LONDON (Reuters) - James Murdoch will probably survive a row with investors to be re-elected as chairman of BSkyB BSY.L with the support of News Corp but that link to his father's firm, tainted by the phone hacking scandal, could spell more problems with the regulator.
The 38-year-old executive's link to BSkyB's largest shareholder News Corp (NWSA.O) concerns some shareholders who say the company needs an independent chairman after News Corp had to pull its bid for the rest of BSkyB it does not own.
Referring to Tuesday's vote, investor interest group PIRC warned: "If combined oppose votes and abstentions get close to 20 percent then James Murdoch will struggle to claim the support of shareholders."
News Corp had to withdraw its $12 billion (7.7 billion pound) offer in July following revelations that people working for a News Corp weekend tabloid, the News of the World, had hacked into the phones of celebrities and murder victims to secure stories.
British communications regulator Ofcom has a duty to ensure that owners of UK media are "fit and proper" and has said it is monitoring developments in the phone-hacking investigations.
James Murdoch is chairman of News International, News Corp's British newspaper arm, and deputy chief operating officer at News Corp, where he survived a massive protest vote against his membership of the board last month.
During the phone hacking furore, he appeared regularly as a representative of News Corp and among a flurry of statements also gave evidence to a parliamentary committee that was later criticised by politicians as being misleading.
"He has blotted his copybook to a point where it could be damaging to this company because he just won't be viewed in a good light by the regulators," one top 30 institutional shareholder who intends to vote against Murdoch told Reuters.
The scandal has drained away much of the respect Murdoch won for his management of BSkyB during his time as chief executive between 2003 and 2007.
Peter Langerman, who heads Mutual Series, an investment team within Franklin Templeton Investments and a top-25 BSkyB investor, described the election of an independent chairman at BSkyB as "advisable."
Other shareholders and analysts have said voters on Tuesday will have to decide whether the damage done to the Murdoch brand, in the eyes of politicians, regulators and the public, could spread to the highly successful pay-TV group.
"If you look at his BSkyB job in isolation -- has (James) done a bad job at BSkyB? The answer to that is no. He has generally been a pretty good steward of shareholder value there," the top 30 institutional shareholder said.
"However, the problem is -- because of all the other stuff that has happened -- you could say shareholder value has been impacted because the bid from News Corp had to be withdrawn."
BSkyB's independent directors have written to shareholders to express their unanimous support for Murdoch as chairman, describing his performance at the company as "first class."
In a further effort to quell shareholder unrest, the company has replaced board members Allan Leighton and former News Corp Director David Evans with Lazard's Matthieu Pigasse and Martin Gilbert, CEO of Aberdeen Asset Management (ADN.L).
BSkyB Deputy Chairman Nick Ferguson said the company had seen "no effect on sales, customers or suppliers over the last five months" but a survey published by YouGov and lobby group Avaaz suggested the majority of more than 1,000 subscribers polled want Murdoch ejected from the board.
It showed 68 percent do not think that he should continue as chair of BSkyB, while 75 percent have little or no trust in the Murdoch family's ability to own and operate media in Britain.
However one major shareholder said the Murdoch influence was positive.
"They have created a lot of value for shareholders, they have been good long-term investors and have helped build a business which is a growth utility that is preparing to pay very good dividends, and which offers customers a high quality service compared to anything on offer elsewhere," said Cato Stonex, a partner at top-15 shareholder Taube Hodson Stonex.
Others said Sky investors had lost appetite to impose the ultimate punishment on Murdoch many months after the scandal first hit the headlines.
Large investors like Scottish Widows Investment Partnership (SWIP) and Capital World Investors are also reportedly backing Murdoch to keep his role.
"My consistent view has been that this was at fever pitch in July and August and we're almost in December now and overall I think it has passed. He's still there and I feel he'll hang on," Alex DeGroote, analyst at Panmure Gordon.
(Created by Kate Holton; Editing by Sophie Walker)