Murdochs Are Next Target of U.K. Lawmakers as Rebekah Brooks Steps Down

News Corp. (NWSA) Chairman Rupert Murdoch and his son, James, are under mounting pressure from U.K. lawmakers to take responsibility for a phone-hacking scandal after bowing to calls for Rebekah Brooks to resign.

Some people close to the Murdoch family and News Corp.’s directors think it would make sense for Murdoch to relinquish his job as chief executive officer and stay on as chairman. Although a leadership change hasn’t been formally discussed by the board, the situation is fluid and everything is possible, said one of the people, who wouldn’t be identified because the matter isn’t public.

The resignation of Brooks, who edited the News of the World tabloid at the time of the alleged phone-hacking, marks a U-Turn for James, News Corp.’s deputy chief operating officer, and Rupert Murdoch, 80, who said last week Brooks had their support and would stay on. Murdoch yesterday backed his 38-year-old son and heir apparent, saying he had acted “as fast as he could, the moment he could.”

“It’s now about the Murdochs,” said Chris Bryant, a Labour lawmaker who called the July 6 emergency debate on the News of the World. “James Murdoch has got to answer questions about their hush money strategy. Did the board agree to it?”

Photographer: Facundo Arrizabalaga/EFE/Newscom

Rupert Murdoch and his son James, left, head to his home in London on July 10, 2011. Close

Rupert Murdoch and his son James, left, head to his home in London on July 10, 2011.

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Photographer: Facundo Arrizabalaga/EFE/Newscom

Rupert Murdoch and his son James, left, head to his home in London on July 10, 2011.

If the Murdochs’ position weakens further, Chief Operating Officer Chase Carey may be named as interim CEO, said one person close to the family and board of directors.

News Corp. spokeswoman Alice Macandrew declined to comment via phone today.

Spotlight on James

(For a story on Murdoch plans for a Sunday tabloid, click here. To read about the FBI probe into News Corp., click here.)

Bryant has written to News Corp.’s non-executive directors to ask what they were told about the payments. Brooks and the Murdochs yesterday agreed to appear before a Culture, Media and Sport Committee hearing on July 19 after first saying only Brooks would attend.

In the U.S., the FBI began a probe whether employees tried to hack into the phones of victims of the Sept. 11 terrorist attacks. London police have made at least nine arrests as part of the investigation. Among those arrested was Andy Coulson, one-time editor of the News of the World and former communications chief for U.K. Prime Minister David Cameron. Coulson has denied any knowledge of reporters tapping phones when he led the paper.

The scandal wiped almost $5 billion off the company’s market value since the Guardian reported on July 4 that the News of the World in 2002 hacked into the voice mails of murdered schoolgirl Milly Dowler and deleted messages.

Shelved BSkyB Bid

In a week, News Corp. has also been forced to shelve a 7.8 billion-pound ($12.6 billion) bid for full control of British Sky Broadcasting Group Plc (BSY), close the 168-year-old tabloid on which Murdoch’s U.K. media business was founded and accept Brooks’s resignation amid an unprecedented backlash from all political parties against his company.

“Her departure will move the spotlight onto James Murdoch,” Labour lawmaker Tom Watson, who has been investigating phone-hacking for two years, said on the Sky News channel today. “Terrible things happened over a long period of time in that company, and they tried to cover it up. They must be held to account.”

Brooks stepped down as chief executive officer of the News International U.K. publishing unit as she was “detracting attention” from attempts to “fix the problems of the past,” she wrote in a letter to employees today. Tom Mockridge, head of News Corp.’s Sky Italia division, will succeed her.

‘Weakness’

Rupert’s handling of the scandal and Brooks’ resignation “shows weakness,” said Charlie Beckett, director of the media institute Polis at the London School of Economics, said in a phone interview. “It won’t do a lot to reassure people that he has entirely got a strategy as opposed to a series of short-term tactics.”

“In any other business she would have gone straight away,” Beckett said.

Cameron and News Corp. investors including Prince Alwaleed bin Talal Al Saud had called for Brooks to be removed since the phone-hacking scandal escalated last week.

Cameron said Brooks’s resignation was “the right decision,” his spokesman said today. “Clearly there have been mistakes made. There are a lot of questions to answer,” Steve Field told reporters in London.

Brooks became head of News International, which also publishes the Sun, the Times and the Sunday Times, in 2009 after serving as editor of the Sun for 6 1/2 years. Brooks was the first female editor of the Sun, a tabloid known for printing pictures of topless women on the third page, and earned a reputation for aggressive tactics. She told lawmakers in 2003 that her publication had in the past paid police officers for information.

Misleading Parliament

Brooks was close to the Murdoch family, attending Elisabeth Murdoch’s wedding in 2001 and reporting to son James.

In a note last week to employees to announce the closure of the News of the World, the younger Murdoch said the company had misled the British Parliament. During hearings in 2007 and 2009, executives including Les Hinton, former News International chairman, and Colin Myler, News of the World editor, said that there was no evidence that more than one reporter had been involved in phone hacking.

James Murdoch also has said that out-of-court settlements he approved that included non-disclosure agreements were “wrong” and “a matter of serious regret.”

The settlements were criticized in Parliament during an emergency debate on July 6, when Watson said James Murdoch should face criminal charges and was unsuitable to be a director of the company.

Payments

Among those who received payments was Gordon Taylor, chief executive of the Professional Footballers’ Association, after his lawyers uncovered an e-mail suggesting more than one journalist at the News of the World knew Taylor’s phone had been hacked, Myler said in July 2009.

Rupert Murdoch will apologize to the public in an advertising campaign over the weekend for the phone-hacking scandal.

“We are sorry for the serious wrongdoing that occurred,” Murdoch will say in the ads, according to a copy sent by a News Corp. spokeswoman. “In the coming days, as we take further concrete steps to resolve these issues and make amends for the damage they have caused, you will hear more from us.”

Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

Rupert Murdoch yesterday defended his handling of the crisis. In an interview with the Wall Street Journal, which is owned by News Corp., Murdoch said an independent committee led by a “distinguished non-employee” will investigate the phone- hacking allegations. The company has handled the crisis “extremely well,” while there were “minor mistakes,” he said.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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