Rupert Murdoch declared unfit to lead. The price of half-truths?

A UK parliamentary committee declared Rupert Murdoch 'unfit' to run his global media empire, which could have implications for his stake in the profitable satellite TV network BskyB.

In Rupert Murdoch's appearances before the British parliamentary inquiry into allegations of illegal phone hacking and bribery of public officials by two of his UK newspapers, his strategy has been a simple one: Claim he had no knowledge of the extent of the problem, complain that he was misled by subordinates, and promise to fix the culture of his company going forward.

In the damning report News International and Phone-Hacking, the House of Commons Culture, Media and Sport Committee has now responded by saying, in effect, that if Mr. Murdoch is taken at his word then he should no longer be running his $49 billion News Corporation. Both Murdoch and his son James told recent parliament hearings that they were misled by executives Tom Crone and Colin Myler about the extent of phone hacking at News International's papers. The committee found that Mr. Crone and Mr. Myler misled them about what they knew, and when they knew it, but also argued that at minimum the Murdochs should have known more themselves. News International is the News Corp. subsidiary for its UK print holdings.

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."

"This culture, we consider, permeated from the top throughout the organisation and speaks volumes about the lack of effective corporate governance at News Corporation and News International. We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of a major international company.

The finding doesn't carry any legal weight on his own – the UK has no power to remove Murdoch from his positions at the multinational he built from after inheriting a daily newspaper in Adelaide, Australia, from his father in 1952. But UK government regulators have been considering News Corp.'s ownership of satellite station BskyB. The company now owns 39 percent of the company and had hoped to make a $13 billion bid for the full company until that effort was dropped last year as the Murdoch companies became embroiled in scandal. It's possible that the 39 percent stake may come under scrutiny. 

Ofcom, the UK's broadcast regulator, requires owners of television licenses to be deemed "fit and proper" for that public responsibility. The hacking scandal, which began at the since-shuttered News of the World weekly tabloid but has now spread to its daily sister publication, The Sun, has already forced Murdoch to abandon a bid for full control of BskyB, which has broadcast rights to Premier League soccer and other sporting events and brought in $715 million of profit in the first half of its current fiscal year. With a parliament committee already declaring Murdoch an enabler of a malfeasance at his companies, Ofcom may take another look at News Corp's ownership stake in BskyB.

The elder Murdoch's reputation is very much in tatters. More than 20 current and former employees have been arrested in the series of scandals that emerged after the discovery last year that NotW reporters hacked into the cellphone of Millie Dowler in 2002, after the 13-year-old girl was abducted. She was later found murdered.

But NotW employees had broken into her cellphone and deleted messages in her full inbox, hoping they'd be able to eavesdrop on future messages left by her worried family. Those deletions gave the Dowler's false hope that their daughter was still alive. As the story came out, the British public and members of parliament were outraged.

To be sure, investors don't appear worried about the prospect of News Corp. losing some or all of its stake in BskyB. News Corps shares were up 1.5 percent in mid-morning trading, following the release of the report. A forced sale of part or all of the BskyB stake is still a dim possibility, and since it's worth about $4.5 billion and there would be plenty of willing suitors, there would be a lot of cash to help News Corp move on.

The report was issued over the objections of all of four voting Conservatives on the committee, arrayed against five Labour MPs and one Liberal Democrat who voted in favor. The committee will seek an endorsement of its findings from the full House of Commons in the next week or so.

In the full house, the Conservatives control 305 seats against 253 for Labour and 57 for the Liberal Democrats. Bloomberg quotes one of the dissenting Conservatives on the committee,  Philip Davies, as saying: “Rupert Murdoch clearly is a fit and proper person to run an international company ... he’s been running businesses since before I was born. We’ve seen absolutely no evidence to suggest that Rupert Murdoch was aware these things were going on.”

The report charges that Les Hinton, who is one of Murdoch's most trusted lieutenants and was put in charge of Dow Jones & Co. (which owns the Wall Street Journal) after News Corp's takeover in 2007, "misled the committee about the extent of his knowledge of allegations that phone-hacking extended beyond Clive Goodman and Glenn Mulcaire to others at News of the World." Mr. Hinton stepped down last summer as the scandal unfolded.

Mr. Goodman was NotW's royal correspondent, and he and Mr. Mulcaire, a private investigator employed by the paper, were caught hacking into the phone messages of people connected to the British royal family. After that scandal, Hinton and other Murdoch employees insisted that it was an isolated incident.

The report clearly is a result of the frustration of its drafters over what it paints as a pattern of half-truths and concealment in testimony over the years and details how members of the committee itself have occasionally been put under surveillance by phone hacking and the hiring of private investigators by News International employees as far back as 2001. 

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 hackings; by making statements they would have known were not fully truthful; and by failing to disclose documents which would have helped expose the truth.

In failing to investigate properly and by ignoring evidence of widespread wrongdoing, News International, and its parent News Corporation exhibited willful blindness, for which the companies directors – including Rupert  Murdoch and James Murdoch – should ultimately be prepared to take responsibility. 

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