Why the News Corp. Scandal May Have a Silver Lining

10:07 AM PST 11/17/2011 by Mimi Turner , Georg Szalai
Oli Scarff/Getty Images

The endless family drama likely will result in a shareholder-approved change in governance.

This story originally appeared in the Nov. 25 issue of The Hollywood Reporter magazine.

When the phone-hacking scandal sent shock waves through the News Corp. universe this past summer, some feared Rupert Murdoch's empire could implode.

The daily headlines have been damaging, including a recent hearing at which Labour MP Tom Watson told News Corp. deputy COO James Murdoch that he "must be the first Mafia boss in history who didn't know he was running a criminal enterprise."

But despite the stench of something rotten at its newspapers, there's no sign a News Corp. collapse is imminent.

PHOTOS: News of the World's Top 10 Scandals

In fact, a view is forming that, far from triggering the demise and breakup of the global media conglomerate, the scandal could leave it stronger than ever before.

Sure, the company now must grind through years of reputational damage and legal consequences related to official inquiries and the courts.

But the negative press also handed power to those who want News Corp. to modernize its governance and scale back the family's control.

STORY: Documents Show 'A Culture' of Illegal Phone-Hacking At The News of The World

"The company has had to accept a much more modern structure of the kind they have never had with Rupert as the unquestioned decision-maker," says Claire Enders, head of London-based Enders Analysis.

But the overall effect for the company has been far from negative, she notes: "The irony is that because of the crisis, the company has become much more shareholder-friendly."

David Becher, a corporate governance expert and associate professor at Drexel University, points to a slew of personnel exits at News Corp. that have cleared out many longtime Murdoch associates.

STORY: New Shocking Details of 'News of the World' Hacking Operation Revealed At Leveson Inquiry

It has been rewarded with a steady stock price and a recent investment by British hedge fund Children's Investment Fund, which bought $855 million worth of stock.

Says Becher, "If the scandal forces News Corp. to adopt adjustments to its governance structure and provide greater transparency, this could be beneficial to shareholders."  

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NEXT IN LINE: Who will fill James' role if he decides (or is forced) to 'move on'?

With speculation about the junior Murdoch's future at News Corp.,attention has turned to a range of experienced executives who reportto him and run key businesses around the world. Should James depart,these three could step in and increase their roles in the company

Tom Mockridge
CEO of U.K. newspaper unit News International

Mockridge is a former CEO of Sky Italia who helped News Corp. navigate the fallout after the phone-hacking scandal broke. He replacedRebekah Brooks, the News of the World editor who resigned in July.

Brian Sullivan
CEO of 49 percent-owned German satcaster Sky Deutschland

Sullivan was managing director of the customer group at BSkyB. He was put in charge of the German operation in 2010. In more than 13 years at BSkyB, Sullivan was part of the team that developed its strategy, including the launch of an HD service.

Andrea Zappia
CEO of Italian pay TV platform Sky Italia

Zappia also was customer-group managing director at BSkyB, overseeing sales, marketing and customer relations. He took his current role in the summer, replacing Mockridgewhen he moved to oversee News Corp.'s U.K.newspaper operations.

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