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									Murdoch empire rocked by scandal | Crain's New York Business                                                Page 1 of 2

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Murdoch empire rocked by scandal
Observers say crisis will move family out of the C-suite.

By Matthew Flamm

Published: July 17, 2011 - 5:59 am

If the sky isn't falling on Rupert Murdoch, the
ground underneath him is certainly crumbling.

Last week, which had to be one of the worst in
News Corp.'s history, Murdoch loyalists Les Hinton
and Rebekah Brooks resigned in the wake of a
phone-hacking and police bribery scandal at
London tabloid News of the World.

Mr. Hinton, who was CEO of Dow Jones & Co. and
publisher of The Wall Street Journal, had been
chairman of British subsidiary News International
during the years that the hacking occurred.
                                                             Bloomberg News
Ms. Brooks, who was CEO of News International           Investors have been unhappy with the nepotism at News Corp.
until July 15, had been editor of News of the World     for a long time, and they don't expect that anything short of a
in 2002, when the paper allegedly hacked the            prosecution would make Rupert Murdoch change his ways.
phone of a 13-year-old murder victim. The Murdoch
paper was shut down last week in an effort to contain the crisis.

Mr. Murdoch launched a public relations counteroffensive, but it has gotten off to a strange start. In an interview last
week with the Journal, he announced that he would set up a committee to “investigate every charge of improper
conduct” at News Corp.

The 80-year-old mogul made no mention of a previous investigation by News International that determined the
illegal practice was confined to one reporter. Nor did he acknowledge that other inquiries were under way—two by
Scotland Yard and another by the FBI, sparked by reports that News of the World attempted to hack the phones of
9/11 victims.

If the normally decisive Mr. Murdoch appears lost, it could be because events have shattered assumptions about
the future of News Corp., a company he has run for decades as a personal fiefdom.

“It is very surprising that a company that has been so clinical in management decisions and so skilled in political
relationships has floundered so badly,” said Emily Bell, director of the Tow Center for Digital Journalism at Columbia
University and former director of digital content at the Guardian, a U.K. daily newspaper and Murdoch rival. “It
highlights a central crisis of leadership.”

LEADERSHIP ISSUES                                7/18/2011
Murdoch empire rocked by scandal | Crain's New York Business                                               Page 2 of 2

The issue of leadership has long troubled News Corp. Though recognized as a visionary genius, Mr. Murdoch has
been criticized for disregarding investor preferences. He has spent the last couple of decades finding roles for his
children, most recently grooming his son James Murdoch as heir apparent.

The notion of News Corp. as a family dynasty may be one more casualty of the crisis. Though the Murdoch family
trust controls the company with 40% of the voting stock, some observers think that if the legal problems become
severe enough, Mr. Murdoch might step back. And no Murdoch would be able to take his place.

James, who has headed the international division of News Corp. since 2007, recently admitted to approving secret
out-of-court settlements for phone-hacking victims. He is seen as dangerously damaged by the crisis.

His sister, Elisabeth Murdoch, who recently rejoined News Corp. after building her own production company, also
seems an unlikely candidate.

“More than just tainting one individual, [the scandal] has tainted the idea that this can go on forever being a family
company,” said Ken Chandler, who was a senior editorial executive in the Murdoch empire for nearly 30 years and
now edits Newsmax, a conservative monthly. “It's a public company, and it needs professional leadership.”

That a professional manager could take charge at News Corp. has been the scandal's one silver lining, particularly
since Chief Operating Officer Chase Carey is highly regarded by industry insiders and investors alike.

Having Mr. Carey run News Corp. “would be better than handing it to the 38-year-old son of the founder,” said Laura
Martin, media analyst for Needham & Co.

But industry insiders point out that investors have been unhappy with the nepotism at News Corp. for a long time,
and they don't expect that anything short of a prosecution would make Mr. Murdoch change his ways.

Meanwhile, the controversy shows no signs of dying down. Rupert and James Murdoch, and Ms. Brooks will appear
before parliament this week.

Though experts believe that the News Corp. chairman would have been insulated from any wrongdoing at his
papers, new investigations—and not just the internal one Mr. Murdoch called for—could be in the works.

“If the FBI is interested, the [Securities and Exchange Commission] is going to be interested,” said Anthony Roman,
CEO of investigation firm Roman & Associates.

Entire contents ©2011 Crain Communications Inc.                              7/18/2011

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