News Corp. (NWSA)’s phone-hacking crisis claimed two top newspaper executives as Chief Executive Officer Rupert Murdoch defended his handling of the scandal and the FBI began a U.S. probe of the company.
Les Hinton, chairman of News International in the years the alleged hacking occurred, stepped down as head of the Dow Jones division yesterday. That followed the exit of News International CEO Rebekah Brooks. She was editor of the News of the World, the newspaper implicated in the scandal, from 2000 to 2003.
The spotlight will shift back to Murdoch and his son, James, the deputy chief operating officer, on July 19 when they testify about the phone-hacking scandal before the U.K. Parliament. With the FBI involved and the company facing civil litigation in the U.S., the scandal is likely to grow, said Nell Minow, a board member at GovernanceMetrics, a corporate governance research company.
“There is going to be a constant drip, drip, drip of more information coming out that is simply going to get worse and worse,” Minow said in an interview. “I have no reason to believe that we’ve seen the worst yet.” Murdoch “has to go,” she said.
In a statement announcing Hinton’s departure, the 80-year- old CEO downplayed his own importance to the company he built from two inherited Australian newspapers.
“News Corp. is not Rupert Murdoch,” he said in the statement. “It is the collective creativity and effort of many thousands of people around the world, and few individuals have given more to this company than Les Hinton.”
The Federal Bureau of Investigation, prodded by members of Congress, began looking into whether News Corp. employees may have targeted the phones of victims of the Sept. 11, 2001, terrorist attacks.
U.S. Representative Peter King, the Republican chairman of the House Committee on Homeland Security, asked FBI Director Robert Mueller in a July 13 letter to investigate whether News of the World employees tried to access voicemails belonging to the victims through bribery and illegal wiretapping.
“We’re aware of certain allegations pertaining to a possible hacking by News Corp. personnel and we’re looking into those charges,” Jim Margolin, a spokesman for the Federal Bureau of Investigation’s New York office, said in a phone interview this week.
News Corp. has hired criminal defense lawyer Brendan V. Sullivan Jr. of the Washington law firm Williams & Connolly LLP, the New York Times reported. Sullivan’s clients have included former Alaska Senator Ted Stevens, ex-New York Stock Exchange Chairman Richard Grasso and Reagan White House aide Oliver North. Sullivan didn’t return a phone and e-mail messages from Bloomberg News seeking comment.
Julie Henderson, a News Corp. spokeswoman, didn’t return phone and e-mail messages yesterday seeking comment. Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.
Murdoch, in an interview with the News Corp.-owned Wall Street Journal, said the company has handled the crisis “extremely well,” with “minor mistakes.”
The Dow Jones Special Committee said today in a statement it didn’t see any relationship between Hinton’s resignation and his tenure at Dow Jones or the Journal, where he was the publisher. The committee was formed in 2007 to monitor journalistic integrity and independence at the newspaper.
‘We Are Sorry’
Yesterday, Murdoch met with the parents of Milly Dowler, a murdered schoolgirl whose voicemails were hacked by News of the World in 2002.
“I said I was appalled to find out what happened,” Murdoch said after meeting the family. “I apologized and I have nothing else to say.”
Murdoch has been in London since last weekend as the scandal escalated and politicians of all parties called on him and James, 38, to take responsibility. News Corp. published an apology in all national newspapers in Britain today, saying “We are sorry” and signed by Rupert Murdoch.
The now-defunct News of the World tabloid is accused of hacking hundreds of voice mails, including those of murder and terrorism victims, and bribing police for confidential information. Last week, News Corp. closed the 168-year-old newspaper. London police have made at least nine arrests as part of their investigation.
The scandal led News Corp. to abandon its $12.6 billion (7.8 billion-pound) bid for full control of British Sky Broadcasting Group Plc. (BSY)
News Corp. rose 21 cents, or 1.3 percent, to $15.64 yesterday in Nasdaq Stock Market trading in New York. The Class A shares have fallen about 13 percent since the first reports on July 4 that News of the World had hacked Milly Dowler’s voice mail.
The resignation of Brooks marked a U-turn for Murdoch, who had stood with the newspaper executive and said she would stay on. Murdoch this week backed his son and heir apparent, saying James had acted “as fast as he could, the moment he could.”
Brooks may receive 3.5 million pounds ($5.7 million) in severance pay, the Independent reported, citing unidentified senior colleagues.
The Murdochs must “cooperate fully” with inquiries into the phone-hacking scandal, Kingdom Holding Co.’s Prince Alwaleed bin Talal Al Saud said in a July 14 BBC interview.
“We hope as this unfolds that the truth will come out,” said Alwaleed, who has a 7 percent voting stake in News Corp. and had called for Brooks’s removal. “The facts will come out imminently.”
Murdoch controls News Corp. through a 38 percent stake in the company’s Class B voting shares, according to company filings and data compiled by Bloomberg. Those shares represent a 12 percent economic interest in the company, when nonvoting shares are counted as well.
In addition to Rupert Murdoch, News Corp.’s board members include his son Lachlan, 39, as well as James. Murdoch’s daughter Elisabeth, 42, was expected to become a director after selling her Shine Group TV production outfit to News Corp. for $673 million in February.
King’s request to Mueller was one of several by elected officials and media watchdog groups to investigate News Corp. King, who represents part of New York’s Long Island, said in the letter that his district lost 150 people in the attacks.
In a July 13 letter, New Jersey senator Frank Lautenberg asked U.S. Attorney General Eric Holder and SEC Chairwoman Mary L. Schapiro to investigate whether News Corp. or its subsidiaries breached the U.S. Foreign Corrupt Practices Act.
The act makes it a crime for a U.S.-based company, such as News Corp., to pay foreign officials to get or keep business.
Holder yesterday confirmed the existence of a U.S. probe in public comments he made while in Sydney.
“There have been members of Congress in the United States who have asked us to investigate the same allegations, and we are progressing in that regard using the appropriate federal law enforcement agencies in the U.S.,” Holder told a group of Australian justice officials, according to Laura Sweeney, a spokeswoman for the U.S. Justice Department.
In his interview with the Journal, Rupert Murdoch said the company isn’t separating its newspaper assets, which also include U.K. tabloid the Sun, the Times of London and the New York Post. The company will establish a “protocol for behavior” for reporters across the company, he said.
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