The business press, I have to say, has done a terrific job vetting News Corp. and Rupert Murdoch as potential owners of the nation’s leading financial organ, The Wall Street Journal. The press rightly understands a broader community interest in an independent, sophisticated and courageous sentinal of corporate behavior, the financial markets, and regulators, not to mention human rights in China.
Information is the lifeblood of markets. Decision-makers, and that includes executives, public officials, investors, consumers, depositors, policyholders, voters—that is to say, all of us—can’t make decisions in a market economy and free society without it.
So hats off to Slate’s Jack Shafer, who wrote well, often and early and I think sharpened others’ thinking; along with the Journal itself; The New York Times, especially for its recent two-day series on Murdoch’s past; The New Yorker for turning around a fine Ken Auletta piece (that mentions The Audit!) in a relative hurry; and, for that matter, us.
Thumbs down to the New York Daily News and everybody else who imputed bad faith to news organizations publishing information about News Corp.’s past misuse of its own news pages to further corporate interests, and about Murdoch’s personal dishonesty. To call the Times series some kind of corporate hit job says a lot more about the Daily News than it does the Times. Imputing bad faith without any basis is something that surprised me even from News Corp. Since when did journalists start opposing journalism?
Reading over the excellent work of the past few weeks it becomes clear that one reason a News Corp.-owned paper can’t cover the story of U.S. business is that News Corp. is the story of U.S. business at the beginning of the 21st century.
The meta-business story of our age, as I see it, is how big business—not business in general, but the biggest actors—have used their growing wealth to improperly influence government to distort markets to their advantage, eroding trust in markets themselves. We’ll get into it in another post, but I don’t think I’m the only one who detects this phenomenon in insurance, financial services, the nuclear industry, real estate development, pharmaceuticals, meat-packing, mining and other industries.
Sure, that’s not the only business story. Globalization, economic polarization, the end of cheap money, the bubble in asset values—those are all important. But it is an important story, and one News Corp. is quite incapable of covering because, again, that’s what it does: It improperly influences governments to gain an advantage over other actors unwilling to do the wrong thing.
The backdrop to my meta-story is the dismantling of market regulation that began under Reagan, a theoretically reasonable idea gone far too far. With Congress compliant, the Justice Department compromised, regulators captive and a Supreme Court under big actors’ sway, there is a danger of creating an upside-down meritocracy in which not the best, but the worst actors thrive. Any Wall Streeter will tell you: bad money drives out the good.
Think about it: Many media companies might want favors from the Chinese government, but only one is willing to:
—“Publish” a biography of mostly recycled propaganda of Deng Xiaoping written by his daughter;
—“Befriend” the son of President Jiang during a $150 million Murdoch investment spree on mostly failed Chinese internet ventures;
—“Recruit” the son of Ding Guangen, a government propaganda chief, as a “partner” in a venture that allowed News Corp. to become, for a while, a “backdoor national broadcaster” in China.
The reason I put those verbs in quotes is because that’s the language the Times uses in its brilliant piece on News Corp. in China by Joseph Kahn.
Audit Readers, those are all euphemisms for “paid.” That is, News Corp. paid relatives of government officials in a position to influence official decisions of direct concern to News Corp. And if you don’t think that story took skill and guts to do, from Kahn all the way up to the general counsel, it is safe to say you’ve never done one of those.
But why worry about China? That’s far.
How about a company that:
—Pays $250,000 for Trent Lott’s memoir just as Congress is on the verge of limiting any company from owning local television stations that reached more than 35 percent of American homes, meaning News Corp. would have had to sell some. Remember, this is in an extremely pro-business Republican Congress. (News Corp. ultimately won.)(1)
—Signs Newt Gingrich to a $4.5 million two-book advance just as News Corp. is negotiating with Congress to fend off challenges to Fox station licenses. (News Corp. won.)
—Sends a lobbyist to threaten then-FCC Chairman Reed Hundt that he wouldn’t “get a job as dog catcher” if his his agency stripped News Corp. of licenses as a result of probe into whether the company obtained some of them in violation of agency rules. (News Corp. basically won. )(1)
Does the fact that News Corp. wins means that it’s the better media company? No.
Or consider, as Bruce Page reports in his 8,000 word piece above this one on CJR.org, News Corp., among other rule-bending, took liberties with its accounting.
That was useful, but insufficient. The further step was to raise $1.5 billion via Michael Milken, the California junk-bond maven, then close to his financial zenith. “Junk bonds” had a certain glamor at the time, but even so their product could never be called stable financing. Therefore, the Milken operation was put into News Corp.’s accounts as an issue of “preference shares.” It was by any reasonable account a loan, but News Corp.’s lawyers asserted that Australian law permitted it to be called “shareholders’ funds”: thus, as Neil Chenoweth puts it, by increasing its debt, the company acquired the ability to increase it further still. News Corp. was swimming in leverage. But financially it was very un-American.
That’s putting it mildly. That kind of accounting story is right in the Wall Street Journal’s wheelhouse. You can’t have your parent company doing that, not ever.
Indeed, in an interview with The Audit to be published soon, former Dow Jones executive and director James Ottaway said the controlling Bancroft family avoided even taking on debt because they didn’t want the Journal to appear beholden to financial institutions it covered and wouldn’t own TV stations because they didn’t want the company to appear before any regulator.
That’s even more ethical than The Audit would be. But that’s stewardship, maybe to a fault. You could either see it as dumb business or a well-intentioned effort to protect the long-term—century-long-term—value of an asset.
To me, improper attempts to influence government are a separate issue from the other News Corp. bad practices detailed elsewhere, including in a fine 2000 opinion piece by the Journal’s Tunku Varadarajan. These include the misuse of its own news pages and editorial prerogatives to further corporate aims: dropping the BBC and the last British governor of Hong Kong’s memoirs because the Chinese government didn’t like them; parroting the Chinese government’s line on SARS, the Dalai Lama (!) and the horribly persecuted Falun Gong.
So, too, is Murdoch’s personal dishonesty. Last month, he told the Financial Times that News Corp. ditched the BBC in “China for commercial reasons. But as Shafer points out, Murdoch confessed the opposite to his biographer, quoted in 1994:
Murdoch defended pulling the BBC plug, telling Shawcross that the Chinese leaders “hate the BBC.” Speaking of his critics, Murdoch continued, “They say it’s a cowardly way, but we said in order to get in there and get accepted, we’ll cut the BBC out.”
Likewise, he told the FT last month that he had jettisoned the memoir of Chris Patten, Britain’s last Hong Kong governor, for commercial reasons. But as Shafer writes:
In a memo to his corporate boss, HarperCollins U.K. Chairman Eddie Bell concluded that the firm would have to choose between bad PR for killing the book or Chinese ill will for publishing it. “KRM [Rupert Murdoch] has outlined to me the negative aspects of publication,” Bell wrote.
To me, editorial abuses and personal dishonesty are problems in a news publisher, but those are News Corp.’s problems, in a sense, more or less unique to News Corp.
But when it comes to bending government to distort the market, that’s a problem for all of us. The problem of corporate tiltiing of government is a grave danger that transcends any individual company or industry and endangers democracy.
And it’s a story News Corp. can’t cover.
1. The Audit salutes Times reporters Richard Siklos, Jane Perlez, Raymond Bonner and especially Jo Becker, who, in her former job, co-wrote the great Cheney series in this week’s The Washington Post.