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Wednesday, May 02, 2012

News of the World Without a Fit Leader

Story first appeared on The Wall Street Journal.

LONDON—A U.K. parliamentary committee report issued Tuesday said that the News Corp. Chairman and Chief Executive is not a fit person to exercise the stewardship of a major international company and found that three former News Corp. executives misled British lawmakers over the depth of the phone-hacking scandal.

The report from Parliament's Culture, Media and Sport Select Committee sketches out details of a coverup the company allegedly carried out as it sought to contain the fallout from revelations that its now-closed News of the World tabloid illegally intercepted cellphone voice mails in pursuit of information.

A U.K. committee investigating the News of the World phone-hacking scandal issued a final report that came down hard on News Corp. chief Rupert Murdoch and accused company executives of misleading parliament.

The report had especially harsh words for the 81-year-old —although the rebuke divided members of the committee along party lines. According to a passage inserted despite the opposition of Conservative members, he 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. The corporate culture permeated from the top, it added.

Three former executives from News International, the company's U.K. newspaper unit, were singled out for misleading Parliament during testimonies on phone hacking in 2009. All three men have left News Corp.

The committee said a number of statements News International executives made in 2009 were untrue, including the claim that illegal voice-mail interception was limited to one reporter and the assertion that phone hacking had been investigated thoroughly by the company. The report says News Corp.'s instinct throughout the affair was to cover up rather than seek out wrongdoing and discipline the perpetrators.

During a news conference, the committee said all of its 10 voting members supported the report's conclusions about the executives in question. But a Conservative Member of Parliament said the committee's Conservative MPs voted against the final report largely because of the line saying that the Chairman and Chief Exec. isn't a "fit person" to run a global company.

It passed with the support of six Labour and Liberal Democrat legislators. Four Conservatives opposed it.

In a statement, News Corp. agreed that there had been serious wrongdoing committed at the News of the World, and that their response to that was much too slow and defensive.

The committee plans to submit a motion to the House of Commons, inviting British lawmakers to endorse its conclusion about the misleading behavior of the three former executives. Misleading a parliamentary committee isn't a criminal offense—witnesses generally don't testify under oath—but it can constitute contempt of Parliament, a noncriminal sanction levied against people who somehow impede the governing body's work.

The committee said the House of Commons will make a final decision on whether a contempt has been committed, and if so, what punishment should be imposed. The report didn't say what the punishment would be other than reputational damage and public opprobrium.

British lawmakers haven't meted out a contempt of Parliament sanction to a nonpolitician in more than half a century. The last time it happened, in the late 1950s, Parliament summoned a tabloid editor to the House of Commons to issue a reprimand and hear an apology.

The report didn't accuse the Chief Exec., or his son, News Corp. Deputy Chief Operating Officer—who oversaw News International for four years—of misleading Parliament, but the conclusions did say the father and son had presided over an affair that "demonstrates huge failings of corporate governance."

The committee hit out at the son's claim that he didn't realize the widespread nature of phone hacking until late 2010, calling it simply astonishing given the amount of information in the public domain.

It said his handling of a crucial phone-hacking civil claim in 2008 "raises questions of competence." Roughly £700,000 ($1.1 million) secret settlement was approved in the case without evaluating a key piece of evidence—an email transcript of hacked voice mails—is "astonishing" and indicative of a "lack of curiosity," or "wilful ignorance," the report says.

The report's denunciation could play into the deliberations of Ofcom, the U.K. communications regulator, which is evaluating whether the owners of British Sky Broadcasting Group are "fit and proper" to hold a British broadcasting license.

News Corp. qualifies as an owner because it holds 39.1% of BSkyB, one of News Corp.'s most lucrative properties. It holds a number of the pay-TV giant's board seats.

Ofcom said Tuesday it is considering the report as part of its evaluation of the broadcasting license. The regulator can revoke a broadcasting license if an owner doesn't meet the loosely defined classification, which takes into account criminality, the propriety of directors and other behavior. Ofcom is unlikely to act before the conclusion of the criminal investigations.

The committee generally refrained from making pronouncements on former News International executives who are among roughly 40 people arrested as part of a massive British criminal probe into phone hacking, bribery, obstruction of justice and computer hacking.No one has been charged.

The committee said it would produce a supplementary report when all criminal proceedings finish.

The phone-hacking matter first shot to attention in 2006, when a British court convicted the News of the World's royal correspondent, and a private investigator, for intercepting the voice mails of aides to the British royal family. The following year, the court sentenced the pair to four and six months, respectively.

News Corp. long said the wrongdoing at the News of the World was isolated to those two individuals—a claim the company later admitted was false. The scandal exploded more prominently last July with the revelation that in 2002 the News of the World hacked the phone of a missing 13-year-old girl who turned out to be murdered.

Tuesday's report criticizes News Corp. for throwing money at both perpetrators and victims to "buy silence" and making "misleading and exaggerated claims" about internal company investigations in a deliberate strategy to exaggerate evidence in support of the company's innocence.

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