May 16 (Bloomberg) -- News Corp. Chairman Rupert Murdoch arrived in London last July to take charge of a burgeoning phone-hacking scandal and was asked by reporters what his priority was.
“This one,” the 81-year-old media mogul snapped, gesturing to red-haired Rebekah Brooks, the chief executive of his company’s U.K. publishing business, who was standing at his side.
Prosecutors in London, it turns out, had the same priority.
Yesterday Brooks, 43, became the highest ranking News Corp. executive to be charged in the 17-month-old investigation that has seen about 50 people arrested on suspicion of involvement in voice-mail intrusion, police bribery or computer-hacking.
One of six defendants who include her husband and her former assistant, she is accused of obstruction and conspiracy to pervert the course of justice by destroying e-mails and other relevant evidence. She denied the charges. Her husband, Charlie, described the prosecution as a “witch hunt.”
From Murdoch there was uncharacteristic silence. Just a year ago, the media titan threw all his support behind Brooks, designating her as the company’s main line of defense against the widening phone-hacking probe.
He spoke out on her behalf last July, even after it was revealed that phone-hacking had taken place on her watch as editor of the News of the World. He accepted her resignation July 15 with regret and refused to blame her during his subsequent testimony before Parliament.
When the London media ran titillating stories in February that Brooks had received a retired police horse for her own personal use, Murdoch came to her defense, writing in Twitter messages: “Now they are complaining about R Brooks saving an old horse from the glue factory!”
Rupert Blamed Others
Even last month, giving testimony before a judge-led inquiry into media ethics, Murdoch refused to blame Brooks for problems linked to her watch at his London tabloids. He assigned blame to a former lawyer and another editor at News of the World.
With Brooks now accused of trying to obstruct Scotland Yard’s inquiry into phone hacking and police bribery and not of those scandal crimes themselves, Murdoch is learning the price of standing by one of his favorite editors at all costs.
“It’s fascinating how people reciprocate loyalties,” said Jeffrey Sonnenfeld of the Yale School of Management. “Murdoch stands by his people. When he puts his trust in you, it takes a lot to shake it.”
Murdoch’s willingness to allow Brooks to manage the company’s initial response to the phone-hacking matter demonstrates the perils of a dual-class stock structure that gives him almost complete personal control over the publicly traded company, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.
Murdoch Not Accountable
“Your accountability is effectively to yourself” in such situations, Elson said. “If you’re accountable to a board and investors, you tend to be more circumspect than if you’re not. In the end, the harm to you is nothing, since the problem of losing control of your business is non-existent. The consequences to you are much less severe than in a standard corporate structure because there’s nothing they can do.”
From the moment the police investigation was begun in January 2011, Brooks seemed to misjudge the gravity of challenges she and New York-based News Corp. faced, according to people familiar with her conduct who gave the following account. She retained BCL Burton Copeland, the same law firm that successfully contained a 2006 police inquiry into voice-mail hacking.
Lack of Cooperation
By April, Sue Akers, the deputy assistant commissioner in charge of the Scotland Yard inquiry, expressed dissatisfaction with the lack of cooperation she was getting from the firm. Brooks sent two newly hired deputies, William Lewis and Simon Greenberg, to meet with Akers to make amends.
At the same time, internal evidence emerged at News International, News Corp.’s U.K. unit, that police bribery had also taken place at News of the World to secure tips.
Brooks assured two members of Murdoch’s management team in New York, Joel Klein, the head of News Corp.’s education division, and Lon Jacobs, the general counsel, that everything was under control, even with the newly discovered evidence of bribery.
The men retained Brendan Sullivan of Williams & Connolly LLP, one of the top criminal defense lawyers in the U.S., to advise the company. Last May, Brooks flew to Washington to meet one-on-one with Sullivan. A senior News Corp. executive described her as “very persuasive” in her discussions with Sullivan and other members of top management.
A week later, Murdoch convened a dinner at his townhouse in London at which Sullivan set the ground rules for how the crisis would be handled. He expressed confidence in Brooks, and her ability to manage the company’s relationship with the police.
Sullivan cautioned the attendees, who included News Corp. Chief Operating Officer Chase Carey and Deputy Chief Operating Officer James Murdoch, that Brooks might wind up getting charged as a result of the inquiry. Based on the information available to him, those charges wouldn’t be warranted, he said.
Sullivan also advised Brooks to retain her own lawyer. Brooks complied, but instead of hiring an attorney outside the circle of law firms already engaged on the matter, she asked Ian Burton, the lead partner of Burton Copeland, to represent her personally.
Brooks didn’t appear to grasp the potential conflict that might ensue if her personal interests ever deviated from the interests of News International, according to a News Corp. executive with direct knowledge of the matter.
Close to Murdochs
Brooks joined News of the World in 1989, the year she turned 21. In 1995, she was promoted to deputy editor of the paper and three years later, named deputy editor of The Sun, a more powerful position in the world of Murdoch tabloids.
In 2000, she became editor of News of the World. In 2003, she returned to The Sun, this time as editor. Over the next several years, she cultivated a strong relationship with Rupert Murdoch, occasionally joining him and his family on vacations and socializing with him during his visits to London.
In 2007, James Murdoch was named chairman and chief executive, Europe and Asia for News Corp. as well as executive chairman, News International, the News Corp. unit which published both tabloids, as well as The Times and The Sunday Times. Brooks began working with the younger Murdoch, who didn’t share his father’s affection for newspapers.
In 2009, she succeeded James Murdoch as chief executive of News International, while he took on more global responsibilities. Brooks was one of the few people who moved easily between James Murdoch’s circle of top managers in London and Rupert Murdoch’s top lieutenants in New York, according to a former senior executive who worked with her in London.
She was fiercely competitive and responded directly to any challenges facing her company. When The Guardian first reported, in July 2009, that hacking hadn’t been confined to a single “rogue reporter,” as News Corp. had insisted, Brooks declared that The Guardian had “substantially and likely deliberately misled the British public.”
At the same time, her position atop the company that published Murdoch’s U.K. newspapers also gave her political clout. In 2009, she blew off a request from a Parliamentary committee that she testify about the problem of phone hacking.
Her resignation from News International, where she had worked for 22 years, came only after revelations in The Guardian last July that phone hacking had occurred at News of the World when she was in charge.
Brooks’ exit from News International may have been softened by a compensation package which -- for executives at her level in the company -- usually includes a car and driver, as well as fees for legal representation and public relations services.
Daisy Dunlop, a spokeswoman for News International, and David Wilson, Brooks’ spokesman, declined to comment on any separation package.
Despite the circumstances of her departure, Brooks appears to remain loyal to Murdoch. At the Royal Courts of Justice last week, where the Leveson Inquiry into media ethics is being held, Brooks was interrogated at length about the power she amassed through her position as the head of News International.
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Brooks defended herself against allegations that she used her access to Prime Minister David Cameron to argue on behalf of News Corp.’s attempt to buy the 61 percent of British Sky Broadcasting Group Plc that the company didn’t already own.
She insisted she argued in favor of the BSkyB bid only in response to what she described as an extraordinary “anti-Sky bid alliance” that had formed against Murdoch.
Brooks also took issue with what she described as “gossipy” questions from Robert Jay, the lead lawyer for the inquiry, regarding the closeness of her relationship with Murdoch.
“I think a lot of it’s gender-based,” she said. “I think that my relationship with Mr. Murdoch -- if I was a grumpy old man of Fleet Street, no one would write the first thing about it, but perhaps otherwise I get a lot of this criticism and gossip.”
Jay was unmoved by Brooks’s suggestion that his questions were “gossipy” in nature.
“Same sort of stuff one reads or did read in the News of the World and continues to read in The Sun,” he said. “Isn’t that true?”
“Yes, but we’re not in a tabloid newsroom now, are we?” Brooks replied.
Nor may she ever be again if convicted.
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