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TheStreet Open House

James Murdoch's Resignation Raises Leadership Question

Stocks in this article: NWS

With salacious details about the scandal continuing to emerge, and Murdoch now facing bribery charges under U.K.'s domestic anti-bribery laws, the days of quiet on the U.S. side of the pond could rapidly draw to a close.

Reports indicate that, in recent weeks, U.S. authorities, including the Federal Bureau of Investigation, have intensified their investigation into whether Murdoch employees may have violated the U.S. Foreign Corrupt Practices Act (FCPA), the law that prohibits companies and individuals from bribing officials to obtain or retain business abroad. Aker's testimony is sure to bolster that effort. The cost of a full-scale FCPA battle in terms of fines, legal fees, and associated shareholder derivative suits could be enormous, potentially doubling the nearly US $1 billion that commentators estimate Murdoch has already spent to fight his companies' legal battles. But the Murdochs have more than money to lose. Thus far, their U.S. holdings, including the Wall Street Journal and Fox News, have not been implicated in the hydra-like scandal. To date, there is no hard evidence that they will be, although one may wonder if the FCPA investigation might spawn a sweep of the entire news media industry, not unlike those we have seen in other industries such as pharmaceuticals, medical devices, and financial services.

Certainly, the tepid coverage of the scandal by Murdoch's stateside outlets has not burnished the corporation's U.S. image. Nor did Murdoch's $1 million donation to the U.S. Chamber of Commerce in the months leading up to its now high-profile campaign to reform the FCPA.

Meanwhile, a recent Wall Street Journal editorial entitled "Justice's Bribery Racket" legitimately questions whether FCPA enforcement may have gone too far. But the appearance of conflict, however unfair, can only stoke the simmering fire.

If Rupert Murdoch wants to safeguard his properties from the same fate that befell News of the World, and now the Sun, he must do what he would not do seven months ago. The challenge for Murdoch, and other foreign companies facing an FCPA prosecution, is to use the critical time before charges are filed to lead rather than to simply react.

Murdoch must designate a credible leader, probably from outside the organization, to determine if the corporate house needs further cleaning and, if it does, that anointed leader must spearhead the effort.

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