York, said he stood by his testimony. “I have always sought to be accurate and consistent in what I have said to the committee,” he said in a statement.

Mr. Crone did not respond to a message seeking comment.

The committee’s findings appeared certain to set off a new storm in Parliament, with the Labour opposition signaling that it would press for a vote finding the three men guilty of contempt of Parliament, a sanction rarely used in modern times that Labour supporters said would seriously damage the men’s reputations and careers.

James Murdoch told the panel last week that when he took over News International in late 2007 — months after a News of the World reporter and a private investigator were jailed for hacking into the voice mail of members of the royal family — he believed that the affair had been settled.

But that version has been challenged by Mr. Myler, a former editor of The News of the World, and Mr. Crone, the newspaper’s former legal manager — the executives accused by Rupert Murdoch of a cover-up. The men have testified that they told James Murdoch in June 2008 of the extent of the hacking, but Mr. Murdoch has said he did not learn of the extent of the practice until last year.

In a measure of the damage to his interests since the scandal broke last year, Rupert Murdoch has closed the 168-year-old News of the World and the family has withdrawn a $12 billion bid to assume full control of BSkyB.

For his part, James Murdoch has severed many business ties with Britain, although he remains on BSkyB’s board.

Meanwhile, the company still faces investigations by Scotland Yard and the Crown Prosecution Service, which the parliamentary committee criticized as failing to take action soon enough.

The police in Britain have started three separate investigations into phone hacking, e-mail hacking and bribery of police officers. All have focused largely on Mr. Murdoch’s newspapers, but can extend to more general wrongdoing in newspapers he does not own.

A public inquiry led by a judge, Brian Leveson, has also been calling witnesses under oath and publishing evidence on the “culture, practices and ethics of the press.” It has most recently sought to investigate allegations of inappropriate closeness between Mr. Murdoch, his family and closest executives, and the British political establishment.

More than 40 people have been arrested and questioned — though not charged — including senior editors and executives at News International. They include Rebekah Brooks, the former chief executive of News International, and Andy Coulson, a former editor who left the company to become Mr. Cameron’s media adviser — a job he quit last year under pressure from the media scandal.

 

Sarah Lyall and Allen Cowell contributed reporting from London, and Amy Chozick from New York.

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