On Thursday afternoon, James Murdoch assembled senior executives in the top-floor boardroom in the News Corporation’s London headquarters and told them of a momentous decision: to shutter the 168-year-old tabloid at the center of a deepening phone-hacking scandal and the original heart of the Murdoch media empire in Britain.

Hours earlier, he had prevailed on his father, Rupert, and his chief lieutenant, Chase Carey, in a phone call from London to Sun Valley, Idaho, where they were attending a conference, according to two people briefed on the matter. Under pressure to quell the scandal and preserve a lucrative deal for a pay-television company, James Murdoch argued that closing the newspaper was necessary to restore respect to the company, they said.

Now James Murdoch faces a new test as he jockeys to one day run his father’s company and salvage the biggest deal in the Murdochs’ history, a $12 billion takeover of British Sky Broadcasting, or BSkyB. With the scandal mushrooming as two former employees were arrested and new charges surfaced that executives had tried to obstruct investigations, he could emerge as the company’s decisive new leader, or as the tainted son who mismanaged one of the greatest crises the family business has faced.

The struggle is both a generational shift and economic one: how best to respond to changes that face the news industry, and who at News Corporation is best equipped to decide.