Rupert Murdoch's American Scandals

All the corruption exposed in England – hacking, political payoffs, dirty cops, hush-money settlements – is also happening here

August 3, 2011 9:05 AM ET
Rupert Murdoch
As CEO, Murdoch not only tolerates employees and executives who push the boundaries of legality and good taste, he celebrates them — at least until the cops show up.
Andrew Harrer/Bloomberg via Getty Images

Rupert Murdoch would like you to believe that the voicemail-hacking scandal at the News of the World "went against everything that I stand for." In his recent testimony before Parliament, the 80-year-old billionaire insisted that the criminal wrongdoing at the London tabloid betrayed the 53,000 "ethical and distinguished professionals" he commands from the pinnacle of News Corp. — the world's second-largest media empire. Besides, he claimed, the scandal at the News of the World involved "a tiny part of our business," which he helpfully quantified as "less than one percent of our company."

At first glance, the systemic campaign of bribery and wiretapping at the News of the World certainly does seem extraordinary. Reporters and editors at what was the largest-circulation Sunday paper in the English-speaking world stand accused of bribing police, hacking the private voicemails of everyone from the royal family to the parents of soldiers killed in Iraq and Afghanistan, and paying more than $2 million in gag settlements to victims — allegedly with the full knowledge of Murdoch's son and heir apparent, James.

But the corruption exposed at the News of the World is not the work of a "rogue" element within News Corp. — it's a reflection of the lawless culture that defines the company. As CEO, Murdoch not only tolerates employees and executives who push the boundaries of legality and good taste, he celebrates them — at least until the cops show up. "There's a broader culture within the company," Col Allan, editor of Murdoch's New York Post, crowed in 2007. "We like being pirates." Whatever veneer of integrity News Corp. may have accrued after its purchase of The Wall Street Journal the very same year masks an ingrained corporate ethos that believes integrity is for suckers. The attitude passed down from the top, says one veteran of Murdoch's tabloids, is aggressive and straightforward: "Anything we do is OK. We're News Corp. — so fuck you and fuck your mother."

Indeed, an examination of Murdoch's corporate history reveals that each of the elements of the scandal in London – hacking, thuggish reporting tactics, unethical entanglements with police, hush-money settlements and efforts to corrupt officials at the highest levels of government – extend far beyond Fleet Street. Over the past decade, News Corp. has systematically employed such tactics in its U.S. operations, exhibiting what a recent lawsuit filed against the firm calls a "culture run amok." As a former high-ranking News Corp. executive tells Rolling Stone: "It's the same shit, different day."

HACKING AND HUSH MONEY News America Marketing, a News Corp. subsidiary based in Connecticut, has been accused of engaging in "illegal computer espionage," repeatedly hacking a rival firm's computer system between 2003 and 2004 — a period that happens to coincide with NOTW's voicemail hacking in London. According to a lawsuit against News America, which dominates the lucrative market for ads on supermarket shelves and shopping carts, the Murdoch subsidiary grew alarmed when a competitor called Floorgraphics Inc. entered the market in the late 1990s with a novel concept — ad decals pasted on supermarket aisles. Paul Carlucci, the CEO of News America, responded by convening a meeting with FGI executives and allegedly delivering a Mafia­like ultimatum: Sell to Murdoch or be destroyed. "I work for a man who wants it all," Carlucci warned, "and doesn't understand anyone telling him he can't have it all."

When FGI rebuffed the takeover bid, according to a lawsuit the company filed in 2004, News America embarked on a campaign of "illegal, anti-competitive and unfair business practices." After hacking into FGI's database, the suit alleged, News America used the information to steal away top clients like Safeway, effectively destroying its rival's business. FGI petitioned Chris Christie, then a U.S. attorney, to launch a criminal investigation into the alleged hacking, but the future governor of New Jersey refused to file charges. By then, the damage was done. News America was able to snap up FGI for $30 million — not only achieving Murdoch's original goal of market domination but also quashing FGI's lawsuit in the process.

News Corp. shareholders have paid far more to hush up other complaints about News America's monopolistic abuses. To box out two more rival firms, Valassis Communications and Insignia, News America used its market position to hike ad rates for supermarket clients who refused to also advertise in Murdoch newspaper circulars. "It feels like they are raping us and they enjoy it," an executive at Sara Lee complained. In 2009, a Michigan court awarded Valassis $300 million for News America's illegal attempt to corner the market. News Corp. eventually silenced the affair with a $500 million payment to Valassis that blocked the threat of further litigation. It also reached a $125 million settlement with Insignia. The combined settlements of $655 million more than wiped out the profits News Corp. reaped from its record box-office smash Avatar.

THUGGISH REPORTING Instead of firing the man responsible for the legal and financial fiasco at News America, Murdoch promoted him. In addition to serving as CEO of News America, Carlucci was tapped in 2005 to become publisher of Murdoch's flagship American tabloid, the New York Post. Under Carlucci's leadership, the two businesses appear to have drawn inspiration from a similar source: organized crime. Carlucci reportedly encouraged teamwork at News America by showing his salesmen a clip from The Untouchables in which Al Capone brains a disloyal deputy with a baseball bat. And shortly after Carlucci arrived at the Post, the newspaper was rocked by a scandal in which a star Page Six reporter allegedly attempted to shake down billionaire Ron Burkle for "protection" from the gossip sheet, telling him, "It's a little like the Mafia."

Burkle secretly recorded Page Six reporter Jared Stern offering to go easy on him in the gossip sheet in exchange for a hefty payoff. "We know how to destroy people," Stern reportedly threatened. "It's what we do." To shield himself from character assassination, Stern allegedly suggested, Burkle could make a one-time payment of $100,000, followed by monthly installments of $10,000.

News Corp. axed Stern, dismissing him as a rogue reporter and calling his behavior "highly aberrational." But according to a 2007 affidavit by a fellow Post veteran, the alleged shakedown was an integral part of the company's culture. "The spineless hypocrites in senior management at the New York Post and News Corp. have always used 'expendable' employees as scapegoats for the misdeeds of its senior executives," Post reporter Ian Spiegelman testified. Spiegelman revealed that Page Six's top editor Richard Johnson and two others had accepted cash from a restaurateur whose business had received a positive mention the day before. Johnson also allegedly accepted a $50,000 all-expenses-paid bachelor party to Mexico from Joe Francis, the founder of Girls Gone Wild, whom the Post subsequently hyped as "the next Hugh Hefner." Spiegelman further charged that Col Allan, the Post's top editor, received free lap dances at the strip club Scores in return for favorable coverage by the paper.

News Corp. conceded that Johnson had accepted a $1,000 "gift," but Murdoch let the editor off with a reprimand. Indeed, as Murdoch biographer Michael Wolff later observed, the incident only served to enhance Johnson's reputation. "The bribery business actually seemed to confirm Johnson's status for Murdoch as an old-time, walk-on-the-wild-side, dangerous, rule-bucking, proudly cynical newsman," Wolff concluded. Insiders make clear that the worst impulses exhibited by the Post and other News Corp. publications come directly from the top. "Murdoch tries to wash his hands of everything when it's convenient and pretend he has no involvement in the day-to-day running of the paper — which is just nonsense," says a former Post reporter. "He's always been very hands-on. There were no major decisions taken, even at Page Six, where Murdoch's interests would not be considered."

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