Could the News Corp. Scandal Jump to US?

AP and Reuters

Not fit to run a major company. It is a damning judgment on Rupert Murdoch, a threat to his British assets — and a headache for Britain's government.

The majority verdict by a divided committee of British lawmakers brings more scrutiny of Murdoch's holding in British Sky Broadcasting — already under investigation by the U.K.'s broadcast regulator — and could increase calls for the breakup of his British media empire.

Rupert Murdoch, Chairman and CEO of News Corporation
Getty Images

"How much more humiliation can Rupert Murdoch take?" asked commentator Roy Greenslade in Wednesday's Evening Standard newspaper.

And if Murdoch is unfit, what does that say about Prime Minister David Cameron and other politicians who courted the media baron for his newspapers' election-swinging power and, until revelations of tabloid phone hacking exploded, were poised to let Murdoch have full control of one of the country's most powerful broadcasters?

BSkyB, in which Murdoch's News Corp. owns a controlling 39 percent share, insisted Wednesday that it was a "fit and proper license holder" with a "strong record of regulatory compliance and high standards of governance." News Corp.'s board of directors, meanwhile, gave a unanimous statement of support underlining what it said was its "full confidence in Rupert Murdoch's fitness."

"The Board based its vote of confidence on Rupert Murdoch's vision and leadership in building News Corporation, his ongoing performance as Chairman and CEO, and his demonstrated resolve to address the mistakes of the Company identified in the Select Committee's report," the company said in a statement following a board meeting.

News Corp. and BSkyB were forced to defend themselves after Parliament's culture, media and sport Committee, which scrutinizes press standards, issued a report Tuesday on phone hacking that was sharply critical of Murdoch and his lieutenants.

It concluded that Murdoch's company had covered up widespread wrongdoing at the News of the World; that three senior executives misled lawmakers about what they knew; and that Murdoch himself had "exhibited willful blindness to what was going on in his companies."

And, in a divided opinion that split the committee along party lines, it said Murdoch was "not a fit person to exercise the stewardship of a major international company."

The term "not a fit person" — backed by five Labour lawmakers and one Liberal Democrat, but rejected by four Conservatives on the committee — deliberately evokes the "fit and proper" test, a vague yet powerful standard that Britain applies to owners of television stations.

British and American media are in some ways mirror images. The U.S. has largely sober newspapers and lively, partisan broadcasters, including Murdoch's Fox News.

In Britain, newspapers are wild and woolly, while broadcasters — from the state-funded BBC to private ITV and Sky — are expected to remain composed and impartial.

So while British newspaper chiefs come from a variety of colorful backgrounds — the current owners of national dailies include a Russian oligarch and a former pornography publisher — TV proprietors are more carefully scrutinized. And the regulator, Ofcom, can revoke a TV license from anyone who fails the test. It last did so in 2010, from a porn broadcaster.

Ofcom began investigating BSkyB after evidence emerged last year that Murdoch's News of the World had systematically hacked the cellphone voice mails of politicians, celebrities and even crime victims in a search for scoops.

Murdoch shut down the 168-year-old tabloid after the revelation that it had eavesdropped on the phone of a murdered teenager while police were investigating her disappearance.

The scandal has been both costly and embarrassing: Police investigating hacking and bribery allegations have arrested two dozen of his past and present staff, Murdoch has paid out millions to settle dozens of lawsuits from hacking victims, and the once-haughty mogul has repeatedly declared himself humbled and contrite.

He could yet face more humbling. If the regulator were to determine that News Corp. does not meet the "fit and proper" test, it could be forced to divest part of its stake in BSkyB, depriving it of a controlling interest.

British law offers no legal definition of "fit and proper," meaning that Ofcom must use its judgment in deciding whether executives should be trusted to hold a broadcasting license. Ofcom said it would consider the parliamentary committee's report as part of its deliberations.

If shareholders are worried, they didn't show it Wednesday. BSkyB shares rose, up more than 2 percent at 706 pence in London afternoon trading, as the company reported a 19 percent increase in nine-month profits.

Media industry analyst Claire Enders said she thought the lawmakers' report had made it less likely that Ofcom would make Murdoch sell or reduce his stake.

"The fact that the committee unanimously concluded that neither Rupert nor (his son) James had misled Parliament is a very good outcome for them," she said. "They're certainly not out of the woods yet, but I think it is a landmark victory in their favor."

Shares in News Corp. rose after the report, closing up 0.9 percent Tuesday at $19.79. Some U.S. investors saw the report hastening the day when the company would sell its scandal-hit U.K. businesses and stop the risk of them contaminating the company's other major assets, which include the Fox television network, Dow Jones Newswires and The Wall Street Journal.

Analyst Rich Greenfield of BTIG Research said in a note to clients that the trouble was confined to Murdoch's British assets, and it is "difficult to foresee meaningful problems for News Corp.'s non-U.K. assets, which represent the vast majority of News Corp.'s market capitalization."

But the scandal could still leap across the Atlantic.

On Wednesday, U.S. Senator Jay Rockefeller sent a letter to Lord Justice Brian Leveson, whose official inquiry into media ethics has heard celebrities, journalists and editors testify about a litany of press abuses, including hacking and bribery.

Rockefeller asked whether British authorities had uncovered any evidence that U.S. citizens had had their messages intercepted or whether the messages of British victims had been intercepted on American soil — evidence which could feed potentially damaging lawsuits in the U.S.

Meanwhile the lawmakers' report has made uncomfortable for the British prime minister. Media are once again trawling over Cameron's many links to Murdoch: His meetings with the mogul; the former News of the World editor who became Cameron's communications chief; his dinners and lunches and horse-riding trips with ex-Murdoch executive Rebekah Brooks.

"At one level it's very unfortunate for David Cameron, the timing of all of this," said Steven Fielding, director of the Center for British Politics at the University of Nottingham. "This could have happened at any point in the last 10 years, that the prime minister of the day could get caught in a close embrace with Rupert Murdoch — they've all been in a close embrace with Rupert Murdoch."