By Geoff Colvin, senior editor-at-large
FORTUNE -- Rupert Murdoch's decision to demote his own son is a perfect example of why he's endlessly interesting. Sometimes he makes business decisions purely with his head, canny and shrewd, occasionally ruthless. That's what he did this time. But sometimes he makes giant decisions with his heart, appearing misguided or just nuts; for example, he runs the New York Post and the Times of London at deep losses that will apparently continue forever, and he just doesn't care.
Overall, the Murdoch method has worked well for him. For investors in his News Corp. (NWS), it has not worked nearly as well as it should have. Recent events show the problem clearly. Amazingly, amid the U.K. phone hacking scandal that led to James Murdoch's downfall -- a mushrooming story that a member of Parliament yesterday called "the single largest corporate corruption case in this country for more than 250 years" -- the Murdoch method is still working, at least for him.
James was, among other things, chief of News International, the News Corp. division that owns the company's British newspapers. When the phone hacking scandal erupted at one of them, the News of the World, Rupert made one of his famously tough-minded decisions, abruptly closing the 168-year-old paper. News Corp.'s value dropped by billions of dollars as investors feared more revelations would follow.
They have followed. An inquiry still underway yields worse disclosures every day. Witnesses have reported that phone hacking was conducted at "industrial scale," that News International employees bribed the police so widely that Scotland Yard became in effect "a subsidiary of News International," that employees destroyed evidence massively, and that all of this was approved at "the highest levels." The highest levels would seem to include James Murdoch. As this mess gets bigger and uglier, Rupert concluded that James had to go. He's out as News International's boss and will work in New York City on the international TV business and other vaguely defined tasks.
Here's the surprise: The stock isn't going down anymore. As the scandal gets worse, the stock rises higher. It fell to $14 last summer; it was over $20 when James got the shove. Investors figure this historic scandal won't hurt profits much; it won't make people stop watching The Simpsons or refuse to go see the next Avatar. More
While the hacking scandal at News Corp dealt a serious blow to the company's leadership, shareholders have not taken the news as a call to action. What's going on? By Eleanor BloxhamOct 12, 2011 10:02 AM ET
The media giant used to require board members to have a stake in the company's stock, but the requirement has since disappeared. And one board member has already shed his holdings. By Eleanor BloxhamJul 19, 2011 2:22 PM ET
The scandal's potential damage to News Corp. has already gone beyond News of the World. But will the company's directors remember their duty to represent the interests of shareholders not named Murdoch? By Geoff ColvinJul 19, 2011 10:26 AM ET
While News Corp continues to endure blow after blow, is it time for Rupert Murdoch to resign as CEO or chair or both? By Eleanor BloxhamJul 19, 2011 8:31 AM ET
While some suggest that News Corp. board member Tom Perkins is the company's best hope for turning a new leaf at the beleaguered company, his track record raises serious doubts. By Eleanor BloxhamJul 18, 2011 9:10 AM ET
Rupert Murdoch's News Corp. has responded to the scandal at News of the World by jettisoning the publication. That crisis judgement call, among others, could come to haunt the company. By Shelley DuBoisJul 12, 2011 11:25 AM ET
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