War at the Wall Street Journal Read online

  Then the two continued to talk about how that appointment would change things at the company. After talking in circles for a minute or two, Kann came up with a suggestion: "We could make Karen publisher," he offered. House had been running the company's international division for almost a decade and would welcome the change. Zannino jumped at the idea, ready to sew up the details. It barely occurred to him at the moment that he was agreeing to an impossible situation: he was overseeing Karen Elliott House and reporting to her husband. He quickly found out what the dynamic was going to be. His first week in his new job, House told him, "I can't be the publisher of the Journal on the days you don't want to be," a warning that Zannino should stay out of House's affairs.

  By the fall of 2005, the arrangement had become almost unbearable. Zannino was House's boss, but if he gave an order she disagreed with, she would talk to Kann about it at home, or at least that's what Zannino believed. (House and Kann both adamantly denied they talked shop at home. "I don't think Rich ever believed that, but it was true," House said.) Zannino felt constantly in the middle of their relationship, making his job a political minefield and, on bad days, downright miserable. Zannino felt Kann was blind to the flaws of his wife, who had run roughshod over many executives and editors throughout the company. House thought Zannino was a micromanager. Worse, she thought he didn't respect the Journal's journalism the way she did. "Fundamentally Rich did not care about the Wall Street Journal," House later remembered. "He wasn't interested in the product we produced and the integrity. He didn't drink the Kool-Aid."

  During the year-long process of interviewing Zannino, House, and Crovitz for the CEO job, Zannino had grown impatient, despite Hockaday's assurances. So had Leslie Hill, who had been asking about the succession plan for months. She felt, once again, that the directors were stonewalling her. Even Hockaday could be dismissive, and she was tiring of the treatment. She was on the board of directors, so she heard regular updates on succession, but progress seemed virtually nonexistent. And even though she had been assured numerous times that Karen House would not be the next CEO, she remained in the running for the job, which was worrisome. What would prevent Kann from replacing himself with his wife, much as he had done for the publisher position three years earlier? Leslie wondered. She wanted the company to look outside for a CEO candidate, and she had told Mike Elefante as much. Elefante raised the issue in the search committee, but it went nowhere. Hiring a search firm to look outside the company was risky. The news, if it leaked, would shine an unwelcome spotlight on the company, which was unaccustomed to management turmoil. At sleepy Dow Jones, better to not attract attention. For Elefante's part, replacing Peter Kann was something he wanted to do sooner rather than later.

  So it was united against a common enemy that Elefante and Leslie found themselves in the fall of 2005, when they walked into the November board meeting. The CEO search was on the agenda that day, and the fourteen directors gathered around the wood-paneled boardroom filled with a long oblong table facing south toward the Statue of Liberty. After Peter Kann was excused from the boardroom, as was common during the discussions about his successor, the board discussed the candidates. Former Pfizer CEO Bill Steere was heading the succession committee, and he went over the "360" reviews for each candidate. House's was a disaster. Her colleagues said she was undermining and could be abusive. In her earlier presentations to the board, she seemed aloof to many of the directors. Crovitz was a Rhodes scholar with law degrees from both Oxford and Yale. He started as an editorial writer for the Journal and then had become editor and publisher of the Far Eastern Economic Review before joining the corporate ranks in New York. He fit the old mold of Dow Jones CEOs, but the times called for someone more business-minded. Crovitz, soft-spoken and cerebral, didn't seem decisive enough to the board. He seemed to avoid confrontation. Furthermore, directors felt he would stay on at the company even if he didn't get the top job. If Zannino was passed over, he was certain to leave.

  "Are we going to go outside to look for other candidates?" Leslie asked. "We already went outside," interjected Harvey Golub, the former American Express chief, who with his curmudgeonly manner and far-right politics was a frequent commenter in the boardroom. The company had hired a search firm to find Zannino as a new chief financial officer. Steere concurred. Going outside to look for a new CEO would just destabilize the company. Leslie was visibly frustrated, shaking her head, talking under her breath. It was clear to her that if she didn't speak up, the search would continue at a glacial pace. Kann would hang on and give himself more time to position House as the next CEO. (House had, in fact, taken herself out of the running months before when she spoke to the board's subcommittee. "I have the job I want," she told the committee. "I wasn't campaigning for the job twenty-four seven like Rich was," she later said.) Leslie and Mike looked at each other, and then Leslie spoke up. "If we're not going to go outside, then we seem to know who the candidate is," she said. "And I think he should take over sooner rather than later." Mike concurred. The directors around the table looked at one another, shocked. Vernon Jordan started to object, as did Lewis Campbell, CEO of the aeronautics firm Textron Incorporated, but they swallowed their words, knowing it wouldn't make a difference. "The horse is out of the barn," Jordan muttered. Kann wasn't supposed to retire for another year and a half, and here, after years of acquiescence, the Bancrofts were pushing for the ouster of the CEO most on the board thought the family adored. Steere knew any protest was useless; he also knew Zannino was the right choice. Rarely did the Bancrofts speak up in such a forceful way. Now that they had, the directors couldn't ignore them. Nor did many of them want to. It was time for Kann to go.

  Steere walked down the hallway to Zannino's office to deliver the news: "We've made the decision," Steere said. "Congratulations. You're the guy." Zannino was the next CEO and would take over in February 2006. The board had decided to push up the date of Kann's planned retirement as CEO a full year earlier than expected. Kann would retain the chairman title until his retirement the following year in April 2007. After Steere left, Kann came into Zannino's office and offered him heartfelt congratulations. And just like that, Peter Kann's reign was over. Zannino had no idea that the Bancrofts had hastened his appointment. He barely knew a single member of the family.

  Zannino soon started making changes. He told Hockaday immediately after the meeting that he didn't want Kann to stay on as chairman. "I don't see how I can make the changes necessary with Peter still chairman," Zannino said. "Plus, I think the market will see it as a vote of no confidence from the board." Even if the board didn't feel comfortable giving him both jobs, Zannino continued, they should pick an independent chairman. The board discussed the matter but was unmoved. Zannino wasn't a journalist. He clearly valued stock prices over scoops and had a limited understanding of what journalism was for. With Journal managing editor Paul Steiger's retirement looming, the board wanted the continuity of Kann's presence as chairman. Zannino would be in charge of the company, Hockaday assured him. To have Zannino, the first non-journalist in the modern era, run the company was a big enough step. Kann would stay on as chairman for another year and a half until his mandatory retirement age.

  Zannino noticed that Kann cooled to him after he objected to Kann's continued presence as chairman. Things got worse on Friday, December 30, 2005, the day before the New Year's holiday break, when Zannino walked into Kann's office in the company's South Brunswick, New Jersey, campus and said: "So I've decided to make some management changes. I'm going to combine the print and on-line responsibilities for the Journal. I'm going to have Gordon run it. Unfortunately I don't have a place for Karen in the new structure." Up until that point, the two sides had been split. Gordon Crovitz was responsible for the online operations of the company and House ran the business side of the print Journal. Such divisions, Zannino rightly realized, were out of date in a world where the online and paper versions of the Journal needed to operate seamlessly. Sitting in Kann's office, surrounded by
bookshelves filled with snapshots of Kann's children and Journal paraphernalia, he delivered the news bluntly. Kann barely registered a response. He had become expert at cloaking his feelings for House in front of other Dow Jones managers. He referred to her by her first and last names in meetings and kept public interactions with her distant. He maintained that House would have risen faster in the organization had he not been the company's CEO, a notion many other Dow Jones executives rejected. The two continued talking for two hours about company structure. "Peter, can you think of any role for her?" Zannino asked, suggesting that perhaps there was a place for her writing for the Journal's editorial page.

  "Gee," Kann said, "I don't think you go from being publisher back to being a reporter or writer."

  "Would you like me to speak with Karen today or would you like me to wait until after the New Year?" Zannino asked.

  "I think you should tell her now," Kann said. He had been urging Zannino to tell both House and Crovitz what his plan was for the company before the end of the year. He knew House had been nervously anticipating Zannino's decision.

  Zannino went quickly to House's office, which was a few doors down, and told her almost verbatim what he had told Kann. "I'm going to reorganize, but unfortunately I don't have a place for you in the new organization structure."

  "Really?" House questioned, showing what appeared to be genuine surprise.

  "Really," Zannino responded. "So we're going to move on and I'm willing to make all the communication be about you so this can be as graceful an exit as possible."

  "Well," House said, clearly emotional, "it really can't go on the way it's been going on. And I have no interest in being anything other than publisher." Unlike the other executives who reported to him, she talked back.

  Over the weekend, Zannino, House, and Kann worked out the details of the press announcement. House consulted Paul Steiger on how best to announce her departure; he suggested getting all the news out at once: Zannino's new job, House's retirement, and Kann's chairmanship. The announcement of the changes came on Tuesday, January 3. Dow Jones's stock rose 10 percent on the news. Already, coverage of the event questioned whether Zannino was angling to sell the company. "I'm firmly committed to the independence of the company, but it's ultimately not my decision," he told the Journal the day of the announcement. By the time he was done with his executive changes, seven out of the nine people reporting to Zannino were new to their jobs. And with that, the old Dow Jones was swept aside.

  Over at News Corporation, the news elicited great interest. Murdoch had seen Hammer step aside; now Kann was gone. Almost immediately Jimmy Lee was on the phone, chirping in Murdoch's ear about setting up a meeting with Zannino. Murdoch made it clear that he wanted any and all intelligence on Dow Jones. One of his top aides, Gary Ginsberg, who had worked in the Clinton administration and then as counsel to John Kennedy Jr.'s short-lived magazine, George, came to News Corporation in 1999 and had become close to Murdoch's own chief operating officer, Peter Chernin, who ran the company's entertainment business from Los Angeles. Ginsberg and Chernin were lonely liberals at News Corporation, and one of Ginsberg's great hopes, as the company's top communications executive, was to distance News Corporation's image from Fox News, which Ginsberg felt provided an unfortunate caricature for the company's entire reputation. Ginsberg didn't know many people over at Dow Jones, but he had gotten to know Nikhil Deogun, one of the Journal's most powerful and connected editors, when Deogun was editing the Journal's coverage of the media industry, shortly after the Journal had written an amazing thirty-five-hundred-word story in 2000 about Wendi Deng Murdoch, Murdoch's then new wife.

  The story had been explosive. Following a tip that Wendi, who didn't work for the company at the time, was showing up at events in China with her own News Corp. business card, the reporters uncovered a story about how the wife of the News Corp. chairman had come to the United States twelve years before as a nineteen-year-old and broken up the marriage of the couple sponsoring her in the United States. After her host mother and father split, she married her host father for two years and seven months, "seven months longer than what was required for Ms. Deng to obtain a 'green card,'" which allowed her to stay in the United States, the article said. The story outlined her apparent liaison with another man closer to her age whom she called her "husband" even when she was married to her host father. The article portrayed her as wildly ambitious and ready to sleep her way out of her modest background in China (her father was a factory manager in Guangzhou) into a power position at one of the world's largest media conglomerates. As the story was going to press, Ginsberg became almost apoplectic in his efforts to keep the Journal from publishing. Murdoch called managing editor Paul Steiger to ask him to grant his wife privacy. The Journal published anyway; the story was a bombshell. It was picked up by scores of other papers and to this day is the most detailed account of Wendi Murdoch's path to News Corporation.

  Deogun, who came to the media job after the story had run, had the job of fixing the relationship between News Corp. and the Journal. He cultivated Ginsberg and the two became close. Deogun had just moved from his position as the paper's main mergers-and-acquisitions reporter; his was the prestige beat at the paper. A native of India, he had moved to the United States for university and joined the Journal as a young reporter. Now, like many of the paper's employees, he was proud of and loyal to the institution. Deogun's keen reporting instincts and calm decisiveness had won him a wide range of powerful sources in the banking world. He had broken the kind of big, sensitive corporate merger stories that depend on mutual trust between the reporter and the highest echelons of corporate America. As an editor, he continued to cultivate these influential sources. Ginsberg had become one.

  When the Zannino news emerged, Ginsberg called Deogun, now in Washington, to gauge the paper's mood. Celebrated dealmaker Bruce Wasserstein, CEO of Lazard Limited, had been pushing Murdoch to make a preemptive bid for Dow Jones. "Now that Kann is gone, we're thinking of making a bid," Ginsberg said. "Are you crazy?" Deogun replied, his voice rising. He knew that the Bancroft family was eager to give Zannino a chance to turn things around. Now was not the right time for a bid.

  Ginsberg reported Deogun's reaction to Murdoch, who was rounding up as much information as he could about the Bancroft family. In any case, he was in the middle of his own battle to maintain control of his company. He was trying to figure out how to get John Malone, a fellow mogul and chairman of Liberty Media, to relinquish his 16 percent stake in News Corp., something Malone had started to accumulate during Murdoch's transfer of his company's domicile from Australia to the United States in 2004. Murdoch didn't want to expand his empire while Malone still had a piece of it. Dow Jones would wait.

  4. The Newsroom

  RICH ZANNINO TOOK on his CEO job Wednesday, February 1, 2006. Before he could get to running the business of Dow Jones, he had to first face the newsroom. Paul Steiger was nearing his retirement age. He would be sixty-five in 2007, and Journal editors had been jockeying to be his successor for years. Zannino knew enough about the paper to understand that more than any other position at the company, the managing editor of the Wall Street Journal was perhaps the most public position besides his own. "I know what will happen if we screw up the Journal," he told the paper the day of his job announcement.

  But Zannino had never banged out a story on deadline in the staid and sterile Journal newsroom, whose walls appeared ashy under the glaring fluorescent lights that highlighted the mild stains in the industrial blue carpet. There, the journalists, who sat in neatly divided cubicles, many littered with stacks of notebooks and newspapers, talked quietly into their telephones, whispering comforting words to sources who might unload a detail or two to make the reporter's story stand out from the rest. Zannino called himself "a devoted longtime user of the company's products," but even that statement, referring to the Wall Street Journal as something akin to after-shave, didn't endear him to the newsroom. The journalists mistrusted
him, and he returned the feeling.

  Though the Dow Jones offices had been spruced up after the devastation of September 11, the newsroom seemed threadbare. The windows had been replaced and the building thoroughly cleaned to remove the white dust and debris that covered the headquarters following the attacks, but the building, which sat in a nondescript collection of office towers in the always removed Battery Park City development, attracted little affection from its inhabitants. In the four-plus years since the World Trade Center towers fell, the journalists had trudged past the dust and paralysis of the giant hole of a construction site that was the monument to the attacks. Zannino, who took a car to work, as had Kann and House before him, was largely spared the grimy spectacle.

  By the time Zannino was named CEO, the newsroom had taken on the quality of Spartan neglect. The low-ceilinged conference rooms contained nonworking speakerphones, the paint was chipping, pieces of cubicle dividers lay detached on the floor. On the executive eleventh floor, sandwiched between the three newsroom floors on levels nine, ten, and twelve, however, the walls were lined with wood paneling and the carpets were a plush beige. Sharing those civilized corridors was the editorial staff of the Journal, a signal perhaps that the conservative bent of those writers made them safer office companions than what executives viewed as disaffected news types.