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Post Leadership
Posted at 01:25 PM ET, 07/18/2011

Could News Corp.’s hacking scandal ensnare Rupert Murdoch himself?


Rupert Murdoch accepted the resignation of The Wall Street Journal's publisher and the chief of his British operations as the mogul struggled to control an escalating phone hacking scandal. (Associated Press)
The exit doors at News Corp. have been swinging faster lately.

Rebekah Brooks, head of News International, News Corp.’s British newspaper unit, and former editor of the shuttered tabloid at the heart of the phone hacking scandal, resigned Friday, and was taken in for questioning on Sunday. Les Hinton, the Dow Jones CEO and former News International chief stepped down Friday, too, expressing his ignorance over the practice. And while Murdoch’s son and heir apparent James Murdoch is still very much in his job, some are beginning to wonder whether he’ll survive the scandal fallout.

The resignations surrounding the phone hacking scandal at News Corp. are even prompting some to consider what would have been an unthinkable question not too long ago: Could the scandal snare media mogul Rupert Murdoch himself?

According to a report from Bloomberg Monday, independent News Corp. board members are reportedly questioning the company’s crisis response and whether a leadership change could be needed. The report refers to anonymous independent directors being frustrated by the information they’ve received and the slow response, but it also quotes corporate governance experts who say such directors could have “limited influence” due to Murdoch controlling News Corp. through a 38 percent stake in Class B voting shares. “When he controls the stock, he controls the board,” Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, told Bloomberg.

Still, it’s an astonishing turn of events for Murdoch, one of the most influential people on the planet, and one which is likely to have an impact on his reputation, at the very least. Even if Murdoch disavows the practice or knew nothing about it, as CEO he was ultimately in charge of helping to set the culture for his empire where the practice allegedly took place.

A recent shareholder lawsuit filed against him won’t help matters. The phone hacking scandal, which has unraveled at a snail’s pace for years until recent revelations exploded in the media, has already cost Murdoch—and his shareholders—the lucrative British Sky Broadcasting deal that was in process before the most recent news broke, not to mention the News of the World. And if directors are doing their job, they’ll need to at least pay some heed to another Bloomberg report, which says that News Corp.’s parts are now valued at more on their own than what they are summed up under Murdoch’s leadership. One shareholder put it this way to Bloomberg: “If he stepped down, yeah, probably the stock price would go up, because there’s a Murdoch discount.”

Murdoch has taken steps in recent days to try to rein in the crisis, taking out apology-laden ads in U.K. newspapers. He is hiring public, government and investor relations advisers to contain its potential damage in the U.S. And he has met with the family of the murdered 13-year-old girl whose cell phone hacking prompted the recent escalations of the crisis. He himself has condemned the actions as “deplorable and unacceptable.”

Who knows whether or not that will reassure any independent directors who are reportedly questioning the company’s leadership. Or if, given Murdoch’s stake, much can be done about it. Either way, I’d guess the images and facts that we’re left with after Murdoch and his son James appear before Tuesday’s Parliamentary committee hearing will make a memorable impression. Even if Rupert Murdoch retains his position, his heretofore reputation “of invulnerability,” as one management professor has called it, “has been cracked.”

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By  |  01:25 PM ET, 07/18/2011

 
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