(COMMENTARY) News Corp. (NWSA) has announced that James Murdoch, heretofore regarded as heir apparent to his father's media empire, will step down from his role as executive chairman of News International, the U.K. publishing subsidiary. To seasoned Murdoch watchers, this comes as no surprise: When Rupert Murdoch visited his Sun newspaper offices recently, the fact that he was accompanied by his son Lachlan (despite the latter's lack of involvement in the business) signified that James' luster was fading.
James Murdoch will now be based in New York, not London, and he will be responsible for television, not newspapers. This new assignment is a clear attempt to draw a line underneath the scandal surrounding the U.K. newspaper business, in which News International journalists and editors have been accused of phone hacking and making payments for stories to the police. That James gave an unconvincing, banal - and at times incoherent - explanation of these corporate shenanigans when questioned by parliament has signaled three weaknesses: He lacks his father's political instincts, he lacks presence and he isn't on top of operational detail. In normal companies, this would mean that he was out for good. But News Corp. is not a normal company.
Whether James can redeem himself in his new role remains to be seen. But no one should count Murdoch Jr. out yet. The television businesses are more profitable than the old style newsprint products and their growth potential is greater. On the other hand, there is still a distinct possibility that News Corp. may face further challenges in the U.S. A small group of shareholders has brought a suit claiming the board has mismanaged the business, while the payments to members of the British police force may leave News Corp. vulnerable to the Foreign and Corrupt Practices Act. If either of these looming threats materializes, James' continued presence within the leadership will become poisonous.
This scandal has brought the British government, and British business as a whole, into disrepute. It is a business that has always been always been run as a private company which is why the board has failed at any point to get ahead of the bad news. Allegations of corruption, mismanagement and poor governance aren't going away. Neither is Rupert Murdoch.