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Elisabeth of the Murdochs

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Matthew Freud and Elisabeth Murdoch at a London benefit dinner last November.  

A few weeks after the Telegraph report, Liz announced she was turning down Rupert’s invitation to join the News Corp. board, a snub that many saw as a way to insulate herself from the scandal. “She has to stand up for herself,” Freud confided to an executive after the announcement. “She had to point out that James and Rebekah are screwing Rupert.” In late August, Liz canceled a major appearance at the Edinburgh International TV Festival. “Certainly Liz is in a difficult position,” says a friend. “She has built a very successful media business, and she sold it back to News Corp. at a very unfortunate time. And for her, there’s been a focus on the thing she doesn’t want to talk about: that is, succession.”

Inside and outside of News Corp., it is widely believed that Freud is now waging a media campaign against James on behalf of his wife. “Everyone knows how Matthew Freud operates,” a senior News Corp. official tells me. “This is not new: He leaks to the press whenever it suits his purpose.” (A spokesperson for Freud disputes this.)

This past January, allies of James’s believe, Freud orchestrated a barrage of negative stories that suddenly appeared in the British press. “James was incredibly frustrated by his brother-in-law,” a person close to James tells me. “And he felt incredibly hurt by Liz this summer. He felt abandoned.”

There is a debate inside News Corp. over what Freud’s endgame is. Some believe he wants to marginalize James to drive him out of the company. A corollary of this theory is that his aim is to make Liz the heir apparent—which would of course place Freud at the center of power. Freud himself has signaled he has greater ambitions beyond PR. He is tiring of the spin game: “There’s nothing sadder than a 40-year-old PR person,” he is said to have told his friends.

From the start, Rupert Murdoch has maintained that the phone-hacking scandal was a minor distraction being pushed by his enemies—a view that both James and Rebekah Brooks were at pains to reinforce. “In his heart of hearts, Rupert doesn’t think the papers didn’t do anything wrong,” former Sunday Times editor Andrew Neil says. “He just thinks the British Establishment is getting him back.”

But inside Rupert’s inner circle, there was unease among some executives that perhaps the full picture wasn’t being presented. For months last spring, Lon Jacobs, News Corp.’s longtime general counsel, advocated for an independent investigation, according to two sources familiar with the matter. But Rupert had marginalized Jacobs, whom executives thought he unfairly blamed for mishandling a $500 million settlement in a scandal involving the News America Marketing department.

With Jacobs being squeezed out of the picture, Rupert increasingly turned to former New York City schools chancellor Joel Klein for legal advice. When Klein was hired last November, Rupert’s seniormost executives were caught unawares—it was an impetuous act by Rupert Murdoch. On Sunday morning, November 7, 2010, Michael Bloomberg called Klein and told him that he would be announcing that Klein was resigning that week. Klein and the mayor had been discussing Klein’s departure from Tweed Courthouse for months—but Klein was still taken aback at the timing of the decision. He had been in informal talks with several Wall Street firms, but nothing had materialized. Without a job lined up, he “panicked,” according to a person familiar with the matter. So Klein called Rupert. The two had been meeting on and off, and Rupert agreed to appoint him to News Corp.’s board of directors and put him in charge of an education division that News Corp. would launch. “We all found out [about Klein] that Monday,” says another senior executive. “Some of us had to scramble; you just can’t put someone on the board like that.”

While Jacobs and others advocated for an outside investigation of the scandal, Klein instead pushed for News Corp. to hire the powerful D.C. law firm Williams and Connolly—where his wife once worked—to conduct an inquiry. Brendan Sullivan, a senior partner at the firm, headed up the inquiry. Sullivan conducted interviews with James and Brooks and executives in London, but didn’t push for a more probing review that might have alerted senior News Corp. executives to the extent of the scandal, according to executives with knowledge of the report. In June, Sullivan delivered his report at a News Corp. board meeting and declared that both James and Brooks were “clean,” according to another executive familiar with its contents.

The tensions between Jacobs and Klein came to a head that same month. Jacobs walked into president and COO Chase Carey’s office and told him News Corp. was in breach of his contract because Rupert was using Klein like a general counsel. News Corp. agreed to let Jacobs go with four years left on his multimillion-dollar contract.


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