Murdoch survives grilling but the family empire teeters

It was painful to watch. Billed as the ultimate political theatre, here was Rupert Murdoch whose newspapers had put countless victims to the rhetorical sword, whose phone calls were feared by prime ministers, foundering in front of a parliamentary inquiry. The hoi polloi had queued outside for eight hours to see the most powerful man in the world but when the drama began it was strangely unedifying.
Murdoch struggled to answer questions from the panel of MPs. He struggled to hear some of them.

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James (left) and Rupert Murdoch (right) answer questions from British politicians, with Rupert's wife Wendi (centre) watching on. Photo: Reuters

“I would just like to say one sentence,” he interjected at the outset. “This is the most humble day of my life”.
It seemed heartfelt. But from there, it soon became evident that, at 80 years of age, hailing from New York and with a global media empire on his plate, the mogul just wasn't up to a grilling from a bunch of British MPs on a mission.
Sitting next to him, dressed like his father in a light blue suit and blue tie, the 38-year-old James Murdoch kept trying to ride to the rescue. But billionaires aren't built for this kind of caper. As his father battled on, hesitating, forgetting things, Murdoch the younger could hardly conceal his frustration. He tried to be forthright, he tried to stick to the script, painstakingly practised beforehand with PR people and lawyers, but his humility was hollow.

Lunging to her husband's defence ... Wendi Deng, dressed in pink, swings her right arm at her husband's attacker. Photo: AFP

As a PR exercise it would have gone down poorly with the British public but for a fortuitous farce which erupted just minutes before the interrogation reached its denouement. Although the Murdoch duo might garner some credit for fronting the inquiry for three hours, it was Rupert's young wife Wendi Deng who stole the show.
Deng, who had sat behind her husband looking tightly-wound for most of the proceeding, acted with the alacrity of Bruce Willis in a Die Hard movie to intercept a rogue comic who had somehow infiltrated the public gallery. The interloper jumped up and tried to toss a plate of white stuff at Rupert but Deng launched herself over a bystander and clouted the intruder with a swinging right arm.

It was majestic. The white stuff ended up on the comic who was led away remonstrating with police. The politicians on the committee sat frozen, slightly horrified. And despite some handwringing from the wheyfaced Murdoch bodyguards – who had been entirely upstaged by the intrepid Chinese woman in a pink jacket – it soon dawned on all present that they had just witnessed the highlight of the day.

James (left) and Rupert Murdoch answer questions before a panel of British parliamentarians. Photo: Reuters

Rupert and James happily consented to reconvene the inquiry. The main TV images might not be Murdoch “gotcha” moments but Wendi's act of valour.
Was he ultimately responsible for this criminal enterprise at his British operation? “No,” said Rupert Murdoch senior. “I hold responsible the people that I trusted to run it and the people they trusted.”
As captain of the ship, had he considered taking responsibility and resigning?
An emphatic “No,” said Murdoch. “I'm the best person to clean this up”.
The question now is: do News Corp investors share the same view? It's increasingly unlikely. As the inquiry pressed on throughout the afternoon News shares kept rising to hover 5 per cent higher by the time the unconvincing performance was over – and before Obama's US debt deal buoyed Wall Street later in the day.
Surely News' major shareholders and directors were watching in trepidation, knowing they would shortly have to move on Murdoch. And just as News stock had risen on speculation of a putsch during the Asian trading session a few hours earlier, so the shares were rising again on speculation of better corporate governance.
The great media mogul had done little during the hearing to inspire the market that he was in control of his empire. And his chosen successor to the executive throne at News Corporation, son James Murdoch, had presided over the greatest scandal in the history of the British press, even if unwittingly: a systematically criminal enterprise no less.
For a quick check of the tally: in two weeks we have witnessed a slather of arrests and resignations-in-disgrace, myriad evidence of police bribes and rampant phone hacking, all three British political parties offside, a cover-up or two, a $9 billion share price slide, and one death albeit with “no suspicious circumstances”.
True, James had done a good job from an executive perspective driving profits for BSkyB but do you survive a scandal like this?
It will go on and on. The editors, his immediate underlings, are likely to go down in flames. In any newsroom, the editor will demand to know how a big story is sourced. Perhaps not the name of the source, but definitely how safe is the source from a legal perspective. And so, if the story is celebrity gossip – and celebrities have money to sue – what more comforting a source could there be for News of the World than a phone message?
The editors knew. They were told, or else the stories would never have run.
Whether Rupert himself can cling to power still depends on whether the crisis can be contained in England, and stopped from infecting the US operations. While the damages suits line up in London – and these will cost plenty - the bulk of News' assets are in the US. Although there are claims of 9/11 victims' phones being hacked, it's still in the realm of speculation.
Even before last night's parliamentary inquiry, the seeds were planted for a change at the top of News. The share price had plunged 20 per cent in two weeks, stripping $1.5 billion from the Murdoch family fortune in the process. But yesterday, amid rumours that News' shareholders and independent directors were planning to remove Rupert from the Executive Chairman role, the stock actually rose.
In the next few weeks, directors and investors will be tossing up the prospect a coup and working out just how bloody a coup might be. They know the News Corp's founder has now become a liability to the share price but they also know they would be in for a mighty proxy battle to knock him out at the October annual meeting. There are two classes of shares. The Murdoch family owns 39 per cent of the voting class.
So it's a little early perhaps to call “pipe and slippers” time for Rupert Murdoch, despite his apparently diminishing grip on the company and the severe reputational damage of the past two weeks.
Still, the conundrum for directors is that News shares will rise if Murdoch goes. If he stays, uncertainty will continue to unnerve investors, undermine the stock and bring incessant questions about corporate governance. For years, the share price has waxed and waned on anticipation of the mogul's next move. Though News Corp is infamous for paying a tiny dividend, the stock has traditionally traded at a premium for Murdoch's nous as a deal-maker, for world dominance if you like.
Whether the brilliant corporate tactician can continue to bend governments to his commercial advantage though is doubtful now. That game, at least in the UK, would appear to be over.
So News Corp directors are now left with a dilemma. These are not your garden variety 'independent directors', these are “independent” directors hand-picked by the Sun King himself. Now however, the spotlight is on them. They have to perform. Legally, their mandate is to act in the interests of shareholders, not Rupert. They might even face the spectre of litigation themselves from disaffected shareholder groups.
News remains a moving feast.
The outcome, whatever it is, has profound ramifications for Australia. Let's not forget that Murdoch is still the most powerful man in this country – despite his American citizenship - on account of an empire spanning 70 per cent of the newspaper readership, plus operational control of monopoly pay TV provider Foxtel – not to mention his eldest son Lachlan's role as boss of Ten Network and shareholder in DMG Radio. Despite departing executive duties at News a few years ago to do his own thing, which now looks like a savvy move, Lachlan Murdoch remains on the News Corp board.
As the British scandal unfolds, there have been calls from politicians for a media inquiry in this country. Unless it was over media diversity it could well be a waste of time.
The illegal practices which have plagued News International are not replicated here. This reporter worked for the local arm, News Limited, for eight years and can say with a fair degree of certainty that there was no systematic breaking of the law.
Yes, the culture is aggressive. Yes, they use their media muscle for political and commercial advantage. Yes, they pursue their political agendas to the point of parody – NBN, carbon, mining tax, Iraq War and so on – but they play within the law.
Dominance is the issue.
Ironically, it was the Labor party – which has been feeling persecuted by Murdoch's papers lately - that delivered the media mogul his hegemony over the newspaper industry in the first place. Bob Hawke and Paul Keating's 1986 media 'reforms' paved the way for News to take over the Herald & Weekly Times (HWT) and consequently win domination of the newspaper markets in Melbourne, Brisbane and Adelaide (via The Sun and Melbourne Herald, the Courier Mail and the Adelaide Advertiser).
Ironically, a former staffer from Paul Keating's office, one Tom Mockeridge, now replaces Rebekah Brooks as head News International. Mockeridge had been running Murdoch's Sky Italia. Yes, the media is too close to the politicians in this country too – but not quite as cosy with the police!
If, as some media observers predict, chief operating officer Chase Carey ends up running the News Corp empire – and/or the Murdoch dynastic pretentions fall short and the company is broken up – the commitment by New York headquarters to a bunch of newspapers in this far flung corner of the globe may be tenuous to say the least.
In that event, power in this country and the dynamics of the Australian media scene may change for good.
mwest@fairfaxmedia.com.au


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