One of Rupert Murdoch’s most senior European executives has resigned following inquiries by the Guardian about a controversial circulation scheme at News Corp’s flagship newspaper, the Wall Street Journal (WSJ).
The Guardian found evidence that the WSJ had been channeling 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 WSJ’s true circulation.
The bizarre scheme included a contract in which the WSJ persuaded one company to cooperate by agreeing to publish articles that promoted its activities, a move which led some staff to accuse the paper’s management of violating journalistic ethics and jeopardizing its treasured reputation for editorial quality.
Internal e-mails and documents suggest the scam was promoted by Andrew Langhoff, European managing director of the WSJ’s parent company, Dow Jones and Co, which was bought by Rupert Murdoch’s News Corp in July 2007. Langhoff resigned on Tuesday.
The highly controversial activities were organized in London and focused on the WSJ’s European edition. Top executives in New York, including Murdoch’s right-hand man, Les Hinton, were alerted to the problems last year by an internal whistleblower and apparently chose to take no action. The whistleblower was then made redundant in January.
In what appears to have been a damage limitation exercise following the Guardian’s inquiries, Langhoff resigned, citing only the complaints of unethical interference in editorial coverage. Neither he nor an article published in the WSJ on Wednesday 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.
The affair will add weight to shareholder fears that News Corp has become a “rogue corporation.” Some of them have launched a legal action in the US, attacking the Murdochs after the News of the World phone-hacking scandal and following lawsuits in which News Corp subsidiaries were accused of hacking into competitors’ computers and stealing their customers.
The WSJ’s decision secretly to buy its own papers began with an unusual circulation-boosting scheme called the Future Leadership Institute. In January 2008, the WSJ linked up with European firms who sponsored seminars for university students who were likely to be future leaders. The WSJ rewarded the sponsors by publishing their names in the paper. The sponsors paid for that publicity by buying copies of the WSJ at no more than US$0.05 each. Those papers were then distributed to students.
The scheme was controversial. However, the UK’s Audit Bureau of Circulation ruled the scheme was legitimate and by last year, it was responsible for 41 percent of the European edition’s 75,000 daily sale.
Early last year the scheme began to face trouble when its biggest single sponsor, Dutch firm Executive Learning Partnership (ELP), threatened to back out. ELP was responsible for 16 percent of the WSJ’s European circulation, sponsoring 12,000 copies a day at US$0.01 per copy.
Over the year it sponsored 3.1 million copies costing 31,080 euros (US$42,470). ELP said the publicity it received was not enough of a return on its investment.
On April 9 last year, Langhoff e-mailed ELP with a new deal, offering to “provide a well-branded showcase for ELP’s valuable services.”