April 3 (Bloomberg) -- James Murdoch, News Corp.’s deputy chief operating officer, stepped down as chairman of pay-TV company British Sky Broadcasting Group Plc following demands he resign over his role in a U.K. phone-hacking scandal.
Senior independent director Nicholas Ferguson will replace Murdoch, BSkyB said in a statement today. Murdoch, 39 years old and the youngest son of News Corp. Chief Executive Officer Rupert Murdoch, will remain a non-executive director of the U.K.’s biggest pay-TV company.
The resignation as chairman of BSkyB, the company the younger Murdoch once ran and built into one of News Corp.’s most profitable businesses, is the biggest sacrifice he has made since the phone-hacking revelations last year. The scandal, which involves News Corp. journalists illegally listening to voice mail messages of politicians and celebrities, prompted News Corp. to drop its 7.8 billion-pound ($12.5 billion) bid for full control of BSkyB following opposition from lawmakers.
“It’s a downscale,” Claire Enders, CEO of research firm Enders Analysis, who advises clients including the U.K. government, said in an interview. “The company believes that this is a step that will alleviate the pressure on James from a number of political and regulatory sides.”
Murdoch’s resignation as BSkyB chairman comes after he had moved a step closer to succeeding his 81-year-old father with his promotion to News Corp.’s deputy chief operating officer in New York in March 2011. The role at BSkyB had been crucial for Murdoch after he departed from other boards in the wake of the hacking scandal to focus on overseeing News Corp.’s international TV business.
“I am aware that my role as chairman could become a lightning rod for BSkyB,” James Murdoch said in a letter to BSkyB’s board members. “I believe that my resignation will help to ensure that there is no false conflation with events at a separate organization.”
U.K. lawmakers are preparing a report on the phone-hacking scandal following testimony Murdoch gave that has been contradicted by former subordinates. The committee began its inquiry in July after Murdoch said lawmakers had been misled about the extent of phone hacking during a previous probe in 2009. It has questioned him twice for the new report.
U.K. media regulator Ofcom said it will take parliament’s report into consideration when evaluating whether James is “fit and proper” to hold a broadcast license on behalf of BSkyB.
Ofcom said today it will continue to investigate the role of both Murdoch and News Corp.
“It probably is the right thing for him to do, but this goes beyond one person,” opposition Labour Party leader Ed Miliband told reporters today. “This is now about how the organization can restore public confidence. They can do that by having a clear-out of those people who did wrong.”
BSkyB shares dropped 0.8 percent to 675.50 pence in London trading today. News Corp. rose 0.3 percent to $19.98 as of 12:36 p.m. in New York.
In 2003, at the age of 30, Murdoch moved to London, to become CEO of BSkyB, in which News Corp. holds a 39 percent stake. In 2007, he was put in charge of the company’s operations throughout Europe and Asia, a portfolio that includes digital television distribution and newspapers. In that role, he also oversaw the company’s U.K. publishing business which later became the focus of the hacking allegations.
The scandal, which also triggered the company to close the News of the World in July, has led to the arrest of more than 30 people in three related probes. Police identified more than 800 likely victims of the practice.
News Corp. shareholders in October lodged a protest vote against Rupert Murdoch and his sons, following an annual meeting at which investors called for governance changes and an end to voting practices that cement the family’s control. James received the highest percentage of votes against his election to the board, at 35 percent.
In November, one third of BSkyB’s independent shareholders voted against Murdoch’s re-election as chairman.
“Independent board leadership will serve to improve investor confidence in the stewardship of the company,” Standard Life Investments, which owns 0.6 percent of BSkyB and 0.5 percent of News Corp., said in a statement today, adding that it welcomes Murdoch’s resignation.
Murdoch resigned from the board of GlaxoSmithKline Plc in January, stepped down as executive chairman of News Corp.’s U.K. unit News International in February and left the board of auction house Sotheby’s in March.
James Murdoch joined News Corp. in 1996 after dropping out of Harvard University and starting a hip-hop recording label. In 2000, he was sent by his father to Asia, where he became CEO of News Corp.’s money-losing Star television businesses in Asia. He was based in Hong Kong, and spent much of his time in India, developing the nascent pay-TV market there.
On March 14, Murdoch told the lawmakers he should have dug deeper to uncover the phone hacking at the company’s U.K. unit.
“I could have asked more questions, requested more documents and taken a more challenging and skeptical view of what I was told,” Murdoch said.
Murdoch told lawmakers in November that News of the World Editor Colin Myler failed to tell him in 2008 that phone hacking at the now-defunct tabloid was common. Myler and the newspaper’s lawyer Tom Crone have repeatedly insisted that they discussed evidence with Murdoch and that they told Murdoch in 2008 about an e-mail that showed phone-hacking was more widespread than initially assumed.
Murdoch has said he didn’t read the e-mail, sent on a Saturday, because he was likely preoccupied with his two small children at home.
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