Nepotism at News Corp.

Among the major business headlines of last month was the promotion of James Murdoch, the 38-year-old son of News Corp. chairman and CEO Rupert Murdoch, to the newly created position of deputy COO and head of international operations at the media conglomerate. Although News Corp. spokespersons declined comment on succession plans at the company, analysts believe the move signals that James Murdoch will one day succeed his 80-year-old father as CEO of the giant global corporation.

Earlier in March, News Corp. shareholders filed suit against the company and Rupert Murdoch over its agreement to buy Shine Group, a London TV production company owned by Rupert's daughter Elisabeth, for $675 million. The suit alleged that the deal was an act of nepotism because "the transaction makes little or no sense for News Corp." and "is far above a price any independent, disinterested party would pay for Shine." Meanwhile, Rupert's eldest son, Lachlan, who was once News Corp.'s heir apparent, is reportedly preparing to resume a role in the business.

The Financial Times' "Lex" column on March 30 had an interesting take on James Murdoch's elevation. The column noted that there are two ways of looking at the promotion. On one hand, the shareholders who sued over the Shine acquisition would argue that "such practices make a mockery of public companies."

On the other hand, the FT column pointed out, "... News Corp. has always been completely open about the role of family in its business (the creation of non-voting shares for outsiders is a fairly big hint). If you don't like the set-up, don't buy the shares."

A week later, another FT writer, Michael Skapinker, penned an op-ed piece postulating that family business succession is falling out of vogue (although you and I can cite numerous examples to the contrary). The author compared family business successors such as the young Murdochs to royal family members. Indeed, Skapinker went even further than that, harrumphing:

All parents want the best for their offspring and, in ancient societies, it was the norm for leaders' children to succeed them. But democracy generally puts paid to that. The uprisings in the Middle East -- in Egypt, Libya and Syria -- are, in large part, revolts against dictators handing power to their sons.

So family business successors -- whose employees, shareholders, customers, lenders and suppliers are free to cut ties to their companies -- are akin to a new generation of dictators? Give me a break. Even the most passionate left-wing detractors of Murdoch's Fox News must admit that Skapinker's portrayal of family business succession is hyperbole at its worst.

True, sometimes family businesses name the wrong person as the successor (usually for the wrong reasons) -- but that doesn't mean all family business successors are destined to fail.

James E. Barrett, a family business adviser and frequent contributor to Family Business Magazine, addressed the issue of nepotism in family-controlled companies in our Autumn 2007 issue. In an article titled "The war against family control" (which, by the way, won an APEX Award for Publication Excellence), Barrett wrote:

... The assumption is that family successors ... lack the competence, motivation, common sense and business judgment to run a company, especially a huge one.

Most of society's biases have been addressed: Race, religion, gender, ethnic origin, disabilities, etc. are recognized as areas in which unfair negative bias existed and created damage and loss. It will be quite a while before much sympathy is mustered for executives who began with silver spoons and have had every advantage for their entire lives. Still, it is unfair to assume automatically that they're not up to the job. My experience, after three decades in management succession, is that most rise to the occasion when given the top job. Those who can't, or won't, generally have gone into another career track either voluntarily or with assistance.

The FT's "Lex" column noted that News Corp. shareholders might do better to focus their scrutiny on Rupert Murdoch rather than on any of his kids:

Rupert's undeniable passion for media is sometimes at odds with maximizing shareholder return. Over the past 15 years, News Corp. has lagged behind the S&P 500 index by a third.

The fact that James Murdoch is the CEO's son, by itself, is no reason to think he won't -- or shouldn't -- succeed.

Posted Thursday, April 14, 2011 • 0 Comments • Permalink

Professionalizing your board

In its current issue, Family Business's sister publication, Directors & Boards, features an article by a pair of executives from search firm Heidrick & Struggles on including independent directors on the board of a family-controlled business.

Most of D&B's readers are directors of public companies or executives at those companies, so the article focused on directors of family-controlled firms that are publicly traded. But many of the points raised are applicable to privately held family firms as well -- even the smaller ones.

The authors -- John Wood, vice chairman and global managing partner of Heidrick's Chief Executive Officer and Board of Directors Practice, and Thames Fulton, a principal with the firm's Chief Executive Officer and Board of Directors Practice -- noted:

Longstanding agendas of different sides of the family -- some that may go back for decades -- can complicate board service, creating the need for a "voice of reason" to counterweight family factionalism and historical bias.

Wood and Fulton point out that, compared with non-family firms, family businesses need independent directors who have "a more nuanced set of behavior and people skills." They recommend two qualities that family companies should look for when interviewing prospective outside directors:

"Deft candor": In addition to empathy and patience in the face of family drama, outside directors should be "super-independent"; they should be unafraid to offer candid opinions about board and management decisions.
Diplomacy: Independent directors should be skilled at bringing together people who have divergent interests (such as factions within the family). These directors should advocate for the company as a whole rather than for any one faction.

The authors note that independent directors in family companies must tread the find line "between being empathetic to a family's long-held beliefs and values and being able to see when they are getting in the way of the company's growth and profitability."

If your company has not yet engaged any independent directors, consider whether two or three individuals with these skills could help your board work its way out of deadlocks.

Posted Monday, April 04, 2011 • 0 Comments • Permalink

Barbara Spector