Image: James Murdoch
Olivia Harris  /  Reuters
Critics say James Murdoch was too slow to realize the enormity of the phone-hacking scandal that broke with a vengeance two weeks ago.
msnbc.com staff and news service reports
updated 7/15/2011 5:42:57 PM ET 2011-07-15T21:42:57

Talk about sins of the father.

Following the resignations of two top executives of Rupert Murdoch's News Corp., observers say son James Murdoch — who heads the global media conglomerate’s non-US operations — looks increasingly vulnerable.

The youngest son of the 80-year-old Rupert Murdoch, James has been tipped as heir apparent to take control of his father’s massive media empire when Rupert steps down. But the younger Murdoch has been widely criticized for his handling of the crisis engulfing the company.

Critics say the clean-cut 38-year-old was too slow to realize the enormity of the phone-hacking scandal that broke with a vengeance two weeks ago that has led to a cascade of consequences, including the resignation Friday of Les Hinton, a key lieutenant of Rupert Murdoch and chief executive officer of Dow Jones & Co.

Earlier in the day, Rebekah Brooks resigned as chief executive of News Corp.'s British newspaper unit. Both executives were tied to News of the World, the London Sunday tabloid at the center of the scandal, which was shut own by James Murdoch last week and published its final edition Sunday.

Some observers have speculated that Brooks was kept in her position — despite overwhelming pressure for her resignation — to act as a “human shield” for James Murdoch, protecting him from blame in the phone-hacking case.

James Dix, an analyst who tracks News Corp. for Wedbush Securities in Los Angeles, agreed that James Murdoch’s performance is likely to be in the spotlightnow.

“The media likes to have a new focus, so in that sense we’re moving on to a new stage here, but I think James was already in focus, and he will be as the investigation continues,” he said. “It’s hard to see how people weren’t focusing on him before [Rebekah Brooks] resigned.”

Brooks was editor of the News of the World and Hinton was chief of the newspaper division when the tabloid allegedly hacked into mobile phones to gather information from voice mails and paid the police for documents and news tips.

“James Murdoch is a man of great ability, but he has a tendency to impetuous decision-making, like his father. [James] closing the News of the World was an impetuous act, and it has done absolutely nothing" to halt the crisis, Claire Enders of media research and analysis company Enders Analysis told Britain’s Guardian newspaper Friday.

Earlier this week News Corp., in a huge blow to Murdoch family ambitions, News Corp. was forced to abandon plans to take over British Sky Broadcasting, Britain's leading pay television company.

"Over the years James Murdoch has done himself no favors in his dealings with people — media regulators, politicians,” Enders said.

Now that Brooks and Hinton have been defenestrated, is James next in investors’ crosshairs? In the wake of the scandal, shareholders are voicing concern over Murdoch’s tactic of elevating his nearest and dearest within the company.

A group of News Corp. shareholders filed a lawsuit against the company late last week, accusing it of major governance failures surrounding the hacking case.

The shareholders had amended an earlier lawsuit that accuses company executives of nepotism and challenges the company’s acquisition of Shine Group, a British television production firm, from Rupert Murdoch’s daughter Elisabeth. The suit accuses Murdoch of habitually using News Corp. to “enrich himself and his family members at the company’s and its public shareholders’ expense.”

At the same time, James Murdoch is being tied more closely to the newspaper hacking scandal. And his role in signing off on six-figure payments to victims of phone hacking has raised questions about his judgment. As manager of News Corp.’s British newspapers since 2007 he approved large out-of-court settlements to phone-hacking victims, including actress Sienna Miller, who received $161,000 (£100,000) in damages this year.

“I now know that I did not have a complete picture when I did so. This was wrong and is a matter of serious regret,” James Murdoch said last week. He will face more questions about the payments and the broader scandal when he and his father appear before the U.K. House of Commons culture, media and sport select committee next Tuesday.

Story: Dow Jones CEO quits, Murdoch apologizes in hacking scandal

Reports say many News Corp. shareholders would like to see Chase Carey, News Corp.’s deputy chairman with the trademark handlebar mustache, take greater control of the company. Some have even speculated Carey might be a successor to Rupert Murdoch himself, instead of James.

Carey, a 23-year News Corp veteran and long-time lieutenant of Murdoch senior would be first in line for CEO if James Murdoch needs to be sidelined, even if on an interim basis, said people inside and outside the company.

“I’m a big fan of Chase. He’s a very skilled financial guy,” said Larry Haverty, portfolio manager at Gabelli Multimedia Funds, which holds News Corp. shares. “If James has to do something else, which I hope doesn’t happen, I have tremendous confidence in Chase running the company,” said Haverty, who has known Carey for more than 20 years.

If Carey, 57, was appointed CEO, it could hasten the separation of News International from the rest of the company, a move that investors have been calling for. Carey is said to have no love of newspapers, unlike the Murdochs.

Some on Wall Street say privately that if Carey was promoted, it could help reduce the so-called Murdoch discount — a reason that News Corp. shares trade at around 7.3 times estimated 2012 earnings, below peers such as Walt Disney Co. and Viacom Inc., which trade at 8.5 and 8.8 times earnings, respectively.

Yet  Rupert Murdoch will likely be in charge for some time, despite his age and the deepening crisis, investors say.

One top 10 News Corp. shareholder, who spoke on condition of anonymity, said Rupert will run the company until he absolutely no longer can.

“You can’t nudge Rupert out of the post. Some executives just aren’t nudgeable,” the shareholder said.

Reuters, The Associated Press and msnbc.com's Roland Jones contributed to this report.

Video: Phone scandal claims a US News Corp. exec.

Timeline: Tabloid stir: Phone-hacking scandal intensifies

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