After the deal was announced, the WSJ's editorial page went on the offensive, or tried to, against anyone who might suggest that Dow Jones's sale might not be as good a deal for business-press readers as it is for top DJ executives and senior Journal editors.

No sane businessman pays a premium of 67% over the market price for an asset he intends to ruin.

There are nonetheless critics, especially in the journalism world, who claim this is precisely what Mr. Murdoch will proceed to do. And they have certainly had a merry time bashing him and the Journal these past few months.

We "critics" have indeed had a merry old time. But nothing was more grimly fun—in a nauseating kind of way—than watching the Dow Jones carcass picked clean by Wall Street hyenas Merrill Lynch & Co., Wachtell, Lipton, Rosen & Katz, along with the fabled trust-and-estates-law-and-taxidermy firm, Hemenway & Barnes, which ran up such huge bills advising the Bancroft family to do the wrong thing that News Corp. was required to bail them out as a final condition of the deal.

Dow Jones's board had rejected the request for a higher price for Class B shareholders. Instead, what emerged from the talks was a deal under which Dow Jones agreed to pay the family's legal and banking bills. News Corp. will assume these liabilities when it buys Dow Jones. The family's fees, to be paid to firms including Merrill Lynch, Morgan Stanley and the law firms Hemenway & Barnes and Wachtell, Lipton, Rosen & Katz, could total at least $30 million, according to people familiar with the situation. That figure doesn't include fees incurred by the Dow Jones board, which had its own advisers.

These are deeply conflicted, untrustworthy advisers, who are paid much more in the event of a deal than no deal. That goes double for Merrill Lynch, the no-can-do investment bank, which swayed the Bancrofts by repeatedly delivering dark forecasts for an independent Dow Jones.

The spectacle was too much for Jim Ottaway Jr., the major DJ shareholder and former director and executive, who argued tirelessly against a sale and then issued a statement rightly calling the advisers' fees "outrageous":

It is ironic indeed for the Bancroft family to have to pay 30 shekels of silver to their investment bankers, and 30 shekels of gold to their corporate lawyers, for scaring some of them into betraying their 105-year family loyalty to Dow Jones independence.

Ottaway's right, of course. And another question might be this: How could a company that owns the Journal and the Dow Jones Industrial Average not succeed in the digital future? Only Merrill Lynch knows.

So here's some advice to the Sulzberger family: when the unsolicited takeover offer comes for the New York Times Company—and yes, it's coming—find some other advisers. We already know this group can't get it done.

Speaking of not getting it done, The Audit appreciates the WSJ editorial page quoting Schumpeter.

Change is inevitable in a capitalist marketplace, for the news business no less than for any other. That includes the possibility of changes in ownership, especially in an industry like ours roiled by the Internet. Ask the Tribune Company, or the reporters who once worked for something called Knight-Ridder. Our June 6 editorial, "An Independent Newspaper," was portrayed by some as a request for a reprieve from such market forces. But that's a canard. As we said in that editorial, "those of us who extol the virtues of Joseph Schumpeter's 'creative destruction' for others can't complain when it sweeps through our own industry."

Well, la dee da. Thanks for the lecture on capitalism—emanating from a failed enterprise. That's like a Dodo bird giving a lesson on aerodynamics.

Now, I'm not the Schumpeter scholar that those WSJ editorial philosophers surely are. I'm sure they can all quote Theorie der wirtschaftlichen Entwicklung in the original German, in unison. But I suspect that if the great Austrian thinker were here today, he would agree with me that a key word in that famous phase is creative destruction, not self destruction or Dow-Jones-shareholder-value destruction, which is precisely what DJ senior managers and the asleep-at-the-switch board have engaged in for years. The idea that DJ's failure was at all inevitable or was the result of some kind of economic determinism is not only bogus but betrays some strange ideas about capitalism itself.

But I really object to the Journal's editorialists calling into question—by name—the motives behind The New York Times and The Financial Times for their coverage of the News Corp. story.

Some of these voices, however, are commercial or ideological competitors who have their own interest in undermining the Journal's credibility. Both the New York Times and the Financial Times have been especially aggressive in assailing the potential News Corp. purchase of the Journal. These also happen to be the two publications that Mr. Murdoch has explicitly said he might invest more to compete against. Readers can judge if the tears these papers and their writers claim to shed for the Journal's future are real, or of the crocodile variety.

The nastiest attacks have come from our friends on the political left. They can't decide whose views they hate most -- ours, or Mr. Murdoch's.

First, this slander has nothing to do with the FT, which did little that was particularly critical of anybody. What is it supposed to do, ignore the story?

No, this was all about the Times. It did a superb job, in fact. But whatever the Journal’s editorial page thought of the coverage, does it really think Joseph Kahn, the Times's superb Asia hand, exposed News Corp.'s timely payments to the relatives of Chinese political officials, and reporters Jo Becker, Richard Siklos, Jane Perlez, and Raymond Bonner revealed its timely book contracts for U.S. congressmen, because they and their bosses were concerned about competition from a Murdoch-owned Journal?

The only other party to take the debate to that level was—who else?—News Corp., which declined to comment for the Times series by saying this:

News Corp. has consistently cooperated with The New York Times in its coverage of the company. However, the agenda for this unprecedented series is so blatantly designed to further the Times’s commercial self interests — by undermining a direct competitor poised to become an even more formidable competitor — that it would be reckless of us to participate in their malicious assault. Ironically, The Times, by using its news pages to advance its own corporate business agenda, is doing the precise thing they accuse us of doing without any evidence.

That's not argument. I'm not sure I have a name for it.

But okay. You want ulterior motives? Here's one:

Paul Gigot, editor of the Journal's editorial page, gets a guaranteed job as a result of the News Corp. deal. Gigot now has more job security than the Lubovitcher Rebbe or a mid-level clerk at the DMV.

Come to think of it, Gigot has a lot more job security than I do. But then we believe in accountability up here at Columbia—free markets, free people. That's us.

The editorial page is supposed to reflect the thinking of Gordon Crovitz, the paper’s publisher, who is $5 million richer as a result of the News Corp. deal.

Point is, lay off the motives nonsense. There's no basis for it, and it's not right. Senior Journal editors have a lot of nerve.

The editorial staff and publisher, while not calculating the value of their DJ options now enhanced by the News Corp. offer, might consider that some of us critics might be critical not for commercial motives or ideological ones (I'm not sure how the logic works in any case; liberals want an independent Dow Jones because they hate what, exactly?).

No, they might consider that some of us were critical for the same reason that Tunku Varadarajan,--their own deputy editorial features editor—was critical a few years ago.

What does one make of the Murdoch position on China? In my view, it is a form of corporate prostitution...But China is run by sophisticated tyrants. They see the use of people like Messrs. Murdoch--père et fils--and will use them. They are not taken in by the flattery, the unctuousness, the bowing of the corporate knee. They are not unduly impressed by the Murdoch attempts to be more Catholic than the pope when it comes to China. They know that he wants to make more money in China and that he is willing to pay any price to do so.

We think the News Corp.-owned Journal will be bad for journalism. That's the thing we're all supposed to be in favor of, right?

If we're supposed to be reassured that the WSJ will remain uncorrupted by News Corp. values, we're off to a bad start.

Suddenly a federal marshal burst in upon the two men, thrusting a subpoena into Mr. Siegel's hand. When Mr. Siegel read the subject matter of the investigation—Ivan F. Boesky—and the accompanying list of his own takeover deals at Kidder, Peabody & Co. in the 1980s, he knew his career was over. He began sobbing, as a horrified Mr. Lipton rushed to comfort him. [1]

The Wall Street Journal leder. Has modern American newspapering produced anything better, or at least more elegant? The nation's leading financial daily has produced long-form narratives on its front page since Bernard Kilgore decided after World War II that the nation's business news was of interest to people other than the nation's businessmen and women, and that the interests of the nation's businessmen and women were broader than just business news.

NEW YORK -- On Jan. 17, Patrick Ward, the chief operating officer of Helmsley Enterprises Inc., dashed off a note to the real-estate company's chief executive, Leona Helmsley.

"Dearest Leona," it began. "A note to say thank you for the beautiful gift, and for caring about me enough to go to such efforts. You do not know how much you are loved, and I am on top of the list."

It wasn't exactly the usual correspondence between top executives of a multi-billion-dollar enterprise. But then, Mr. Ward didn't follow a typical route to his position within the massive real-estate empire that Mrs. Helmsley inherited in 1997 when her husband Harry died.

Mr. Ward, a 45-year-old optometrist, had no professional experience in the real-state or hotel business when he met Mrs. Helmsley, 80, about four months earlier at a Miami dinner party. They started seeing each other socially before she asked him to take over day-to-day operations of her company. Many of his notes to Mrs. Helmsley highlighted their emotional ties rather than business strategy.

"I care deeply for you and will stand in front of any moving train before I will let that train hit you," the Jan. 17 note said.

Mr. Ward got hit by a train, all right. Less than one week later, their relationship exploded after a rival executive informed Mrs. Helmsley that Mr. Ward was gay. [2]

How about one, pulled almost at random from the work of James B. Stewart, revealing how watchdogs of the New York Stock Exchange and the Securities Exchange Commission allowed insider trading to flourish during the 1980s, turning our capital markets into a rigged roulette wheel. Drexel Burnham agreed to finance the buyout of National Can Corp. and a few days later a partnership of Drexel principals quietly bought 23,000 National Can shares, before the deal was announced and the shares soared. The emphasis is mine:

Whether or not Drexel or the partnership was involved in any wrongdoing, how such suspicious trading escaped serious scrutiny is a story of regulatory ineptitude. It may help explain why insider trading could have flourished unchecked for so long on Wall Street. [3]

Who else writes with that kind of authority today about both the original wrongdoing and the regulatory failure? Why do we take these stories for granted?

MORTON, Miss. -- They call it "the chain," a swift steel shackle that shuttles dead chickens down a disassembly line of hangers, skinners, gut-pullers and gizzard-cutters. The chain has been rattling at 90 birds a minute for nine hours when the woman working feverishly beside me crumples onto a pile of drumsticks.

"No more," she whimpers. [4]

Aficionados won't need the footnote to know who wrote that. Or this one, same author, on Dickensian conditions in a Hagerstown, Maryland, bank-statement processing center, where windows are covered and talking is forbidden.

This total focus may boost productivity, but it makes many workers feel lonely and trapped. Some try to circumvent the silence rule, like kids in a school library. "If you don't turn your head and sort of mumble out of the side of your mouth, supervisors won't hear you most of the time," Cindy Kesselring explains during her lunch break...

During lunch, workers crowd in the parking lot outside, chatting nonstop. "Some of us don't eat much because the more you chew the less you can talk," Ms. Kesselring says. There aren't other scheduled breaks and workers aren't allowed to sip coffee or eat at their desks during the long stretches before and after lunch. Hard candy is the only permitted desk snack.(5)

Hard candy.

People wonder why the looming buyout of the Journal's parent, Dow Jones & Co., by News Corp. is a big deal for people who aren't journalists or don't work for journalism reviews. My colleague Jon Fine of Business Week teases me for fulminating and tut-tutting about the consequences of a News Corp. deal. And he's not the only one.

Among the arguments is that there is no shortage of other business-news outlets, including Business Week, Forbes, Fortune, Bloomberg, The Financial Times, now Portfolio, and many more. That's an argument about news organizations' relative resources, quality, and self-perceived mission, and it's an argument I would love to lose. But that's for another day.

Michael Wolff, writing in Vanity Fair, a publication that knows something about storytelling, makes a fair point:

This is part of the rub: journalism at the Wall Street Journal level is an Ivy League profession (or it's people who would have liked to have gone to the Ivy League), with a set of conceits about process and legitimacy and respectability; journalism on the Murdoch level is a rougher trade, faster, more direct, less "precious" (and graduating from a crappy college isn't a problem).

And:

Journal readers surely want insiderism more than outsiderism. They want a knowledgeable reflection of the prevailing business winds. (Dean Starkman, writing for the Columbia Journalism Review, went so far as to argue that the Journal's mission is to be a watchdog of the capital markets instead of, in fact, their handmaiden, the paper's historic role.) To the degree The Wall Street Journal is supposed to reflect the business establishment—and that is, surely, what the paper is supposed to do—it could, in Murdoch, hardly have a better owner.

He's wrong about the liveliness of Murdoch's stuff. Even the New York Post lost its headline magic long ago. And to dismiss the Journal as capital's spear-carrier is facile, at best. But he's right in one sense: the fewer sparkling stories you do, and the more run-of-the-mill corporate ones, the more people will see the paper Wolff’s way.

Fact is, Journal readers are no different from any others. They want great stories. And that's what the Dow Jones affair is about.

Take a longer view and look at the paper for what it has been, still occasionally is, and could be again if given a few years to get clear of the un-Murdochs who’ve been managing the place under an unimaginative board of undertakers, er, directors. Steve Yount, the head of the union that represents the paper's employees and a newscaster for the WSJ Radio Network makes a nifty case that Murdoch is buying low. Long overdue changes on the editorial side had just been put in place when the News Corp. bid became public.

Insiders and elite snobs such as myself are on the edge of despair because we know too well the bureaucratic barriers—the fear, the loathing, etc.—that are already rooted in newspapers. We know why newspapers read like they are produced by terrified bureaucracies. Because they are.

Great is an overused word, but Great Stories, when they do happen, are almost mini-miracles. They require talented, forceful and occasionally odd individuals operating in an environment where they feel they are, more or less, free to do what they do. News Corp. is a big, important company with diverse goals— the China market, TV regulation, Hollywood. Murdoch has shown, if nothing else, a devotion to those goals and a willingness to sack editors, kill books, even the drop whole news organizations to help achieve them. That's ok with me, in the end. That's News Corp.'s business, and it works for shareholders.

But I don't see how it works for readers or how an already anxious staff of reporters and editors on a business-and-finance newspaper operates in that context. If you want great stories, you need money, yes. But, much more important, there has to be breathing room. Look what McClatchy's Washington bureau does with a few dozen people. Newsrooms need to feel free enough to write about otters [6], an eight-year-old leukemia patient, inner-city kids trying to get into M.I.T, and a pharmacist's experience after a robbery.

Or absinthe, which we learn was invented in 1792 by French pharmacist Pierre Ordinaire.

With a disposable lighter, Mr. Hudson lights the spoons. As the alcohol burns off, he drips tiny balls of flaming sugar into his glass of absinthe. "You have to do it slowly. Otherwise, the glass catches on fire," he says. He claims the technique increases absinthe's hallucinatory power by raising its temperature.

Suddenly, trouble strikes. The reporter pours in the flaming sugar too quickly. His glass ignites. He tries to cover the glass with his hand to extinguish the fire. But it is hot, he pulls back, and the rim of the glass, covered with sugar, sticks to his palm. As he shakes it off, the glass spills. The table and his hand become covered in a beautiful blue flame. "I've never seen that before," Mr. Gray says, as he removes his sweater to douse the budding conflagration. (7)

Or about how major tobacco producers use ammonia to hook smokers, published in the face of vehement denials by what was then still known as Big Tobacco.

Leading U.S. tobacco companies enhance nicotine delivery to smokers by adding ammonia-based compounds to their cigarettes, according to two major internal reports by Brown & Williamson Tobacco Corp.

The $45 billion tobacco industry vehemently denies that it seeks to keep smokers hooked by increasing nicotine levels in cigarettes. But the confidential reports obtained by this newspaper indicate that, while cigarette makers may not bolster nicotine content per se, most are adding chemicals that increase the potency of the nicotine a smoker actually inhales. (8)

Or whether the U.S. bombed the right target:

Some U.S. allies and Washington officials still doubt the U.S. hit a legitimate target, and the full truth of El Shifa, wrapped in the divisive politics of antiterrorism, may never be known. The hardest evidence is a scoop of soil, taken near the plant and judged by the U.S. to contain a chemical used to make nerve gas. But other evidence becomes murkier the closer you look.(9)

Or about the state murder in China of Chen ZiXiu:

The day before Chen Zixiu died, her captors again demanded that she renounce her faith in Falun Dafa. Barely conscious after repeated jolts from a cattle prod, the 58-year-old stubbornly shook her head.

Enraged, the local officials ordered Ms. Chen to run barefoot in the snow. Two days of torture had left her legs bruised and her short black hair matted with pus and blood, said cellmates and other prisoners who witnessed the incident. She crawled outside, vomited and collapsed. She never regained consciousness, and died on Feb. 21. (10)

Or, what the heck, about how a thirty-one-year-old Chinese immigrant wed a powerful media baron and took on important, though unofficial, duties at a large public company. Here's how: be sponsored by an American family, marry the soon-to-be-divorced husband, then leave him for a younger man soon after becoming eligible for a green card.

Mr. Cherry [the sponsor/husband] says he and Ms. Deng [now Mrs. Rupert Murdoch] briefly reconciled at one point, but they split for good when it became clear she was continuing to see Mr. Wolf [the younger man]. "She told me I was a father concept to her, but it would never be anything else," Mr. Cherry recalls. "I loved that girl."

Divorce records filed with the Los Angeles County Superior Court show that the Cherry-Deng marriage lasted two years and seven months. That was seven months longer than what was required for Ms. Deng to obtain a "green card," allowing her permanently to live and work in the U.S. as a resident alien. Mr. Cherry says he and Ms. Deng actually lived together for "four to five months, at the most." (11)

Handmaidens don't write that.

My personal favorite will always be Susan Faludi's masterpiece [12] on the human costs of leveraged buyouts.

On the Friday afternoon before the dismissals went into effect, Patricia Vasquez, a 14-year systems analyst, heard that her name was on the list. That evening, Mrs. Vasquez, a Safeway devotee famous for her refusal to take lunch hours, packed her service citations in a cardboard box and left looking pale and drawn. The next morning her two young children found their single mother on the bathroom floor, dead of a heart attack.

Was "Safeway" controversial? You bet it was.

The story, among other things, introduced us to Peter McGowan, better known today as slugger Barry Bonds's enabler, who sold the company his family started to a buyout firm. We even meet McGowan's mom, who clearly doesn't understand high finance:

Will anyone get hurt? Mrs. Magowan pressed her son at the time, according to company staff members. Will anyone lose his job?

No Mom, Mr. Magowan promised, according to the staffers' account. No one will get hurt.

"Yes, I was greatly concerned about the people," Mrs. Magowan recalls today, in her mansion overlooking the San Francisco Bay. She declines to comment further.

In fact, 63,000 Safeway employees lost their jobs.

But the story also showed—as only the Journal could— that the buyout didn't even do Safeway any good.

The public offering completed recently didn't quite go as planned. The offering's underwriters knocked the price down to $11.25 from the $20 a share envisioned last summer. Mr. Magowan himself concedes, "I think if we had known right at the start that this was the price that we would've gotten, we probably wouldn't have come out with our offering." He blames the much-publicized problems of other leveraged companies for unjustly tainting Safeway's offering and driving away stock shoppers.

But some potential investors say that it was Safeway's own financial condition that turned them off.

The company labors under an interest bill of about $400 million a year, a negative net worth of $389 million, and a remaining $3.1 billion in debt. The company's net income was only $2.5 million last year (after accounting for nonrecurring expenses), down from $31 million the year before. Safeway lost a whopping $488 million in 1987, the first year of the LBO.

A large amount of capital improvement has been postponed, with such annual spending falling from an average $600 million to $700 million in the three years before the buy-out to an average of $300 million in the years since. The company estimates it must spend $3.2 billion on store remodeling and openings over the next five years. And Safeway now has few assets left that it can justify jettisoning.

Listen, Rupert Murdoch is a great deal-maker, innovator, crockery-breaker. I'll even throw in heart-breaker and love-taker. Is he a great story himself? Yes. Has he on balance helped media more than he's hurt it? I have no idea, but I'm willing to concede the possibility. He should live to be a hundred and thirty.

But, really, is Murdoch a great newspaperman?

Under News Corp., the Journal doesn't do Wendi Deng, Falun Dafa, or the 2007 China Pulitzer series.

A lack of pollution controls has contaminated China's soil, water and air with lead, mercury and other pollutants -- and left millions of children with dangerously high levels of toxic metals in their blood. Making matters worse, much of the manufacturing that used to pollute the West has found a ready home in China, where environmental regulations are loosely enforced.

Murdoch dropped the BBC and the ex-governor of Hong Kong. Those stories don't even get proposed, let alone published.

And anyone who thinks "Safeway" runs in a News Corp. paper is dreaming. With the risks it took, it wouldn't be published today by anyone, for that matter.

And this is to say nothing about the issues raised and the actual people—Chen Zixiu, Patricia Vasquez and the unnamed woman who collapses on a pile of drumsticks—given voice in these stories.

But, surely, you say, everything else runs, especially the great Wall Street reporting, right?

I report. You decide. News Corp. was once a customer of Michael MIlken, who helped raise a crucial series of junk bonds that the company misleadingly booked as "shareholder funds", aka equity. Milken was a powerful executive at—who remembers?— Drexel, the crew in footnote 3.

With all due respect to Murdoch, who deserves some, the stories won't survive this combination.

1. Insider Trading: The Scandal Spreads --- Unhappy Ending: The Wall Street Career Of Martin Siegel Was A Dream Gone Wrong --- Disgrace of Arbitrager Was Self-Fulfilling Prophecy; It All Began With Bendix --- Dinner at the Boesky Estate
By James B. Stewart and Daniel Hertzberg,
Feb 17, 1987

2. Palace Intrigue: Courting the Queen Led to a Big Position With Leona Helmsley --- The Optometrist Checked In But Didn't Check Out; Hotel Empire Is at Stake --- `I Don't Trust Men Anymore'
By Peter Grant,
April 2, 2001

3.Drexel Group Bought Stock in National Can Before Buy-Out Move; But Big Board's Watchdogs Found 'No Connection' Of Buyers to National Can How Regulators Fell Short Dubious Deals: How Drexel Group Acquired Stock In National Can Co. Before a Buy-Out Agreement
James B. Stewart,
July 15, 1988.

4. 9 TO NOWHERE
These Six Growth Jobs Are Dull, Dead-End, Sometimes Dangerous They Show How '90s Trends Can Make Work Grimmer For Unskilled Workers Blues on the Chicken Line
By Tony Horwitz,
December 1, 1994

5. Mr. Edens Profits From Watching His Workers' Every Move
By Tony Horwitz,
Same day

6. Heartbreaking Fight Unfolds in Hospital For Valdez Otters; Rescuers Battle to Save Them With Antitoxins, Prayers; Otter 76 Strains to Breathe
By Charles McCoy,
Apr 20, 1989.

7. In Prague, Absinthe Makes Heart Fonder, And Head Cloudier --- It Remains Illegal Elsewhere, But Enthusiasts Are Blind To Its Advertised Dangers
By Greg Steinmetz,
Dec. 24, 1996

8. 'Impact Booster':
Tobacco Firm Shows How Ammonia Spurs Delivery of Nicotine --- Brown & Williamson Papers Claim Wide Industry Use Of Additive in Cigarettes --- Inside `the Soul of Marlboro'
By Alix M. Freedman,
Oct 18, 1995.

9. After the Bombings:
The Difficult Search for `Truth' --- Blasting Flap: In Sudanese Bombing, `Evidence' Depends On Who Is Viewing It --- Dissident Fans Terror Links, But Factory Owner Says The U.S. Got It Wrong --- Worm Medicine in the Rubble
By Daniel Pearl,
Oct 28, 1998

10. A Deadly Exercise:
Practicing Falun Gong Was a Right, Ms. Chen Said, to Her Last Day -- Cellmates Recall the Screams Of the Chinese Retiree Before She Died in Jail --`No Measures Too Excessive'
By Ian Johnson,
April 20, 2000

11. Work and Family
Meet Wendi Deng: The Boss's Wife Has Influence at News Corp. --- Murdoch Spouse, 31, Has Come A Long Way Since Leaving China a Dozen Years Ago --- A Yale Connection in Beijing
(Bylines Withheld By The Audit),
November 1, 2000

12. The Reckoning:
Safeway LBO Yields Vast Profits but Exacts A Heavy Human Toll --- The '80s-Style Buy-Out Left Some Employees Jobless, Stress-Ridden, Distraught --- Owner KKR Hails Efficiency
By Susan C. Faludi,
May 16, 1990

This comes after a DJ special committee swung and missed in an attempt to squeeze an extra nickel out of Murdoch, who toyed with its members like so many stuffed koala bears. Hey, The Audit could have gotten what the man offered.

But, at least the DJ committee made him sweat, as the Journal reports:

Over a lunch of chicken breasts and salmon in a small corporate dining room, Mr. Murdoch looked confident and relaxed after attending a summit of media executives in Idaho last week, according to people familiar with the meeting.

This ees brutahl! Anothah Fostah's, plaayes?

I love this bit. Note the language:

Mr. Murdoch listened to the directors' pleas but told them "it was hard enough to get my board to $60," according to a person familiar with the discussion.

"Directors' pleas." Nice. What's the argument for a higher price, exactly? The Bancrofts’ conscience?

If this were a movie, only the Marx Brothers could do it justice. Margaret Dumont would play one of the Bancrofts. Groucho would play Michael Elefante, Bancroft family lawyer/Bancroft trustee/Dow Jones director, or, as I like to call him, Dow Jones's everything bagel. Harpo would play Dow Jones CEO Rich Zannino.

Dumont: "We simply cannot—nay, we must not—sell Barney Kilgore's legacy and our good name for $60 a share.

Groucho (rolling eyes, flicking cigar): "Can you make it $65?"

Harpo: "Honk!"

And how about the image of Murdoch working hard "to get" fellow News Corp. directors "to $60."

K. Rupert Murdoch: "But, plaaihyes. Ah nayed $60 for this dayle!"

Lachlan Murdoch: "$59 'n nah a haypennay mo', dad! "

I mean, seriously.

So now we are down to brass tacks. I think the Bancrofts are going to say yes.

But many holders of supervoting shares, including longtime director and executive Jim Ottaway and several outspoken Bancrofts, realize what's at stake and will vote no. Here's why the rest should, too.

For one thing, the Bancroft familiy has taken more than $500 million in dividends out of the company since 1987, which is as far back as DJ's dividend history goes on the company's website (and don't even try to do this on Factiva, DJ's costly financial news and data provider; you'll sprain something.) Divided by 36 Bancrofts, that's about $14 million each. For doing nothing.

And the Bancrofts have owned the company since 1902, so the family has done very well for a long time. And let's remember, these aren't Dows or Joneses. They're not even really Barronses. They are the descendents of the eldest daughter of Jessie Waldron, the wife of Clarence Barron, who bought the company in 1902. She had two children by another marriage.

Still unclear to The Audit:

1. Who was Mr. Waldron?

2. What did Martha Waldron Barron do to get cut out of the will?

3. Did it have anything to do with her marriage to that bounder Wendell Endicott (1)?

Point is, these people, as public spirited as they may be, have for years been collecting what their favorite editorial page, if it were honest, would call an entitlement, something slightly less offensive than providing health care to children. Most Bancrofts have added less value to the company than I did (2).

True, they could have risked their capital elsewhere. But what did they do, really, to earn it in the first place? Now, we all wish they had put their money elsewhere. They could have gotten the 2.5% dividend from a money market account. There's no prestige with that, true, but no responsibility, either.

Second, this is all basically their fault. In retrospect, we now see that the $900 million writedown in 1997 of failed data-provider Telerate was a defining moment that required leadership. Looking back, we know that only a radical change direction, including a change in senior management, could have saved the company while there was still time. And 10 years is actually a fairly long time. Look what former newspaper publisher and data-provider Thomsom Corp. has done compared to DJ in five (Factiva doesn't go back 10 years. Try Bloomberg. P.S. Ignore the spike in DJ shares caused by the News Corp. offer).

That was one time to exercise the power, and the responsibility, that comes with those Class B shares. Removing former Chairman and CEO Peter Kann, cutting the dividend and increasing leverage would have given the company a fighting chance.

But, that's in retrospect. it is hard to know what to do in real time, though some Bancrofts and many people on Wall Street did voice concern back then. But, again, that's all money under Bridge.(3)

Having said all that, the Bancrofts' hearts are in the right place. As they said during this deal and have repeated many times:

As we have been since 1902, the Bancroft Family remains resolute in its commitment to preserve and protect the editorial independence and integrity of The Wall Street Journal...

I believe them. At this point, though, there's really only one way to do that.

Now is the last chance for the Bancrofts to step up to the responsibility that comes with their extraordinary, accidental and lucrative birthright. This is the moment those Class B shares were created for in the first place. Or is the idea that privilege comes with responsibility another one of those conservative “principles,” like smaller government, say, that gets jettisoned at feeding time? Maybe it’s as antique as the idea of an independent, fair and fearless financial watchdog. We'll see.

After the "no" vote, changes must be made, of course. As Ottaway has said, “damage has been done.”

Zannino and the board must step down, having conceded with this deal that they are unable to successfully manage the company.

And at least questions should be asked about whether the three editors who accepted guaranteed jobs under the editorial side agreement, in an effort to help mitigate the consequences of a deal, helped pave the way for one.

And the Bancrofts would need to sell their shares (at a price far below $60, I'm afraid) to a creative and patient investor who doesn't need income now. That would be a final, and gracious, act of stewardship.

1. An excellent WSJ graphic on the family is available here.

2. Take and Give: Condemnation Is Used To Hand One Business Property of Another --- Tactic by Local Governments Seeking Jobs and Taxes Is Protested as Unfair --- BMW Yes, Mitsubishi No

December 2, 1998
The Wall Street Journal
A1

3. Dow Jones sold its Telerate business to Bridge Information Systems Inc. in 1998 at a loss of more than $1 billion, then wrote down an equity stake in Bridge, which filed for bankruptcy in 2001.

If the $5 billion bid by Mr. Murdoch’s News Corporation to buy Dow Jones & Company, which owns The Journal, falls through, declining advertising will mean significant cuts in The Journal’s newsroom staff, according to senior editors and a person close to Dow Jones management, who said they were told individually by company executives.

I know it's subtle, but let me translate: Newsroom, stop opposing the sale or you'll lose your jobs, and then where will you be? Without a job. And then how will you feel? Bad, right?

Is it true?

The Audit says: So what if it is? The Journal has already had at least three rounds of job cuts by my count, so what's one more? (One thing's for sure: none of the sources for the Times story came from any of the Journal's Canadian bureaus.)

These anonymice think a sale to News Corp. is some kind of solution to job cuts?

Maybe I have a migraine; I'm going to blow my head off?

Audit Readers, remember what I told you: Top DJ executives and editors now have powerful incentives to favor the sale. Readers interested in the long-term health of the business press shouldn't care about executive severance packages, editors' guaranteed jobs, reporters' unguaranteed jobs, the value of options enhanced by the Murdoch offer—or anything, really, other than how best to preserve a vital information source.

Also, we already know that Rich Zannino, Dow Jones's CEO, has received a vote of confidence from Murdoch and will get a rich package if he is severed after the deal closes. We also know that he is in hot water with some members of the Bancroft family, who currently control the company, as James Ottaway, the former director and major shareholder, makes clear in an interview with The Audit.

Damage has been done, though. Damage has been done. There are going to be great questions about the management people who seemed to have been open to, if not anxious for, a Murdoch takeover. Some Bancroft family members are very upset with (current Dow Jones CEO) Rich Zannino.

Zannino seemed to some, Ottaway says, too eager to sell. Where does he stand if the News Corp. bid fails?

Also, while I’m at it, there are three senior editors with guaranteed jobs under the agreement in principle reached between Dow Jones and News Corp. in the event of a takeover.

N Corp agrees that the following persons will be retained on their positions following closing, Marcus Brauchli (WSJ managing editor), Paul Gigot (WSJ editorial page editor) and Neal Lipschutz (Newswires managing editor)

I'm not suggesting any of these people are the source for the Times story. I'm suggesting that business-press readers should beware of people "close to" and "familiar with" and unnamed senior—though not particularly forthright—editors with agendas that are not especially visible.

The Times, by the way, should offer readers more guidance when relying on unnamed sources. You shouldn't need The Audit for this.

(The Audit discloses: Ottaway co-chairs a committee that seeks funding
for CJR and for the American Journalism Review.)

The Audit: What’s the problem with Rupert Murdoch’s News Corp. acquiring Dow Jones?

Jim Ottaway: To me, the first biggest issue is more media concentration in the hands the people who use their media power for personal, political, and business interests, as Murdoch does so blatantly with the New York Post, FOX News network, Star TV in China, Phoenix TV in China. He has the largest total broadcast audience in China, where they’re getting no criticism because of his deal with the devil there. On Monday (June 25), the New York Times had a long piece on how Murdoch manipulates American politicians and FCC official to get the TV regulatory approval to keep all his television stations and not have to sell them. Then on Tuesday, it had a really good investigative piece on how he does the same in China. And I must say that these two articles made my statement on May 6th seem polite. I was horrified about the stuff I didn’t know about. There’s no moral compass.

TA: Aren’t business owners/proprietors allowed to use their assets as they see fit? Isn’t that all he does?

JO: Apparently, that is a British/Australian journalistic tradition. The American tradition, which I think is a higher standard, produces a higher-quality of journalism. This wasn’t (always the case) from the founding of the country when we had a highly partisan press run by political parties and individuals. But since the Second World War, the principle has been that, in your news columns, you report accurately, fairly, as objectively as you can. And on your editorial pages, you can state your personal, political and business interests if you want. Generally, American journalism has expected owners to act with a sense of public service in the way they run their newspapers and to consider a newspaper…a public trust, and not just a personal piggy bank.

TA: Is that something that even has a place in 21st century American capitalism, not using assets for their highest commercial value?

JO: This is capitalism gone crazy. A more fundamental (element of) capitalism in a free-market economy is that you base reporting on accurate information on which investors can make investment decisions and voters can make political decisions. What we’re in danger of losing is fact-based journalism that serves as a basis for public debate. I fear for the country if we do not have unbiased news sources available to every citizen so that they can hear all sides of major public issues and make intelligent decisions. Information must be based on some agreed-upon factual starting point. Otherwise, everything is propaganda and biased information, and nobody knows what the truth is.

TA: The idea of an unbiased news source is laughed off these days. We have to ask if unbiased or objective reporting is not itself an anachronism.

JO: Philosophically, you can argue that it’s an impossibility. But in practice and in a modern democracy and in an information society, where success in business, investments, and politics eventually depends on some common understanding of reality—what is real, what actually happened or didn’t happen, or was said or not said —you can’t run a business, you can’t run an economy, you can’t run a nation if it doesn’t have some discourse and public debate based on some commonly accepted facts. I think that this is what’s the danger. It’s what defeated the Roman Empire. You can find all kind of historical parallels of what happens when a society has reduced all news to propaganda. You can’t a run republican democracy that way.

TA: Are Murdoch and News Corp. part of a broader trend in the American media or is News Corp. uniquely problematic, in your view?

JO: I think it’s the worst case of debased journalism…

TA: Murdoch, if he were here, wouldn’t he say you’re arguing against capitalism?

JO: No…I think I actually said in my statement that he’s free to run his newspapers anyway he wants. I’m just arguing that as a shareholder of Dow Jones, I don’t want him running Dow Jones's publications in that fashion.

TA: Sure, but the market says News Corp. is worth $70 billion, and Dow Jones is worth $3 billion. End of discussion?

JO: End of discussion if the shareholders of the $3 billion asset are willing to sell out just because they can get a higher price. If they have no commitment to honest and accurate journalism, then the dollar rules. I’m arguing that there’s a moral issue here. Rupert Murdoch…I admire his business skills, but I despise his journalistic practices, and even if I admire him, I’m concerned, and I think the Bancroft family should be concerned, about what kind of a home News Corp. makes for Dow Jones long-term. If we sell the company to Rupert Murdoch at age 76, this is not a long-term strategy. And, not only do we not know who the successor controlling shareholder will be at News Corp., we don't know who would be the next chairman and chief executive. So I don’t see selling to News Corp. as finding a very good home for Dow Jones.

I worked for the company for thirty-three years. I worry about its future and I worry about its people. …This business of human assets is a very important thing because Murdoch’s theory seems to be, "We can replace you." You don’t keep great writers that way.

TA: To what extent do you think the Bancrofts, the Dow Jones board and previous management under Peter Kann are responsible for the company’s current predicament?

JO: I think it’s fair to say that Dow Jones management made a big mistake in not bidding high when the predecessor of CNBC (1) was up for sale. We should have gone for that no matter what it cost. We offered $115 million. (The difference from the winning General Electric bid) was peanuts. There was no vision or courage to go for a really important diversification. Then there was vision and courage—but not the competence—to make the Telerate (2) deal work. However, we did a lot of other things right and great.

TA: The dividend was always considered to be extremely high for a company of Dow Jones’s size. What do you think?

JO: It was a high percentage of payout over the years. It was true, though, that in 2000 when the earnings went to $3.20 dollars a share, the dividend didn’t move. It’s been a dollar a share. It’s not as if they’ve been cranking it up to get every last dollar out of the company. It’s very high now because they’re just barely making it (financially). But in the years when the percentage was high, the cash flow was strong, and we had the money for everything we needed. There were very few capital things we didn’t do because we were told we had to pay the dividend.

…The Bancroft family, however, was afraid of major debt. My father and I built the Ottaway newspapers on debt. We might have done things the company should have done earlier on if the company didn’t have such an allergy to debt. The (Bancrofts’) theory was interesting; it was a matter of principle: “We are a business-news company. The WSJ is reporting on banks and banking; we don’t want to be beholden to any banks because our reporters are covering [them].” They didn’t want to buy any government-regulated company like a radio station because they didn’t want anything regulated by the government.

TA: Knowing the Bancrofts, what do you think they’re going to do?

JO: I think that even the good-hearted Bancrofts who would like to do the right thing are concerned about the position of DJ as a smaller company competing with larger and larger media giants. I know they were specifically scared by the Thompson Corp. deal for Reuters when both of (Thomson and Reuters) were distribution agencies for the Dow Jones news service. That’s an economic hit that they were concerned about. The timing of that couldn’t have been worse. It was two days after the Murdoch offer was announced, and I know that scared them. So some of them are feeling a fiduciary responsibility to their children and grandchildren to take the best price. That’s a concern. And I guess there's another concern: how the company would do going forward on its own.

TA: You’re a “no?”

JO: Definitely. I couldn’t live with the shame of having sold Dow Jones to Murdoch.

TA: How many others are there among Class B holders?

JO: I really don’t know. I don’t know how the Bancrofts are going to vote. They can have three main families who sometimes disagree. One branch of that family whose lawyers are in Denver definitely said that they want to sell. (3)

TA: Who are they?

JO: They’re from the Bancroft family side. But it’s not a unified voice even there. Christopher Bancroft, who’s a trustee and a director of Dow Jones, is not happy about selling to Murdoch; I can’t tell you how he’s going to vote but I know he doesn’t like the idea. He’s the one who said, “Hey, I didn’t know we’re putting the company up for sale.” The other two families have differences among the senior members and between the senior and younger members... It’s like a three-dimensional chess game. There are all kinds of possibilities.(4)

TA: Does it feel like it’s going to be a close vote?

JO: I honestly don’t know.

TA: What do you think of the performance of your former co-directors?

JO: Well, I think they have done as much as they could, given the Bancroft family controls…Now the committee (of independent directors) is working and representing in their mind the best interest of all shareholders. They’re thinking of total shareholder value, not necessarily what’s good for the company, people, reporters, or anyone else. So I understand their mentality…They’re worried about being sued or not representing all shareholders’ best interest. So that makes sense. But they’re in a different position from the Bancrofts and from me.

TA: Is there anything to this concern that there might be some liability for directors who don’t take the News Corp. offer?

JO: There’s a lot to it in an age when all the hedge fund and arbitragers investors, who have bought stock since May 1st, are happy go to have their lawyers sue anybody…the whole family and directors.

TA: You can always sue.

JO: Well, whether that has any standing I don’t know. There’s an unusual clause that I mentioned in my statement. I said: “The Bancroft family and trustees tried to protect this public service role of Dow Jones by writing into the company’s certificate of incorporation, ‘the right of the controlling owners to consider the effect of the business transaction upon the independence and integrity of the corporation’s publications and services and social and economic effects' " ...They knew the family would be tested someday by an offer like Rupert Murdoch’s.

... On the point of this journalistic tradition of strict separation between political opinions and news, the potential conflicts would be amusing—funny if they weren’t so serious. Imagine, in 2001 (Rupert Murdoch's younger son) James Murdoch gave a speech attacking the Western media for being too critical of the Chinese communist government and its human rights violations, and he criticized the Falun Gong as an “apocalyptic cult.” (Around the same time) WSJ reporters were reporting the Chinese communist government was murdering the Falun Gong. The paper won got a Pulitzer Prize for it; It was a fantastic, detailed piece of reporting. What is Murdoch going to do with that kind of thing? For years, the editorial page has been critical of the Chinese communist human rights violations and has not gone along with the “business as usual” of American businesses that want get in there and do business at any price. The editorial page has been critical of Yahoo, Google, and others for censoring their pages. There’s a direct conflict of interest. It's hard to imagine how it's all going to fit together.

After the family said “we can see some reasonable combination for partnership,” I made a public statement then that said Dow Jones shareholders are blind to historical facts if we ignore Murdoch’s past easy promises, which he did not keep to the British government and editors of the Times of London and Sunday Times before he purchased them, or to the liberal New York Post. (As I said in the statement:) "It’s hard to imagine Rupert Murdoch publishing the New York Post in midtown Manhattan with all of his personal and political biases and business interests reflected every day, while publishing the WSJ in downtown Manhattan with no interference whatsoever in its editorial positions or news coverage...."

TA: Well, we’re coming to the moment of truth where it comes down to a binary decision—yes or no—the Bancrofts and the rest of the shareholders are probably going to be receiving a proposal. Say they all vote “no,” what does the Dow Jones do? What are the alternatives to News Corp.?

JO: One fear Murdoch is playing on is that he walks away and the stock drops. My answer is of course it will. It was at $36 before he dropped by with an offer, and it would go back to $36 to $40…My own financial advisers tell me that the stock would keep some of its premium because what used to be a speculative premium has now been proven in the real world: Somebody thinks this brand-name company is worth a lot more (than the stock market had valued it before the offer)…Also, the idea that the Bancrofts would never sell has been proven wrong. So I’m not worried about the stock going to $5 if Murdoch goes away; it would go down for sure, but I don’t think as much as that. If Murdoch withdraws, you’ve got this Greenspan offer to invest (5) in the company, buy out the unhappy shareholders, put some cash in. So I don’t think it’s a disaster if the company goes back where it started... I think it’s a viable company…It wasn’t for sale before; It doesn’t have to be now.

Damage has been done though. Damage has been done. There are going to be great questions about the management people who seemed to have been open to, if not anxious for, a Murdoch takeover. Some Bancroft family members are very upset with (current Dow Jones CEO) Rich Zannino…

TA: Are you?

JO: Not so much. I think he did a very good job with Dow Jones…turning the company around in the last six years. I don’t think he’s the black hat that the news side thinks he is. Of course, he had to cut back costs; $250 million dollars of expenses are not taken out of the company without making enemies. And that was a tough thing. But I think he did it with as much grace and good judgment and protection of the quality of the papers as possible. He even found ways to enhance it. I think the WSJ is a better newspaper today under this new format (with a greater emphasis on news analysis). I think (the ill will against him among family members was caused in part by) the way he presented the case to the board of directors. He’s being criticized for being too critical of Dow Jones…of his own strategic plans. (He over-emphasized) the concerns he has. So it may appear to some that he lost faith in what he’s doing.

TA: Ten years ago, News Corp. was not the player it is today. With the right management, could someone take Dow Jones to become a media powerhouse in ten years?

JO: I would be more modest in my ambitions. It could be a successful, viable, healthy, profitable, smaller, leaner company—smaller than Time Warner and News Corp. It had a good year last year. It was one of the only newspaper companies that had advertising-revenue increases, circulation increases, increases in the online edition, profit up 13 percent. It wasn’t in [the condition] of some other newspaper companies…because people like Rich and Peter Kann had been building the electronic businesses to the point where it was about 40 percent of the operating income of Dow Jones—far higher than electronic businesses of the New York Times or Washington Post. I'm afraid that it’s fear itself that’s driving the sale of the Bancroft family.

TA: With a shareholder vote all but inevitable, what do you say publicly to the Bancrofts?

JO:I am saying privately to many of the Bancrofts, and would say publicly: We should not sell Dow Jones and Ottaway Newspapers to Rupert Murdoch. If some of the family members want to sell their Dow Jones shares, let us find a way to buy them out that is not damaging to Dow Jones and its reputation for absolute integrity in reporting and analyzing global business news. Let us find new investors to help us build the company, and not sell it to a company like News Corp, whose core business is entertainment, and whose newspapers are either tabloid fluff or weapons to enhance the business and political interests of Rupert Murdoch.

1. Losing out to General Electric Co. in the 1991 sale of Financial News Network, which became CNBC.

2. A financial-data provider DJ bought in stages in the late 1980s, written down in 1997 and eventually sold at losses exceeding $1 billion.

3. , A partner at law firm Holme Roberts & Owen LLP in Denver serves as trustee for at least one of the Bancroft family trusts.

4. For a full breakdowns of shares and ownership, click here.

5. The former chief of the parent of networking site Myspace sent a letter to DJ's board offering to buy about 25% of the common shares at $60 a share.

—Tom Paine, The American Crisis

The board of directors of the corporation, when evaluating any actions or transactions described in paragraph (a) of Article Seventh of this certificate of incorporation, shall give due consideration to all relevant factors, including without limitation the effect of such action or transaction upon the independence and integrity of the corporation's publications and services and the social and economic effects of such action or transaction upon the corporation's stockholders, employees, subscribers, readers, advertisers, customers, suppliers and other constituencies, and on the communities in which the corporation and its subsidiaries operate or are located.

—Restated Certificate of Incorporation of Dow Jones & Company, Inc.
Filed with the State of Delaware, Nov. 23, 1949 (Emphasis: The Audit)

As we approach Independence Day, I'd like to remind Audit Readers that, despite all appearances to the contrary, a sale of The Wall Street Journal's parent to Rupert Murdoch's News Corp. does not have to happen. (And it is Rupert Murdoch's company. He controls a third of the shares, holds the title of chairman and CEO and is surrounded by a board of insiders, family members, conflicted persons, mediocrities, and the former president of Spain.)

Dow Jones independent directors, who took over talks with News Corp. two weeks ago, have reached a key accord designed to protect the editorial integrity of the Journal, Dow Jones's main asset, the last main hurdle before getting to "yes."

No one thinks that's going to work.

So a reality check:

First, directors have broad discretion to do what's in the best interest of the company, as they see it, and DJ lawyers know it.

We read that some DJ directors are, according to the Journal, concerned about "possible liability" from shareholders if they fail to take a lucrative offer.

After M. Peter McPherson, Dow Jones's nonexecutive chairman, delivered a committee progress report yesterday to the full board, several directors raised questions about what would happen if Mr. Murdoch withdrew his offer, according to a person familiar with the matter. These directors were concerned about their possible liability to shareholders in the event the deal fell through, this person said.

"What happens if he takes his ball and goes home? What does that mean to director liability? This is our reputation and credibility," this person said.

This is not exactly Declaration of Independence material here. Instead of "our Lives, our Fortunes and our Sacred Honor," we get, "What does that mean to director liability?" I wonder what the signers would think of our leaders today?

Audit to Person Familiar: Get a hold of yourself, man.

The chance of directors being personally liable—if that's what this summer soldier means—if they make a reasonable effort to do the right thing is basically nil. Besides, directors are indemnified personally for legal expenses by both the corporation and insurers, who receive expensive premiums just for this purpose.

Second, the certificate of incorporation quoted above is a live document. Whether it has much legal basis under Delaware law, I don't know. But it's fair warning to any investor who buys a DJ share: this is a company with a broad definition of the word value.

Third, don't worry about the firefighters and schoolteachers who will lose the value of News Corp.'s $60 offer. People who wanted it sold out weeks ago. The people really on the hook are arbitrageurs and other speculators who bought in the mid-$50 range and are trying to get the last few dollars when the deal closes. Them and The Audit, who clings to his 344 shares for no apparent reason. I stand it to lose $6,000 if this offer goes away, and if you don't think that's a lot of money over here at Audit HQ, you have a lot to learn about Columbia pay scales. If can take the hit, the Bancrofts can. The pain would be more than offset by the pleasure of seeing hedge funds lose with me. We'll all toast the spectacle up at Faculty House. Pimm's is on me. I know a guy over there.

Fourth, I will remind Audit Readers that the Bancrofts, unlike the directors, have no obligation to fellow shareholders—zero. Those shares are like their house. They can do what they want with them, including not sell them to News Corp., which would end the deal, and we can all go back to whatever we were doing before all this.

Fifth, the shares will not crash to single-digits, as some people fear, but more likely, I think, will continue to enjoy a buyout premium, as the market now knows that 1. that someone thinks the shares are worth $60 and was willing to write the check; and 2. the Bancrofts might sell after all, to the right party.

Sixth, if Murdoch can get to $60, someone else can, too, and make DJ a better investment, over the long term, that the News Corp. alternative would be.

So, today, let's recall Tom Paine:

The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman.

Information is the lifeblood of markets. Decision-makers, and that includes executives, public officials, investors, consumers, depositors, policyholders, voters—that is to say, all of us—can't make decisions in a market economy and free society without it.

So hats off to Slate's Jack Shafer, who wrote well, often and early and I think sharpened others' thinking; along with the Journal itself; The New York Times, especially for its recent two-day series on Murdoch's past; The New Yorker for turning around a fine Ken Auletta piece (that mentions The Audit!) in a relative hurry; and, for that matter, us.

Thumbs down to the New York Daily News and everybody else who imputed bad faith to news organizations publishing information about News Corp.'s past misuse of its own news pages to further corporate interests, and about Murdoch's personal dishonesty. To call the Times series some kind of corporate hit job says a lot more about the Daily News than it does the Times. Imputing bad faith without any basis is something that surprised me even from News Corp. Since when did journalists start opposing journalism?

Reading over the excellent work of the past few weeks it becomes clear that one reason a News Corp.-owned paper can’t cover the story of U.S. business is that News Corp. is the story of U.S. business at the beginning of the 21st century.

The meta-business story of our age, as I see it, is how big business—not business in general, but the biggest actors—have used their growing wealth to improperly influence government to distort markets to their advantage, eroding trust in markets themselves. We'll get into it in another post, but I don't think I'm the only one who detects this phenomenon in insurance, financial services, the nuclear industry, real estate development, pharmaceuticals, meat-packing, mining and other industries.

Sure, that’s not the only business story. Globalization, economic polarization, the end of cheap money, the bubble in asset values—those are all important. But it is an important story, and one News Corp. is quite incapable of covering because, again, that's what it does: It improperly influences governments to gain an advantage over other actors unwilling to do the wrong thing.

The backdrop to my meta-story is the dismantling of market regulation that began under Reagan, a theoretically reasonable idea gone far too far. With Congress compliant, the Justice Department compromised, regulators captive and a Supreme Court under big actors' sway, there is a danger of creating an upside-down meritocracy in which not the best, but the worst actors thrive. Any Wall Streeter will tell you: bad money drives out the good.

Think about it: Many media companies might want favors from the Chinese government, but only one is willing to:

—“Publish” a biography of mostly recycled propaganda of Deng Xiaoping written by his daughter;

—“Befriend” the son of President Jiang during a $150 million Murdoch investment spree on mostly failed Chinese internet ventures;

—“Recruit” the son of Ding Guangen, a government propaganda chief, as a “partner” in a venture that allowed News Corp. to become, for a while, a “backdoor national broadcaster” in China.

The reason I put those verbs in quotes is because that’s the language the Times uses in its brilliant piece on News Corp. in China by Joseph Kahn.

Audit Readers, those are all euphemisms for “paid.” That is, News Corp. paid relatives of government officials in a position to influence official decisions of direct concern to News Corp. And if you don’t think that story took skill and guts to do, from Kahn all the way up to the general counsel, it is safe to say you’ve never done one of those.

But why worry about China? That’s far.

How about a company that:

—Pays $250,000 for Trent Lott’s memoir just as Congress is on the verge of limiting any company from owning local television stations that reached more than 35 percent of American homes, meaning News Corp. would have had to sell some. Remember, this is in an extremely pro-business Republican Congress. (News Corp. ultimately won.)(1)

—Signs Newt Gingrich to a $4.5 million two-book advance just as News Corp. is negotiating with Congress to fend off challenges to Fox station licenses. (News Corp. won.)

—Sends a lobbyist to threaten then-FCC Chairman Reed Hundt that he wouldn't "get a job as dog catcher" if his his agency stripped News Corp. of licenses as a result of probe into whether the company obtained some of them in violation of agency rules. (News Corp. basically won. )(1)

Does the fact that News Corp. wins means that it's the better media company? No.

Or consider, as Bruce Page reports in his 8,000 word piece above this one on CJR.org, News Corp., among other rule-bending, took liberties with its accounting.

That was useful, but insufficient. The further step was to raise $1.5 billion via Michael Milken, the California junk-bond maven, then close to his financial zenith. “Junk bonds” had a certain glamor at the time, but even so their product could never be called stable financing. Therefore, the Milken operation was put into News Corp.’s accounts as an issue of “preference shares.” It was by any reasonable account a loan, but News Corp.’s lawyers asserted that Australian law permitted it to be called “shareholders’ funds”: thus, as Neil Chenoweth puts it, by increasing its debt, the company acquired the ability to increase it further still. News Corp. was swimming in leverage. But financially it was very un-American.

That's putting it mildly. That kind of accounting story is right in the Wall Street Journal's wheelhouse. You can't have your parent company doing that, not ever.

Say what you want about Dow Jones, and I have , it wouldn’t go near this kind of behavior.

Indeed, in an interview with The Audit to be published soon, former Dow Jones executive and director James Ottaway said the controlling Bancroft family avoided even taking on debt because they didn’t want the Journal to appear beholden to financial institutions it covered and wouldn’t own TV stations because they didn’t want the company to appear before any regulator.

That’s even more ethical than The Audit would be. But that's stewardship, maybe to a fault. You could either see it as dumb business or a well-intentioned effort to protect the long-term—century-long-term—value of an asset.

To me, improper attempts to influence government are a separate issue from the other News Corp. bad practices detailed elsewhere, including in a fine 2000 opinion piece by the Journal's Tunku Varadarajan. These include the misuse of its own news pages and editorial prerogatives to further corporate aims: dropping the BBC and the last British governor of Hong Kong's memoirs because the Chinese government didn't like them; parroting the Chinese government's line on SARS, the Dalai Lama (!) and the horribly persecuted Falun Gong.

So, too, is Murdoch's personal dishonesty. Last month, he told the Financial Times that News Corp. ditched the BBC in "China for commercial reasons. But as Shafer points out, Murdoch confessed the opposite to his biographer, quoted in 1994:

Murdoch defended pulling the BBC plug, telling Shawcross that the Chinese leaders "hate the BBC." Speaking of his critics, Murdoch continued, "They say it's a cowardly way, but we said in order to get in there and get accepted, we'll cut the BBC out."

Likewise, he told the FT last month that he had jettisoned the memoir of Chris Patten, Britain's last Hong Kong governor, for commercial reasons. But as Shafer writes:

In a memo to his corporate boss, HarperCollins U.K. Chairman Eddie Bell concluded that the firm would have to choose between bad PR for killing the book or Chinese ill will for publishing it. "KRM [Rupert Murdoch] has outlined to me the negative aspects of publication," Bell wrote.

To me, editorial abuses and personal dishonesty are problems in a news publisher, but those are News Corp.'s problems, in a sense, more or less unique to News Corp.

But when it comes to bending government to distort the market, that's a problem for all of us. The problem of corporate tiltiing of government is a grave danger that transcends any individual company or industry and endangers democracy.

And it's a story News Corp. can't cover.

1. The Audit salutes Times reporters Richard Siklos, Jane Perlez, Raymond Bonner and especially Jo Becker, who, in her former job, co-wrote the great Cheney series in this week's The Washington Post.

Basically, the interests of key figures both at DJ and, unusually, at the WSJ are geared toward a sale, and not just a sale, but a sale to News Corp.

Top Wall Street Journal editors are in an especially tough, I would say, unique, position. They must cover the deal even-handedly, even though many of them fear News Corp. would wreck their paper. On the other hand, they also own stock and options that suddenly have a lot of additional value, sometimes millions of dollars more, thanks to the offer. That value collapses if News Corp. goes away.

Now, The Audit has come upon a draft document showing news executives could have other reasons to like a News Corp. deal.

Marked "privileged and confidential" and dated June 12, the draft sets out a structure by which Dow Jones's controlling Bancroft family at one point sought to insulate the Journal editorially in the event of a sale to News Corp. Prepared by Wachtell, Lipton, Rosen & Katz, a high-profile New York law firm known for its deal expertise, its purpose is stated here:

As has been publicly stated, the Family is only willing to pursue negotiations of a transaction if and when the Family is satisfied that a structure can be developed and implemented that ensures the level of commitment to editorial independence and integrity and journalistic freedom that is the hallmark of DJ.

As reported elsewhere, the Bancrofts wanted DJ to be a separate (if wholly owned) entity within News Corp., controlled by a 12-member board including two family designees and three mutually appointed independent journalism experts. A (now-jettisoned) Special Committee on Editorial and Journalistic Independence and Integrity, the five non-News Corp. directors, would have had sole right to hire and fire "Essential Journalistic Officeholders."

Not reported elsewhere: the arrangement would have guaranteed the top jobs of four people by name: Gordon Crovitz, the Journal's publisher; Marcus Brauchli, the new managing editor; Paul Gigot, editorial page editor; and Neal Lipshutz, managing editor of Dow Jones Newswires. Known as "incumbent Essential Journalistic Officeholders," these four "would be offered the opportunity to continue in his positions following closing."

I don't want to make too much of the document because it’s a draft and the language and contemplated structure have changed substantially in a week. The special committee has been replaced by a different and wholly independent compliance panel, for instance. But it represents what the Bancrofts wanted at one point. What's more, as the Journal reports this morning, the latest known version continues to provide unspecified job protections for editors.

The Bancrofts' editorial proposal calls for the establishment of a special committee to enforce a set of editorial principles News Corp. would be expected to adhere to, according to a family spokesman. It also includes protections for top editors and provisions to enforce the agreement. These elements were included in earlier drafts as well, and it wasn't immediately clear how the version submitted to the Dow Jones board had been revised.

A family spokesman tells The Audit that the family is not publicly spelling out whatever protections are contemplated.

He also notes that if the family isn’t convinced the Journal’s editorial integrity will be permanently protected, “there won’t be a deal” with anyone.

A couple words about guaranteed jobs, if those are still on the table. For one thing, Crovitz is the paper’s top officer as it covers the deal, so that's troubling. Second, Brauchli is the top editor. True, he has handed the task of overseeing deal coverage to his predecessor, Paul Steiger, but he remains the boss.

An editor or publisher being guaranteed a job in writing is both good and bad. It's good in that it means you are free to cover the deal without worrying about antagonizing future bosses. It's bad in that it gives you an incentive to favor a sale, and to News Corp., and not to another party. No sale means you keep your job, but without a guarantee.

So, News Corp. deal—job guarantee. Not News Corp.—no job guarantee.

Who has a guaranteed job? The King of Jordan and a couple of other people. That's it.

Second, it is unclear to me why news jobs would have to be guaranteed by name if other protections to protect integrity are adequate.

Third, the whole thing is awkward because, as the Journal itself reported, Crovitz, Brauchli, Gigot, and others have consulted with the family on how to maintain the paper's editorial integrity in the event of a sale. Brauchli, in particular, in on the hot seat. He is responsible for the (Steiger-led) coverage, while talking to the family about the terms of the deal, including potentially those involving his own job.

This is a problem. Is it manageable? I'd say so, but there it is.

Am I suggesting editorial executives would compromise coverage because a News Corp. deal might include a job guarantee? No.

However, business-press readers should know where key parties’ interests lie and be on guard against the assumption that if there isn't any deal—say this whole thing goes away— something bad will necessarily happen. Remember, deals are generally good for people directly involved in them, but not necessarily for the buying entity, the seller, their investors or consumers.

A certain momentum takes hold. Generally speaking, if a deal goes through, people involved get paid. This includes investment bankers, lawyers and advisors of many stripes. Executives at the buying company are also happy, in part because they are running a bigger company. This is why you don't see many closing dinners at KFC.
I've written about the deal infrastructure which includes the business press. But news and business-side executives have strong economic incentives running in favor of a sale, and it is fair to point those out.

At year-end 2006. Steiger owned DJ securities worth $8.7 million with the offer, and $5 million without it.

Crovitz owned securities worth $12 million with the deal, $7 million without it.

Rich Zannino, Dow Jones's CEO, stands to receive $23.5 million if the offer goes through and he is severed within two years. That's called being set for life. If the deal doesn't go through, he gets to go back to work. He has told the controlling Bancroft family that DJ will not be able to get to News Corp.’s $60-a-share offer anytime soon, which is no doubt true. Again, having a big stake in a sale doesn't mean he'll push for it. But, still, the man's human.

As today's Journal makes clear, some family members question the motives of even the family's own lawyer, Martin Lipton, the famed deal lawyer and the "Lipton" in Wachtell Lipton:

Meanwhile, some family members privately have voiced concern about potential conflicts faced by Mr. Lipton and their other advisers. Mr. Lipton's law firm, for instance, in 2004 worked for News Corp.'s independent directors as part of a $50 billion plan to move the media conglomerate's home base from Australia to the U.S. And in the same year his firm was tapped as the "external legal counsel in the U.S." by a special committee of News Corp.'s nonexecutive directors to consider an acquisition. Some Bancrofts have questioned whether the previous ties with Mr. Murdoch would lead advisers to push for a deal with him. Mr. Lipton declined to comment.

Generally speaking, deal lawyers get paid a lot more handling a sale than just billing by the hour giving advice. We're talking about millions of dollars.

Point is: As the Bancroft draft memo makes clear, Dow Jones executives, editors, and other actors have very big economic stakes in the outcome, all running in the direction of a sale. Business-press readers should be aware of these as they try to figure out what's best for the nation's leading financial daily. After all, Dow Jones changes hands less than once a century.

And, remember, nothing has to happen. The idea that it does comes from News Corp. PR and crybaby shareholders, like The Audit, owner of 344 shares, who don't want to lose the value of the offer.

Business-press readers shouldn't care about any of that.

Also, online sales are already projected at $116 billion a year, so Press Box says, "In other words, Web retailing is totally huge, it's still growing by leaps and bounds" etc.

The Audit doesn't see it that way. It's not fair to compare online sales growth to that of the economy or of Wal-Mart. Those kinds of numbers are cyclical. Wal-Mart is a mature company; its sales rise and fall with the business cycle, plus whatever the company can squeeze out through managing assets and allocating capital.

The Times is pointing out a secular, that is, a potentially permanent, trend, and an important one. Online sales are basically new, about 10 years old or so. Everyone assumed, I think, that their explosive growth would be such that they would eventually come to dominate retail. Remember when Time magazine told you to kiss your mall goodbye??

Total U.S. retail sales is $4 trillion a year. If online retail is starting to slow now, at about three percent of the total, to me, that's news.

The Audit disgrees with Rabbi Shafer and declares the story kosher. One may eat of it.

The moves can be seen, in my view, as a partial dismantling of the legacy of Paul Steiger, the outgoing long-time managing editor and my former boss. (Actually, I worked with/under most of the people in this post. And, no, I'm not telling which ones I liked—and don't try to guess, either.)

All this is being done in the shadow of News Corp.'s bid for the Journal’s parent, Dow Jones & Co. If that happens, I have no idea what becomes of this shakeup.

To me, "reversing Steiger," if that's what's happening, means rethinking if not pulling back from the "soft news" sections he pioneered, beefing up page one and widening the narrowed focus of the paper generally. That's to the good. Not every move is great, but Brauchli gets the benefit of every doubt here at Audit HQ.

The big move is page one. Champagne corks are popping, apparently, over the ascension of Mike Williams, beloved by many as bureau chief in Tokyo, to run the page. He most recently has been running the paper's European edition.

Audit Readers, page one editor of The Wall Street Journal was at one time, and probably still is, the second-most important editorial job in business journalism, after the Journal’s managing editor himself (it's never not been a man). Anybody who wants to argue that, the line forms to the left. Giants worked there, including James Stewart, and, in my view, John Brecher. It is the agenda-setter.

I had my differences with Mike Miller, the current page one editor and Brecher's successor, but that's me. Plenty of stuff that's gone through him has been flat brilliant, and I mean as good as anything the paper has ever done. But change is good, and I don't think I'm alone in that view.

Just as significant as the personnel change is an organizational one. Williams will report to Brauchli, not to a deputy as before. That's not inside baseball—it matters. In past years, page one was quasi-independent from the rest of the news operation, creating a remoteness that encouraged unbelievable arrogance, to be sure, but also risk-taking, surprises, occasional weirdness [1], and, in the end, excellence.

The promotion of Bill Grueskin, Brecher's former deputy who now runs the paper's online operation, to broad oversight of news can be seen as an endorsement of an era that Steiger himself ended.

Brauchli abruptly removed Ed Felsenthal, a Steiger favorite, and, for that matter, a terrific editor and manager, from his job running the soft sections—Weekend Journal, Pursuits, etc. He started Personal Journal, and I don't see how the concept could have been executed any better. That said, moving Miller from page one to head all the features sections—Marketplace, Weekend Journal, Personal Journal—certainly plays to a strong suit of his. And the not-particularly-well-received Pursuits section of the Saturday paper could use a boost.

Brauchli also transferred Dan Hertzberg, who played the news side’s chief operating officer to Steiger's CEO, to run the overseas editions, and, at least nominally, foreign bureaus. Hertzberg, to whom page one reported, was most associated with the paper's three-yards-and-a-cloud-of-dust corporate coverage.

The narrowed focus hurt the paper, in my view, in that it made it something of a commodity and more fomulaic. A wide-ranging paper is more distinctive and valuable to readers and, for that matter, the owners, whoever they turn out to be.

The other moves are intensely interesting to people who take their salads at SouthWest NY, the World Financial Center lunchery frequented by Journalists, but one troubling aspect should be noted.

To me, Steiger's legacy, which will be fully assessed elsewhere, included (but is obviously not limited to) the kudzu-like growth of bureaucracy, particularly at the assistant/deputy/assistant-deputy/chief-associate-assistant deputy managing editor level, even as Dow Jones stagnated financially. It reminded me of the Rhode Island court system. Not only was it expensive, it created a baroque court culture that inhibited dissent and, for that matter, most interesting conversation. This, at a newspaper, is unhealthy.

Brauchli, thankfully, has pruned some undergrowth, and now directly oversees page one and the Money & Investing section, among other things; both decisions are throwbacks to a pre-Steiger era. But the operation is still top-heavy. I don't know if anyone is sure why there is still a WSJ Europe and WSJ Asia, for instance.

In that vein, the ascension of Laurie Hays to head special projects, including investigations, will bear watching. Hays oversaw the paper's superb post-9/11 coverage, a monstrously difficult job. However, investigations are closest to The Audit's heart. Nothing the paper—any paper—does is more important. I don't see how this new layer helps investigative teams headed by Mike Siconolfi (one of the best in the business) and Mark Maremont, who just helped lead and write the tremendous stock-options series that won the Pulitzer for Public Service.

1. See the deeply weird: "Hitting the Skids: As Old Pallets Pile Up, Critics Hammer Them As a New Eco-Menace—They Can Deliver the Goods, But They Clog Landfills And Gobble Up Trees—A Hilton for the Furry Set," April 1, 1998.

Fair Access to Insurance Requirements, or FAIR, plans cover people who can't get homeowners insurance anywhere else, usually because they live in a place deemed risky. FAIR plan policies are usually more limited and—by law—more expensive than any competing private carrier in order not to undermine the private market, if there is one.

In insurance-industry paralance FAIR plans are known as the "residual market," i.e., the crap.

These don’t operate like most insurance companies. They don’t build up reserves to pay claims. If the money runs out, they assess other policyholders in the state, either directly or indirectly through insurers, who pass along the costs.

The story quotes the articulate and knowledgeable Robert Hartwig, the executive director of the Insurance Information Institute, the industry's research and public relations arm, who says:

The system "shifts the risk literally from those who are most at risk . . . to individuals who are at less risk or even at no risk."

The problem—and yes, I'm very hard to please on the subject of insurance, particularly hurricane coverage—is that it misses the big picture.

The Journal misses the story, really.

Hartwig frames the story in a way that pits one group of insureds against another. It is the fault, in other words, of irresponsible people who insist on living near water. And while that’s his job, he’s basically wrong, and the Journal should stop falling for it.

What “the system shifts the risk from” is not coastal dwellers to inlanders, but from insurers to everybody else. And when it comes to paying for things the insurance industry doesn't want to pay for, there are only two other candidates: taxpayers and policyholders. There is no third choice.