News Corporation’s

Travails Across the Pond:

Internal Investigation Engagement Lessons

by: Robert W. Tarun*

November 28, 2011

The News Corporation phone-hacking scandal in London has a long list of victims and casualties – from families of servicemen killed in action to celebrities, including Prince William and Prince Harry. The victims’ voicemails were hacked, possibly aided by journalists’ payments to local constables. More than a dozen News Corporation officers and employees have now been arrested. The omnipresent 80 year old news baron Rupert Murdoch has abandoned his dream bid for subscriber television broadcaster BskyB and suffered a foam pie in the face during his testimony before the House of Commons’ Culture, Media and Sports Committee (CMSC). In July, News of the World, the biggest selling English language newspaper in the world, shuttered its doors after 168 years in business as a result of advertisers fleeing the tabloid. The parent corporation has lost nearly $5 billion in market capital since the 2005 scandal became revitalized this summer. Heir apparent James Murdoch has claimed before the CMSC that a 2007 letter from News Corporation’s counselors supported the company’s belief that no further investigation of phone hacking was necessary. He most recently blandly stated that the company’s former editor and in-house lawyer were wrong when they claimed he had understood in 2008 that the phone hacking was not limited to one News of the World rogue reporter Clive Goodman. The Dickensian saga provides clear lessons for lawyers who conduct internal investigations as well as clients who authorize and seek their benefits.

Long before the recent headlines, an “internal investigation” was purportedly conducted in 2007 by Harbottle & Lewis, legal advisers to the media, entertainment and communications industries – and to the Royal Family. That representation, which followed the jailing of News of the World Royal Reporter Goodman on charges related to telephone hacking, apparently uncovered little, if any, evidence of wider phone hacking from a review of 300 emails. In mid-July 2011, Rupert Murdoch, Chairman of News Corporation, toldThe Wall Street Journal that the company’s law firm had made a “major mistake” in underestimating the scope of the problem. Two weeks later, the senior Murdoch testified before the CMSC that the law firm had been instructed in 2007 “to find out what the hell was going on.”[1] Lord Kenneth Macdonald, former director of public prosecutions and now counsel to News International, asserted this summer that the News of the World email material he inspected was “blindingly obvious” evidence of corrupt payments to police officers.[2] Lord Macdonald stated that it only took him three to five minutes to identify troubling emails, while the Harbottle & Lewis firm indicated in 2007 that it found no evidence implicating anyone beyond Royals correspondent Goodman.

In reply to Rupert Murdoch’s broadside, Harbottle & Lewis responded that its 2007 engagement was confined to providing advice on the internal employment appeal of the reporter– a short and limited exercise lasting two weeks and mostly involving firm employees (two paralegals and a trainee solicitor) under the supervision of a former partner.[3] The former lead Harbottle civil practitioner, who spent a total of eight hours on the £10,294 “desktop exercise,” interviewing no witnesses and having limited access to News Corporation’s server, wrote a letter in 2007 that News Corporation would later tout as “a clean bill of health.” Signally, the law firm’s standard engagement terms and conditions had provided: “Our advice is provided to you and may not without our prior written consent be disclosed to any other party. You will not refer to us or to our advice in any public documents or communication without our prior consent.” A sensitive exchange in 2007 between the client’s inside counsel and the Harbottle & Lewis partner ensued over the final language in the now infamous paragraph used to “exonerate” the company of misconduct. Still the law firm insists that the first time it realized client News Corporation was or would be relying on its advice as a broad public sword was in February 2010.

Whether there is a FCPA violation by officers of News Corporation, a conspiracy in the UK to intercept communications, a harsh CMSC report at year-end or a need for US authorities to pile on after British authorities press any corruption charges, the 2007 “internal investigation” is a reminder of a number of internal investigation engagement lessons for clients and lawyers alike:

1. Reduce to writing in very clear terms the nature and scope of the engagement.

2. Be clear in the engagement letter as to who the client is – the board, a committee, management or an individual. Evaluate whether the nature of the matter, e.g., criminal conduct by a senior reporter, could implicate senior management and thus require board review rather than simply senior management’s attention – and thus determine who the most appropriate client is.

3. If an independent internal investigation is to be authorized and conducted, determine whether the proposed law firm is sufficiently “independent” – given any prior work for the company, its affiliates or its other clients – to undertake the engagement.

4. Address in the engagement letter what the law firm will be given in terms of access to evidence, including employees and electronic and hard documents.

5. Discuss and confirm that a legal team with experience and expertise in the subject matter, such as employment law or criminal matters, will handle the matter.

6. Address in the engagement letter the potential need to expand the scope of the investigation if evidence or other concerns suggest the possibility of broader wrongdoing.

7. Provide for the likelihood that a forensics accounting firm will be necessary, explaining its likely role and ensuring applicable privileges are preserved.

8. Address what the goals and use of any work product or opinion will be and whether the ultimate goal can be reasonably achieved given a limited engagement directive and budget.

9. Insert a clear clause prohibiting the client from disclosing any legal advice to others absent prior written consent.

The celebrity hacker intrigue and salacious privacy abuses will no doubt keep London’s remaining tabloids occupied for the foreseeable future. In the meantime, the engagement letter language here and the important related issues of the appropriate client, engagement scope, access to hard and electronic and employee documents, appropriate expertise and the use of a “report” as a sword rather than a shield may be especially long term lessons for lawyers who toil in the internal investigations vineyard. In the haste to get an investigation underway, too often fundamental engagement issues are overlooked as unnecessarily basic or unworthy of early focus. The News Corporation scandal may provide an enduring basic lesson for counselors that it is prudent to carefully address a variety of seemingly simple terms up front and have a clear “meeting of the minds.”

* Mr. Tarun, a Baker & McKenzie LLP partner in San Francisco, is author of The Foreign Corrupt Practices Handbook: A Practical Guide for Multinational General Counsel, Transactional Lawyers and White Collar Criminal Practitioners(ABA 2010). A former Executive Assistant US Attorney in Chicago, he has conducted over 100 sensitive internal investigations in 45 countries. The views expressed here are those of the individual author writing in his individual capacity and are not necessarily those of the ABA or the Task Force.

[1] Evidence given by Mr. Rupert Murodch before the CMSC on July 19, 2011.

[2] Available at http://www.guardian.co.uk/media/2011/jul/19/news-corp-police-payments-macdonald.

[3] Available at http://www.parliament.uk/documents/commons-committee/and/PH20.2pdf.

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Robert W. Tarun

Robert W. Tarun