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Paul Abrams

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Willful Blindness?

Posted: 07/21/11 12:03 PM ET

The Murdochs' performances at the Parliamentary hearings were textbook public relations and legal pablum -- from stating that advisers in hearing preparations told them only "just tell the truth," to expressing grief, sorrow and apology to their victims, to their lack of knowledge or forgetfulness, to their reliance on legal counsel for their actions or inactions.

Only at the very end, when one of the Parliamentary committee members challenged the Murdochs to waive the confidentiality sections of the settlement agreements with those that had been hacked, did the Murdochs clearly reveal their vulnerability -- despite all the sweet words about cooperating with the investigation, and their interest in getting to the truth, they clammed up, indicating they did not wish to answer "a hypothetical question", and suggesting that if there were specific information the committee wanted, they would "discuss this later with the Chairman."

If they had nothing to hide, one would think that all they needed was a simple "yes."

Before that little interchange, it had all sounded so reasonable. A translation from "PR-speak" and "corporate-speak" into plain English (or American, if one prefers), however, suggests that it was a carefully orchestrated performance.

What preparation did their advisers give them? It is standard fare for legal counsel to tell clients to say that "yes, they had advice and preparation, and the advice was just to tell the truth." It is a perfect answer, because it suggests they are telling the truth, and it makes any follow-on question useless, as the answer would always be, "they just told us to tell the truth."

Underneath that veneer, of course, the critical question is "what truth" did the advisers help them arrange to tell? If Rupert did not recall something, did they try to get him to refresh his recollection? If James were not yet on-board when certain events occurred, did they supply him with information to become knowledgeable? Did they, like Jimmy Stewart in Anatomy of a Murder keep questioning them about certain matters until they had arrived at the answers the attorneys thought would work? Did they advise them to tell the "whole truth" or just "the truth"?

Then, some PR-speak. The Murdochs could not be more grief-stricken and apologetic toward the victims. Sure, they were. Their entire corporate history is one of caring about others' feelings and reputations. The Murdochs were indeed grief-stricken about something -- they were caught. Were their expressions of grief and disgust about hacking, and their sympathies for the targets, credible?

And, of course, they want to get to the bottom of this problem even more than does Parliament, and will cooperate in every way possible -- except, as was later shown, those ways that might be the most damaging.

Back to corporate-speak. The information "they did not know" reminds one of Alberto Gonzales's testimony to Congress during the Bush Administration. Most incredulously, they were never informed at the time about the settlements with phone-hacking targets.

News Corp is a publicly-traded corporation. It has a duty to inform its shareholders of potential risks. Although the total settlement payments were indeed "rounding error" on the financials of a gigantic corporation such as News Corps, the potential risks to the company, and thus to shareholders, of criminal actions were enormous. Unless there were a specific rule at News Corp to hide such information from the Murdochs, enabling them to escape the consequences -- aka, "willful blindness" -- it is difficult to believe that such potential liability, and the successful handling of it (for the moment), would not have made its way all the way up the ladder to the Murdochs. What corporate officer in any organization would risk his or her own career and possible jail time by holding that information to their own chests and taking the entire risk, rather than pass it, and the responsibility that accompanies it, to the next higher level? Absent such a rule -- written or unwritten -- it is not credible.

Indeed, the Murdochs' unwillingness to free their hacking targets from their confidentiality obligations is very telling, especially given their assertion that confidentiality clauses in settlement agreements are rather common. They are common, but that is because confidentiality benefits one or both parties, and in this case, the British and American publics are entitled to know what that reason was.

There is, moreover, evidence that News Corp's hacking was not limited to political or even news/entertainment targets, but, at least in one case, was used in its commercial operations. Rachel Maddow recently detailed the case of a small company, FloorGraphics, Inc., whose business News Corp wanted, and who filed a lawsuit in 2006 alleging News Corp. hacked into its corporate computer to take some very sensitive corporate information. After a couple of days at trial, News Corp settled for $29 million. Soon thereafter, News Corp bought the company. FloorGraphics, Inc.'s consultants had traced the hacking to an IP address registered to News Corp. Will News Corp release FloorGraphics' former owners, employees and consultants from their confidentiality obligations?

Then there was the repeated use of reliance upon outside legal counsel. Although, to be fair, no one outside News Corp and its counsel knows what happened behind closed doors in this particular case, claiming reliance upon outside legal counsel is a well-worn exculpatory technique that makes no one responsible for an action.

Here is how it works -- documents/statements are provided to outside counsel. Outside counsel knows without being told that its job is to review the information and then provide an opinion that the company wants. If a company acts on that opinion, it escapes wrongdoing by claiming it relied on outside (i.e., arms-length, third party) counsel's advice. And, except in extreme situations of obvious collusion, counsel is not criminally liable if it just so happens that they provide wrong, but corporately-convenient, advice.

So, wrongs were committed, but magically there were no wrongdoers. What could be more perfect? If that also sounds like the stories behind the financial meltdown, or White House lawyers' advice to Dick Cheney on waterboarding, it is.

This was not the only use of this type of technique. Recall when Rupert was asked how it was that his son, James, 38 years old, became Chairman and CEO of News Corporation Europe and Asia. (He is now listed as deputy Chief Operations Officer for the global corporation). Rupert described a seemingly arms-length process--an outside group was called in to search and select for the position. They interviewed some number of candidates for the job. And, wouldn't you know it, James just happened to be the best person for the job. If challenged, they can likely produce the report from the outside consultants. Of course, the outside group had no idea of the result that Rupert wanted. News Corp also purchased Murdoch's daughter's company for $650M, for which it would be a very good bet that there is a "fairness" opinion, probably from an investment bank, that concludes that $650M was a fair price, with a litany of qualifiers to protect the bank against liability.

Why, one might ask, would prestigious law firms, investment banks and other outside consulting groups consider performing such craven acts? For one thing, the job of a law firm is to do the best it can for its client. Its written opinions are usually couched with so many qualifiers that the law firm itself is protected. Moreover, News Corp is a huge company, if one gets them the answers they want, one is likely to be tasked for other projects, and get paid very well for it. Indeed, working for News Corps as, for example, outside counsel is itself a ticket to prestige to be hired by others as well, and to be able to charge premium prices for one's advice.

One cannot know whether further investigations will expose sufficient evidence of unacceptable and/or illegal behavior to cause the Murdochs' demise. If they do, there will be a rush to conclude that our system of justice worked, that even the mightiest are subject to the law.

That would be a mistake.

It would be better to realize that they were "getting away with it" for years, and that society ought to determine new rules that remove the temptation and the opportunity for such behavior in the first place.

After all, the important question is not the Murdochs, but whether democracies and the rule-of-law upon which they depend, are compatible with such concentrations of wealth and power.

 

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