News Corp power hangs in balance as chosen heir faces his inquisitors

James Murdoch. Photo / AP

When he was a teenager, James Murdoch and his older brother, Lachlan, used to hang from the rafters of their father's house in Aspen, Colorado, and challenge one another to pull-up competitions.

One former Murdoch executive who attended a retreat at the holiday home recalls seeing red stains on the woodwork and being told by their mother Anna - Rupert Murdoch's second wife - that the boys were so pig-headed they would compete until their hands bled. "James usually won," he adds.

Two decades later, he also looked set to triumph over Lachlan in the race to become their father's successor at News Corp.

But now his grip on that prize is starting to slip. When James Murdoch returns to the British Parliament on Thursday to face questions from MPs investigating the phone-hacking affair, he will be fighting to repair his reputation and that of the company his father founded.

Should he fail to convince, the chances of James succeeding Rupert at the helm of the world's most powerful media conglomerate will be remote. It is no exaggeration to say the future of the company is in the hands of the 38-year-old London-born executive. He is now deputy chief operating officer at News Corp, where only Rupert and his number two, Chase Carey, outrank him.

James has been groomed to take charge of News Corp, the owner of the Sun, Fox News and the Wall Street Journal, since Lachlan resigned as deputy chief operating officer six years ago. James had already served a youthful apprenticeship at News Corp's internet arm by then, followed by a rapid rise through the executive ranks at the company's television businesses.

By the time he appeared before MPs alongside his father in July, when public revulsion over the News of the World's targeting of a mobile phone which belonged to murdered schoolgirl Milly Dowler was at its height, Rupert's sharply suited son had also run News Corp's UK newspapers, Murdoch's power base for decades.

Yet the activities of the News of the World, a paper which generated less than 1 per cent of the group's profits, has shaken the foundations of the company.

Immediately after the Murdochs gave evidence in July, two former News of the World executives, the paper's former editor, Colin Myler, and ex-head of legal affairs, Tom Crone, issued a dramatic statement contradicting the evidence of their former boss. Both insisted they had told Murdoch three years before about the existence of a company email from 2005 which showed beyond doubt that phone-hacking had not been the work of a single "rogue reporter". Myler and Crone allege that is why Murdoch agreed to pay more than £700,000 ($1.4 million) - to settle the case - to Professional Footballers' Association chief executive Gordon Taylor, who was suing the paper after discovering it had intercepted voicemails left on his mobile phone.

Murdoch denies he was told about the full content of what became known as the "for Neville" email, after the paper's chief reporter, Neville Thurlbeck. He told MPs that Myler and Crone informed him in June 2008 about the existence of the email and they made it clear that it proved Taylor's phone had been hacked by the News of the World. Crucially, Murdoch denied the two men had also told him the email showed hacking was not just the work of one reporter, as they insist they did.

The decision to settle, Murdoch said, was based on legal advice which said Taylor would settle. Last week, that legal advice was published by the committee. In it, the company's QC, Michael Silverleaf, warned the "for Neville" email constituted "overwhelming evidence" there was "a culture" of hacking at the paper. MPs are likely to press Murdoch about how much he knew about that advice, because it blew apart the company's claim that hacking was the work of a single reporter.

Sources close to the company insist Murdoch stands by his version of events. It is Murdoch's word against Myler and Crone's.

Last month, around two-thirds of News Corp's independent shareholders voted against the re-election of James Murdoch to the board of the company. The Murdoch family controls nearly 40 per cent of voting shares, enough to ensure Murdoch was re-elected regardless, but that vote cannot be ignored. It is an indictment of Murdoch's handling of the phone-hacking affair and the clearest signal yet that investors do not want him to succeed his father.

This has thrown the family firm into crisis.

It has also disturbed the delicate equilibrium that exists between the younger members of the family, three of whom have held, or still do hold, senior positions at News Corp.

Lachlan, Murdoch's oldest son, remains on the board and the company recently bought Shine, the production company owned by Elisabeth, the eldest of Rupert's three children from his second marriage. Both had been viewed as the most likely to succeed Rupert in the past - James only emerged in recent years as his father's heir apparent.

But according to an article published in Vanity Fair last week, Elisabeth blames James for the company's disastrous response to phone-hacking. She reportedly urged her father to send James on a leave of absence, an idea he seems to have considered, if only fleetingly. The disagreements are serious, but as yet there is no rift.

The key question for the Murdoch family and beyond is: has James been so tarnished by the hacking affair that he will never land the top job at News Corp itself?

-Observer