James Murdoch's fate has been the subject of much speculation since the beginning of the phone-hacking scandal that brought down long-lived tabloid News of the World last year. But only today did Mr. Murdoch, son of media tycoon Rupert Murdoch, finally step down as the chairman of the BSkyB board. Why now, after months of resistance?
Perhaps the foremost reason for his departure now is that the younger Murdoch is the subject of two separate investigations, one soon to publicize its findings and the other recently ratcheted up in intensity.
The Murdoch family's British newspaper holdings have been under Parliamentary scrutiny since early last year and that inquiry is now nearing conclusion: ITV reports that committee chair John Whittingdale said they hope to publish their findings by the end of April. The report is not expected to reflect well on James, under whose charge the staff of the News of the World reportedly broke into the phone messages of celebrities, politicians, and other public figures to obtain scoops.
While Murdoch told the committee that he was unaware of any misconduct at NotW, the assertion that he didn't know what was going on at the paper undermines his position as a corporate leader. And if the committee's report focuses on Murdoch, it could do further damage that would force him to resign his chairmanship; at least a resignation now enables him to control his destiny.
The second investigation, being performed by British media regulator Ofcom, is a far more direct threat to the corporate wellbeing of BSkyB, as it endangers the satellite broadcaster's license to broadcast. BskyB, the dominant pay-television provider in the UK, is where the real money is within the English wing of the Murdoch empire, with over $7 billion in annual sales. Simply walking away from the company, as was done with NotW, is not an option.
But as part of its duties, Ofcom has to ensure that all entities licensed to broadcast within Britain are "fit and proper" to hold the licenses. What this phrase means precisely is subject to debate; in a post to its website in October 2011, international law firm Ashurst writes that "Ofcom has not published substantive formal guidance on the precise interpretation of this 'fit and proper' test, and legal precedent on the application of the 'fit and proper' test in the broadcasting context is scarce." But Ashurst adds that Ofcom has noted that it would consider "any relevant misconduct of those who manage and control the licence" in determining whether the licensee is "fit and proper."
Ofcom indicated that it was considering any misconduct that occurred under Murdoch's leadership of the family's newspaper business as a factor in determining whether he and BSkyB were "fit and proper." With Ofcom deciding in January to ramp up its investigation into Murdoch according to a Financial Times report, BSkyB saw the specter of having its broadcasting license in Britain withdrawn – a potentially devastating event for the broadcaster and its chairman.
With the ongoing investigations and the decreasing popularity of the Murdochs among BSkyB shareholders, the younger Murdoch ran the risk of a revolt among the board of directors, particularly as it is set to change soon.
Katherine Rushton of the Daily Telegraph notes that a trio of new independent directors will have to be named, which could shift the balance of corporate power from the pro-Murdoch directors to the anti-Murdoch crowd. Although a Sky spokesman said recently that the board unanimously supported James, Ms. Rushton notes that "a new line-up of non-executives means the board can withdraw its unanimous backing without risking an embarrassing volte-face." Thus, she writes, James' resignation is the Murdoch family's way "of managing a dignity-preserving exit from BSkyB."
Some note that it wasn't simply reputation that led James to step down, but also preservation of his family's wealth. Professor Ajay Bhalla of London's Cass Business School told the Guardian that James voluntarily departed "to preserve the Murdoch family's wealth and reputation." While the Murdochs have long been active managers of the family business, Professor Bhalla argues that James' resignation is a sign of "a shift towards the Murdoch family taking a back seat in managing the businesses" and acting to "maximize its wealth" instead of its corporate power. By leaving now, Murdoch prevents further loss to the family business, Bhalla says.
Ultimately, with all these swords of Damocles hanging over his head, it seems most likely that Murdoch "is jumping, rather than being pushed," as the BBC's Robert Peston writes. "His resignation may lower the stakes for him when he appears before the [Parliamentary investigation] for a full day of interrogation scheduled for later this month."