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News Corp's GC Doubles Down on Inhouse Challenges 7/10/13 Corporate Counsel: News Corp s GC Doubles Down on In House Challenges ALM Properties, Inc. Page printed from: Corporate Counsel Back to Article News Corp's GC Doubles Down on In­House Challenges Sue Reisinger Corporate Counsel 2013­07­09 00:00:00.0 It wasn't the best of times to leave a comfortable career as a Big Law partner to take over the law department at News Corporation. Legal tremors had been buffeting Rupert Murdoch's media empire over a London newspaper's phone hacking scandal. Then, in early 2011, what had been tremors exploded into a full­blown earthquake. One hacking incident involving a rogue reporter had suddenly escalated into many claims, not only of hacking but of alleged bribing of police officers and of cover­ups. And the allegations scaled the corporate hierarchy to include editors and executives as well. News Corp. had much at stake. Besides newspapers in the United Kingdom and Australia, it was the parent company of, among others, the Fox television network, the 20th Century Fox film studio, and Dow Jones & Company, including The Wall Street Journal. And in short order, the scandal began to damage its properties. In the U.K., Murdoch shuttered a newspaper and lost an opportunity to expand his company's stake in the largest pay­TV broadcaster in Britain. Also, shareholder suits attacked News Corp. for its alleged sweetheart acquisition of a television production company belonging to Murdoch's daughter. By June 2011, News Corp. general counsel Lawrence "Lon" Jacobs, one of Murdoch's most trusted advisers, resigned "to pursue other interests"—just before Parliament opened hearings on the hacking scandal. That was when the besieged company turned to Gerson Zweifach, a highly regarded partner at Williams & Connolly, to lead its law department. The 60­year­old Zweifach seemed at first like a strange choice. Even if he was interested in giving up his comfortable perch, he had never worked in­house before. And, though he had served as outside counsel for other media companies, he hadn't done work for News Corp. But he was known and admired by some prominent people in the business world. One was Kenneth Langone, founder and CEO of Invemed Asso​ciates Inc. and cofounder of The Home Depot. Langone spent time with Zweifach when the lawyer was defending former New York Stock Exchange CEO Richard Grasso against New York Attorney General Eliot Spitzer's suit claiming that Grasso was overpaid. Langone was on the NYSE board and chaired its compensation committee when Zweifach won the case. "He is a great tactician and strategist, with an enormous reservoir of common sense and street smarts," Langone says. He cites Zweifach's questioning of former NYSE board member Henry Paulson Jr. to illustrate. In his testimony, Paulson was effusive about Grasso's qualities and performance, Langone says. "Then why did you vote to fire him?" Zweifach asked. "The best answer Paulson could come up with," Langone recalls, "was 'I don't know.' And that was the guts of the case right there." Even some former opponents admire Zweifach. Sean Johnston, general counsel of Genentech Inc., recalls meeting Zweifach when the litigator was representing the opposing side in a patent litigation. Johnston was so impressed that when the case ended, he hired Zweifach to represent Genentech on new matters. "It's not just the quality of his lawyering," Johnston says, "but also the principled, thoughtful, professional way he and his team act." After 30 years in litigation, Zweifach was indeed ready for a change—and he was intrigued by the in­house idea. The situation wasn't all that different from one he'd often encountered as a trial lawyer: A company was coming to him with a problem it couldn't handle. "I saw a chance here to allow these people who built this incredible global company—to allow them not be distracted by this," he says. Zweifach recalls his job interviews with Rupert Murdoch, his son James, and chief operating officer Chase Carey. He wanted them to understand what they'd be getting. "I have no investment in the past, no agenda," Zweifach recalls saying. "What I www.law.com/corporatecounsel/PubArticleFriendlyCC.jsp?id=1202609891450 1/4 7/10/13 Corporate Counsel: News Corp s GC Doubles Down on In House Challenges would be coming here to do is telling you candidly and frankly what you need to do to get through this, and to make sure nothing like this ever happens again." The executives must have liked what the lawyer was pitching. They made him senior executive vice president and group general counsel, negotiating a three­year contract that paid Zweifach a total 2012 compensation of nearly $7.3 million, including bonus and stock awards. Zweifach's first year, which concluded last February, sped at a breathless pace as he focused on three key issues. The first was to manage and resolve the hacking scandal. Six months into the job, he added the title of chief compliance officer, and set out to create what he calls a world­class compliance program. At the same time he began legal maneuvers to split off the print business as an independent entity, explicitly protecting the parent from any criminal liability in the scandal. For most lawyers, any one would have been more than a full­time job. One of Zweifach's first acts as GC was to take over the company's management standards committee. Called the MSC, the group was formed by News Corp.'s Joel Klein to address the burgeoning hacking scandal at News of the World, part of the London subsidiary News International Ltd. Klein, also a lawyer, is the former chancellor of the New York City Department of Education and now heads News Corp.'s education unit. But he temporarily played a key legal role after he reportedly clashed with then–general counsel Jacobs on how to handle the crisis. Those clashes hastened Jacobs's departure. (Jacobs declined to comment for this story.) Klein paved the way for Zweifach in other ways as well. He hired Zweifach's firm, Williams & Connolly, as outside counsel to respond to the scandal in the United States. He also replaced outside counsel in London with Linklaters. He chose highly respected corporate lawyer Lord Grabiner QC to be an independent chairman for the MSC and to lead the internal investigation of News International. And, finally, Klein recommended hiring Zweifach to take over the battered legal department, including overseeing the MSC. Klein knew a thing or two about how federal prosecutors think. He headed the U.S. Department of Justice's antitrust division under President Bill Clinton that brought the landmark lawsuit against Microsoft Corporation. Klein's insider knowledge was important once the Federal Bureau of Investigation opened its own probe of News Corp. The Justice Department has said that it's examining whether the company accessed voicemails of 9/11 victims, as well as whether it violated the Foreign Corrupt Practices Act, which prohibits bribing foreign officials. The company says it is cooperating with all government investigations. Klein and Zweifach have known each other for years, and Klein says the new GC has more than fulfilled his expectations. "He is an extraordinary lawyer, one of a handful of top litigators in the United States in terms of judgment and experience," Klein says. He also notes that Zweifach's barbed wit is legendary in courtroom circles. Klein recounts an instance in which Zweifach was deftly cross­examining an expert witness when the witness turned to the judge and complained, "Your Honor, the counsel is making me look like an idiot." Before the judge could reply, Klein says, Zweifach quipped: "Well, Your Honor, I don't deserve all the credit." Jumping into the hot seat, Zweifach quickly took charge. The scandal began with allegations in 2005 that News of the World employees had hacked into voicemails and bribed police in the pursuit of stories. Zweifach's take: "The way the hacking matter was handled—by local managers and local lawyers—was in keeping with News Corp.'s policy. The hallmark of the company is that it is nonbureaucratic, highly decentralized, and moves very nimbly." But the local approach didn't work this time. "We now know they didn't get to the bottom of it," he says. "And where we ended up was, this thing festered until in 2011 it exploded." That's when it was revealed that the hacking went far beyond one reporter (who was prosecuted and imprisoned). The inquiries led to the resignations of Dow Jones chief executive Les Hinton; News International's legal manager, Tom Crone, and chief executive, Rebekah Brooks; and a London metro police commissioner—all of whom were accused of a cover­up. Devoid of advertising, the paper closed. Some 10 journalists were arrested. Several were then charged with crimes, including a former News of the World managing editor, a former executive editor, and Brooks. Their trials are pending. No criminal charges have been brought against the company, but a parliamentary inquiry released a report condemning Rupert Murdoch as "not a fit person" to run a major international company. The report accused Murdoch, his son James, and News Corporation of either failing to address allegations of "widespread criminality within the organization" or, if they didn't know about it, of a "significant failure in corporate governance." The scandal forced Murdoch to give up his bid to buy a bigger stake in the British Sky Broadcasting Group, a major financial blow. Murdoch apologized to Parliament and shouldered the civil liabilities for the scandal.
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