U.K. Phone Hacking Report Cites Shortcomings of Murdochs, News Corp.

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LONDON - The stock of Rupert Murdoch's News Corp. rose slightly early on Thursday after the executive summary of the Leveson Inquiry report on U.K. press standards and regulation failed to harshly criticize the conglomerate and its top executives.

But the full report argued the company's News International U.K. newspaper unit, which has been engulfed by the phone hacking scandal that triggered the Leveson probe, failed in terms of corporate governance.

Leveson also expressed concern about chairman and CEO Rupert Murdoch's and son James Murdoch's comments that they didn't know the full story, because subordinates kept them in the dark on the phone hacking allegations. He argued that both failed to show enough focus on fully uncovering the phone hacking issue early on.

The full version of the Leveson report didn't attack News Corp.'s broader operations beyond citing failures in the U.K. It said that there was a lack of respect for "privacy and dignity" at the News of the World tabloid, which News Corp. shuttered last year in the wake of the phone hacking scandal. “Most responsible corporate entities would be appalled that employees were or could be involved in the commission of crime in order to further their business - not so at the News of the World.”

Wall Street and industry observers said in first reactions that the Leveson comments likely wouldn't cause new concerns that would hurt News Corp.'s stock. As of 10:25am ET, the stock was up 1.1 percent at $24.63, near its 52-week high of $25.50.

Highlighting the explanation from James and Rupert Murdoch that management at News of the World, which the younger Murdoch used to oversee, was the victim of a cover-up, Leveson wrote: "I must make it clear that if James Murdoch was unaware of the allegations, his lack of knowledge is, at least in part, only a result of chance."

He added: "If James Murdoch had been the victim of a cover-up, or an attempt to minimize the gravity of the position, then the accountability and governance systems at News International would have to be considered to have broken down in an extremely serious respect. If James Murdoch was not the victim of an internal cover-up, then the same criticism can be made of him as of [others] in respect of the failure to take appropriate action."

Addressing James Murdoch's argument again later in the report, Leveson said: "There are aspects of the account of Mr. Murdoch that cause me some concern."

For example, he argued that there was no logical reason for Murdoch's subordinates to hide details of the hacking allegations from him.

Either way though, Leveson faulted the overall organization for failing to follow up. "In truth, at no stage, did anybody drill down into the facts to answer the myriad of questions that could have been asked," his report said.

About Rupert Murdoch, the report said: "Although there is no evidence from which I could safely infer that Rupert Murdoch was aware of a wider problem, it does not appear that he followed up (or arranged for his son to follow up)" on a brief that he argued was given to one of his lieutenants.

"If News Corporation management, and in particular Rupert Murdoch, were aware of the allegations, it is obvious that action should have been taken to investigate them," Leveson concluded. "If News Corporation were not aware of the allegations which, as Rupert Murdoch has said, have cost the corporation many hundreds of millions of pounds,then there would appear to have been a significant failure in corporate governance and in particular in the effective identification and management of risks affecting News International and, thus, the corporation."

Email: Georg.Szalai@thr.com
Twitter: @georgszalai