The Guardian Unearths a Wall Street Journal Scandal

The paper claims the scalp of a Journal publisher and points to deeper problems

Read this Wall Street Journal story from this morning on the resignation of its European edition’s publisher.

What the Journal reports is bad enough: That the publisher, Andrew Langhoff, “personally pressured two reporters into writing articles featuring” a Journal customer.

But, now read The Guardian from this afternoon.

The problems at the Journal, we find, are much worse than the Journal itself reports. The Guardian’s Nick Davies—yes, that Nick Davies—reveals that Langhoff’s resignation was also connected to a broader scheme to improperly inflate Journal circulation, a scheme unearthed by the Guardian.

Here’s Davies:

One of Rupert Murdoch’s most senior European executives has resigned following Guardian inquiries about a circulation scam at News Corporation’s flagship newspaper, the Wall Street Journal.

The Guardian found evidence that the Journal had been channelling money through European companies in order to secretly buy thousands of copies of its own paper at a knock-down rate, misleading readers and advertisers about the Journal’s true circulation.

The Guardian reports that 41 percent of the WSJ Europe’s circulation of 73,000, comes from a program where companies buy papers on the cheap and give them away free to students. There’s nothing inherently wrong with that, of course. Though advertisers dislike bulk sales like these, lots of papers do them.

The problem comes when one of the companies sponsoring the seminars and giving away the papers, a Dutch concern known as Executive Learning Partnership, responsible for fully 16 percent of the Journal’s European circulation, threatened to back out:

By the autumn of 2010, ELP were complaining that the Journal was failing to deliver its end of the agreement. They threatened not to make a payment of €15,000 that was due at the end of December, for the copies of the Journal which they had sponsored since April 30. Without the payment, the Journal could not officially record the sales and their circulation figures would suddenly dive by 16%, undermining the confidence of advertisers and readers.

So Langhoff set up a complex scheme to channel money to ELP to pay for the papers it had agreed to buy - effectively buying the papers with the Journal’s own cash. This involved the use of other companies although it is not suggested that they were aware they were taking part in a scam.

In other words, according to The Guardian, the Journal funneled money through a middleman to artificially inflate its circulation from San Bernardino Sun-size all the way up to Modesto Bee size. It’s a big no-no for businesses to inflate numbers like that.

Worse, a whistleblower told Dow Jones and former CEO Les Hinton, who oversaw and helped cover up the hacking scandal at News International, about what was going on. What happened then?

No action was apparently taken at that time on the whistleblower’s allegations. The whistleblower, who had worked for Dow Jones for 9 years, was made redundant in January.

“Made redundant” is a pleasant Britishism for shit-canned. And the person let go was made redundant a month after blowing the whistle.

Meantime, Davies notes up high in his piece what the Journal missed in its own:

In what appears to have been a damage limitation exercise following the Guardian’s inquiries, Langhoff resigned on Tuesday, citing only the complaints of unethical interference in editorial coverage. Neither he nor an article published last night in the Wall Street Journal made any reference to the circulation scam nor to the fact that the senior management of Dow Jones in New York failed to act when they were alerted last year.

It’s deeply awkward when newspaper has to report on a scandal in its own parent. The Journal has been caught in this bind for a while now.

It should be remembered that the Journal’s piece was rushed out on the news of Langhoff’s resignation—before the Davies story was published this afternoon.

And to its credit, the Journal piece this morning reports on corporate meddling in the paper’s editorial decisions. The European edition’s former editor Patience Wheatcroft (who, get this, “left The Wall Street Journal Europe in late 2010 to join the U.K. House of Lords”) knew about the pressure put on her reporter by the publisher—because some staffers complained—and ran the story anyway.

Whatever the Journal reporters and editors knew about this when publishing today’s story, their bosses surely knew what The Guardian was about to report. One way or another, the paper looks very bad here.

And News Corporation, of course, looks worse. Its instinct, as we’ve seen time and time again in the hacking scandal, is to cover up misdeeds rather than to be forthright about them, and this one looks to be another huge headache for Rupert Murdoch and the Journal.

Meanwhile, kudos to Davies and the Guardian on another major scoop.

UPDATE: The WSJ denies Davies’s report, calling it “replete with untruths and malign interpretations.”

UPDATE THE SECOND: The Journal has a terrific second-day story that essentially confirms The Guardian’s piece, as I write here.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,