Joel Klein's News Corporation Putsch

The crisis at News Corporation continues to spread this morning:

Dark rumours were swirling as long ago as last spring, when Rupert and James Murdoch paid three unprecedented visits to Wapping in the space of a month.

Not only were father and son considering closing the scandal-racked News of the World, went the chatter on the Wapping grapevine, but its sister paper, the Sun, was also in the line of fire. Back then the fears seemed outlandish, born of the febrile atmosphere around the Sunday title that was to bring about its demise last July. There was little evidence the toxic allegations of malpractice would spread to the daily tabloid.

But what seemed incredible last year is now being discussed openly in Fleet Street following the arrests of five Sun employees on suspicion of bribing public officials. They follow the arrest of four other current and former Sun executives and journalists in January – and the separate arrest of a reporter on the paper the previous November – on similar suspicions.

The drip, drip nature of the arrests is in danger of becoming a flood. What started as a separate, but minor, line of investigation for the Metropolitan police team predominantly charged with examining allegations of phone hacking now threatens to become an epic bribery scandal of equal gravity.

Indeed, the moral rot at the core of News Corporation is more and more exposed as the arrests in the various police investigations mount:

A total of 21 people have now been arrested in the bribery probe, Operation Elveden, including three police officers, though no one has yet been charged. Those arrested include Rebekah Brooks, the former chief executive of Murdoch's News International, the company that owns the Sun, and ex-News of the World editor Andy Coulson, who went on to become prime minister David Cameron's communications chief.

That the arrests are linked to alleged bribes paid not just to police officers but prison staff and Ministry of Defence officials, confirms Scotland Yard is throwing its net wider as it seeks to root out corruption. The arrest of an MoD official may invite speculation that the Official Secrets Act could have been breached.

Here in the United States, News Corporation may face investigation under the Foreign Corrupt Practices Act (FCPA) for the bribery charges:

The latest Operation Elveden arrests sharply increase the danger to News Corporation of potential multimillion dollar fines by US authorities as part of the continuing investigation into alleged bribery of public officials under the Foreign Corrupt Practices Act (FCPA).

The eight arrests escalate the FCPA crisis for the company by extending the allegations of bribery from the News of the World to the Sun newspaper, and by broadening its scope from police officers to other public officials. An official from the Ministry of Defence and a member of the armed forces were also arrested for alleged corruption and "misconduct in a public office".

The threat of prosecution under the FCPA constitutes the greatest danger of the phone-hacking scandal for Rupert Murdoch's media empire. It could expose the company to tens of millions of dollars in fines and the risk of imprisonment of its executive officers.

So what is Rupert Murdoch's strategy going forward on this widening scandal?

Why, put Joel Klein in charge of whacking every News Corp. employee who is even suspected of bad behavior:

Toxic allegations that the Yard failed to take allegations of endemic phone hacking on the News of the World seriously did for the careers of both the Met's commissioner, Paul Stephenson, and his deputy, John Yates.

Now it is the mirror image of this relationship that is damaging the Sun. The paper's journalists are said to be furious that the arrests have been triggered by information supplied to the Yard by the Management and Standards Committee (MSC), an independent committee set up by the New York-based News Corporation, the parent company of News International. Following the first set of arrests, a News International source suggested it was intent on "draining the swamp", a comment that provoked fury among the company's journalists.

In a statement, the MSC said it was ploughing through a mass of information as it seeks to ensure "that unacceptable news gathering practices by individuals in the past will not be repeated". The committee has given a team of advisers, lawyers and forensic IT staff a broad remit to search for any evidence of wrongdoing. Significantly, the investigation is not confined to the now defunct News of the World. Overseen by Will Lewis, the former Telegraph executive, the committee is working closely with the law firm Linklaters, which is conducting a review of all three remaining News International titles – the Sun, the Times and the Sunday Times.

"The MSC is authorised to conduct internal investigations to fulfil its responsibilities in relation to News International's papers," the committee said in a statement. "It has powers to direct News International staff to co-operate fully with all external and internal investigations, and to preserve, obtain and disclose appropriate documents."

Chaired by Lord Grabiner QC and reporting directly to Joel Klein, executive vice-president and board director of News Corp, the committee's team is examining some 300m emails and what one insider described as "masses of hard copy". "They are looking at more information than one person could read in an entire lifetime," the insider said.

Well, Klein always did love data, didn't he?

Now he's got a treasure trove of it to look through, but one main piece of evidence found recently points to EXACTLY what Klein and Rupert intend to do next - pin this mess on Rupert's son, James.

The NY Times has that part of the story:

LONDON — As dozens of investigators and high-powered lawyers converge on Rupert Murdoch’s News International in the phone hacking scandal, attention has focused on the printout of an e-mail excavated three months ago from a sealed carton left behind in an empty company office.

Addressed to Mr. Murdoch’s son James, it contained explosive information about the scale of phone hacking at The News of the World tabloid — information James Murdoch says he failed to take in because he did not read the whole e-mail chain.

The e-mail returned to cause trouble for News International, the British newspaper subsidiary of News Corporation, several weeks ago when the company said that it had been deleted from Mr. Murdoch’s computer. Even as people familiar with the investigations said the e-mail and its convoluted history will form a crucial part of the inquiry into allegations of a cover-up, the scandal appeared to be widening on Saturday, as senior journalists at News Corporation’s Sun tabloid were arrested.

Tracing the story of the e-mail, which was found in November and first became publicly known in December, also sheds light on the intrigue surrounding Mr. Murdoch, the company’s heir apparent, and on efforts to protect him from the scandal.

Embroiled in three separate police operations, a parliamentary investigation, a judicial inquiry and a flurry of civil suits with potentially hundreds more waiting in the wings, News Corporation has begun to provide information that suggests a broader sweep of hacking activity at News International than was suspected even recently and more widespread knowledge within the company of past efforts to cover it up.

This new level of cooperation includes the release of damaging material from an internal investigation that is being overseen by executives who, observers say, are using it to consolidate their power within the company, a move that could come at James Murdoch’s expense.

The executive running the internal investigation who is releasing all the damaging material that has been resulting in arrests for Sun employees is of course Joel Klein.

He's the guy who is supposed to be "draining the swamp," as The Guardian story put it.

But more and more, it seems like he is running the cover-up around Rupert and throwing everybody else to the dogs - including Rupert's son, James.

Here is Murdoch biographer, Michael Wolff, on twitter:

NYT story re James Murdoch doesn't say he'll be arrested shortly, and that company is riven by perceived Joel Klein putsch--but almost says...Front page NYT story about James Murdoch will move case in UK more than same news in British papers...Joel Klein strategy at News Corp is to let Brits sink or swim. Unclear how much this is de facto or if Murdoch has bought in.

That last point is interesting - is Klein running this strategy at Rupert's behest or is he freelancing it?

Hard to know, but it quite clear Klein is running News Corporation strategy on the scandal and therefore essentially running News Corporation.

He's the one throwing everybody under the bus over at The Sun

We'll have to see if some of the pre-Klein News International and News Corporation employees begin to push back against Klein.

This article from Reuters on February 6 gives an indication of just how contentious things are between the people Klein brought in and the pre-Klein people:

News Corp says the committee is independent of News International. But it isn’t independent of the parent company: via Joel Klein it reports to News Corp board member Viet Dinh, who was an associate counsel to the US senate banking committee for the Whitewater investigation of President Bill Clinton. Dinh, who also served as a US assistant attorney general in the George W Bush administration, has been on the board for eight years, and is godfather to a child of Lachlan Murdoch, Rupert’s eldest son.

Klein was initially hired by Rupert Murdoch to head a new education division at News Corp.

In the United States, people in News Corp’s headquarters are aware of the growing tensions in London but feel they have no alternative but to stick to their course, according to a company insider.

The committee is divided into teams of lawyers and police who work in soundproofed offices, according to the people who are familiar with the work. The volume of data is so large that there is no question of reading each document. Instead, searches are carried out for key terms, meaning that no one knows what secrets may be buried in the documents - many of them deleted or corrupted emails that have been recently recovered - until the right term is hit upon.

MSC workers try to keep a distance from News International’s journalists. At first they were in the same building, but kept bumping into reporters and editors in the lobby or lifts. Now they are in a separate building where they share a floor with BrandAlley, an online clothing retailer in which News International has a stake.

“Filthy insects”
But different buildings do not guarantee peace. News International journalists say they are furious at the committee. When media reports began circulating that an insider had described the MSC’s work as “draining the swamp,” tempers flared.

“What do they mean, ‘drain the swamp’?” asked a News International journalist. “Are they saying we’re a bunch of filthy insects?” News Corp, the journalist continued, “is seen as the enemy now. They have failed to exercise due diligence... and their response now is to dump on their own employees. It’s a disgrace.”

The NY Times has more on the battle between management and employees:

Among former employees of The News of the World, said one, there is cynicism about the motivations of their former employer. Some feel, the person said, that the management “is protecting itself and serving up journalists.”

Britain’s National Union of Journalists criticized what it characterized as the handing of the staff members to the police without internal investigation of the evidence. “It’s a very brutal way of treating senior journalists who may or may not have done anything wrong,” said the group’s deputy general secretary, Barry Fitzpatrick.

News Corporation is at war with itself and Joel Klein, the master of creative destruction, is leading the charge.

I have to admit, I'm dubious Klein really wants to drain the swamp at News Corp.

Quite frankly, it seems to me that he has circled the wagons around Rupert and is slowly throwing everybody else to the wolves.

That includes Rupert's son, James.

There is little doubt to me that the Times article today about James and the incriminating email was planted by Klein.

Whatever happens next, one thing we can be sure about.

Things are going to get much worse for News Corporation before they get better.

You can't have a company at war with itself and expect it to thrive.