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Murdoch’s News Corp. in Full Damage Control Mode

I think we’re so used in America to see corporate malfeasance get a free pass that we’re not particularly inclined to believe that News Corp. will be fatally wounded by this phone hacking scandal. I’m not so sure of that, not least because the story originated in, and is still being adjudicated in, Britain. To be sure, their government is completely compromised and in bed with Murdoch’s company as well, but in a way that’s forcing them to be more aggressive than they would otherwise. Already we’ve seen huge dominoes fall – Rebekah Brooks, Les Hinton, the BSkyB deal. And now the Board of Directors of News Corp. is starting to wonder if Murdoch himself is in the position to continue.

Independent directors of New York-based News Corp. have begun questioning the company’s response to the crisis and whether a leadership change is needed, said two people with direct knowledge of the situation who wouldn’t speak publicly. Rebekah Brooks, the former News International chief who Murdoch backed until last week, was arrested yesterday in London.

“The shell of invulnerability that Rupert Murdoch had around him has been cracked,” said James Post, a professor at Boston University’s School of Management who has written about governance and business ethics. “His credibility and the company’s credibility are hemorrhaging.”

News Corp. (NWS) fell 66 cents, or 4.2 percent, to $14.98 on the Nasdaq Stock Market at 11:18 a.m. New York time. Before today, it had lost 13 percent since July 4, when the Guardian reported that News of the World employees had intercepted the voice mail of Milly Dowler, a schoolgirl who was later found murdered. The tabloid is also alleged to have hacked into the phones of terror victims and dead soldiers, as well as politicians and celebrities.

The independent directors hold a majority of seats on the News Corp. board, though Murdoch controls the shares and could conceivably vote the directors off the board if he wanted.

For now, the Murdoch strategy is clear. He will launch a PR offensive to contain the damage to Britain and keep it out of the US. That’s priority one at this point. News Corp. is using its own media outlets in a self-serving way to make this point, including with this over-the-top editorial in the Wall Street Journal that takes that already discredited page to new depths.

We also trust that readers can see through the commercial and ideological motives of our competitor-critics. The Schadenfreude is so thick you can’t cut it with a chainsaw. Especially redolent are lectures about journalistic standards from publications that give Julian Assange and WikiLeaks their moral imprimatur. They want their readers to believe, based on no evidence, that the tabloid excesses of one publication somehow tarnish thousands of other News Corp. journalists across the world.

The problem with this approach is that there are plenty of ethical lapses and scandals out of News Corp. to choose from, and journalists know all about them. And in a country obsessed more with coverups than crimes, the fact that News Corp. tried and failed to spike the phone hacking scandal will resonate.

Felix Salmon argues that containing the damage is impossible at this point. It’s just a question of how deep it goes.

…My favorite part of the Times story on the coverup, which looks pretty brutal:

Mr. Murdoch was attending a conference in Sun Valley, Idaho, in early July when it became clear that the latest eruption of the hacking scandal was not, as he first thought, a passing problem. According to a person briefed on the conversation, he proposed to one senior executive that he “fly commercial to London,” so he might be seen as man of the people.

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David Dayen

David Dayen