James Murdoch’s future uncertain amid phone-hacking scandal in Britain

July 18, 2011

This wasn’t the way it was supposed to go for James Murdoch.

Handsome, wealthy, the product of New York’s finest private schools and Harvard University, the fourth child of Rupert Murdoch has been bred to be a baron. Until two weeks ago, there seemed no question about it: James would someday inherit the realm and lead News Corp., the news and entertainment conglomerate his father has spent his entire life building.

But that dynastic succession is no longer ensured, and something perhaps far darker looms. Today the younger Murdoch, 38, faces what could be a seminal moment in the drama engulfing the family business. Father and son will face a committee of the British Parliament on Tuesday to answer questions about a phone-hacking scandal that has rocked their vast corporation, threatened their succession plans and rattled the family’s trademark swagger.

As revelations have tumbled forth, British newspapers and American commentators have speculated that James could be the next News Corp. executive to be forced out.

“My personal estimation is that the end result of this is that someone not named Murdoch will become CEO of News Corp.,” Michael Wolff, Rupert Murdoch’s biographer, said in an interview.

The inquiry revolves around the classic scandal questions: What did James and his father know, and when did they know it? As the chairman of News Corp.’s British media operations, James may have a role more direct and germane than that of his 80-year-old father. He took over an operation that was already beset by allegations of widespread phone hacking and has said that the problem was the work of a single, misbehaving reporter.

Although James didn’t become involved with News Corp.’s British newspaper operations until 2007, after much of the hacking had taken place, there’s no question that the muck from this complex affair has piled up at his door.

Under his watch, News Corp. has closed a tabloid paper that James oversaw, the News of the World, which is at the heart of the hacking allegations; dropped its $12 billion bid to buy the remainder of British Sky Broadcasting (which James heads); and accepted the resignations of two key executives, Rebekah Brooks (James’s immediate underling) and Les Hinton (James’s predecessor, and chief executive of Dow Jones & Co.).

There is, too, the matter of alleged payoffs by the News of the World to corrupt police officials. News Corp. is a U.S.-based company and subject to federal laws that make it illegal for its employees to bribe foreign officials. James Murdoch or other News Corp. officials could potentially be held responsible if their employees are proven to have bribed British police.

The scandal continues to weigh on News Corp.’s stock price, adding to the financial pressure on the Murdoch family and James Murdoch’s leadership. On Monday, the publicly traded Class A shares fell 69 cents, or 4.4 percent, to $14.96 per share. The stock has now fallen more than 15 percent since the end of June, wiping away more than $6 billion of shareholder value.

Through it all, Murdoch the elder has stood by his son. In an interview last week with the Wall Street Journal, a newspaper owned by News Corp., Rupert Murdoch said the company had handled the crisis “extremely well in every way possible,” and he blamed outside investigators hired by the company for not identifying the full extent of the problem.

Of James, he said: “I think he acted as fast as he could, the moment he could.”

James Murdoch wasn’t directly in charge of News of the World when the hackings apparently became a kind of routine, if illegal, newsgathering technique for the paper. But he did approve more than $2 million in payments to victims, including a prominent soccer-
association chief and a well-connected public-relations executive. The lawsuits that led to the settlements have been sealed, leading to questions of further impropriety and suggestions that the settlements were designed to squelch further revelations.

James Murdoch subsequently said he “did not have a complete picture” when he approved the payouts. He has acknowledged that he “wrongly maintained that these issues were confined to one reporter.” A company spokesman said James Murdoch was not available to comment for this story.

The younger Murdoch made his reputation in the electronic media, the fastest growing and most profitable part of News Corp.’s vast portfolio of businesses. He has, notably, little experience running newspapers, the business that his father began in and the source of the family’s fortune. The hacking scandal, and James’s relative unfamiliarity with the business, has fueled speculation that News Corp. will eventually sell its British newspapers.

Born in Great Britain, James Murdoch is a naturalized U.S. citizen like his father, an Australian by birth. He was raised in New York by his father and mother, Anna, the second of Murdoch’s three wives. He attended New York’s tony Horace Mann School and then Harvard, although he dropped out before completing his degree. Though he has spent years abroad managing his father’s interests, he speaks with an American accent and is married to an American, an executive with a charitable foundation set up by former president Bill Clinton.

British media analyst Claire Enders, who has watched the younger Murdoch’s business career for years, calls him “a prince; he is the dauphin, he is protected.”

Well before the British crises, James went through a series of peaks and valleys in his business career. He left Harvard in 1991, and he joined two young friends to start a hip-hop record label company called Rawkus Records. The company launched the careers of hip-hop stars Mos Def and Talib Kweli; News Corp. bought the company in 1998 and James soon joined the family firm.

He took charge of News Corp.’s Internet operations and invested in a series of ventures, with mixed results. The company’s attempts to expand its record business under James, for example, came just as the Internet began to tear the industry apart.

He had better luck in satellite TV, first helping to rehabilitate News Corp.’s Asian venture, Star Television, in 2000. (Rupert Murdoch’s third wife, Wendi Deng, was an employee of Star TV when he met her.) James was appointed to run BSkyB just a few months past his 30th birthday in 2003, drawing charges of nepotism. But British media analyst Sam Hart says James was instrumental in building the company: “A lot of the strength for the business today ultimately lies with James Murdoch.”

If James were to fall, it would touch off a family succession drama with no clear favorite. First-born son Lachlan, 39, was once considered the heir apparent, but he left the company in 2005 after a failed investment in a telecommunications company and now runs his own business in Australia (he remains on News Corp.’s board). Murdoch’s first daughter, Prudence, 54, has had limited involvement in the company. A second daughter, Elisabeth, 42, is a former director of BSkyB and a successful media entrepreneur in her own right. She, too, has battled charges of nepotism, most recently in a lawsuit filed by U.S. shareholders embittered by the company’s purchase of Elisabeth’s TV production company, Shine TV, for what the suit claims was an exorbitant price.

A key player in this drama is Rupert Murdoch’s wife, Wendi, 42. She was a junior News Corp. executive in Hong Kong before marrying Murdoch in 1999 at the age of 32, and is said by some analysts to be a power broker within the family.

The real power broker, of course, is the patriarch; the elder Murdoch retains voting control of News Corp.’s shares and, with it, the power to anoint his successor.

Special correspondent Eliza Macintosh in London contributed to this story.

Paul Farhi is The Washington Post's media reporter.
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