Murdoch’s family turmoil: A familiar story
A demanding dad, a new young wife, departing successors, snubbed stockholders—where have we heard this before?
“Happy families are all alike,” Tolstoy famously declared in the first line of Anna Karenina. “Every unhappy family is unhappy in its own way.” But if Tolstoy is right, why do the recent travails of Rupert Murdoch’s family sound so familiar?
Murdoch, the domineering and driven chief of the giant News Corporation, has periodically expressed the hope that one of his children would succeed him some day, just as he succeeded his newspaper-publisher father in Australia back in 1952. As recently as six years ago, when Murdoch was 68, that hope seemed reasonable: Three of Murdoch’s four adult children were then working in the family’s media conglomerate.
But in 2000, daughter Elisabeth Murdoch abruptly quit British Sky Broadcasting, the satellite TV firm controlled by News Corp. And last July Murdoch’s eldest son, Lachlan, just as suddenly resigned as News Corp.’s deputy chief operating officer. Apparently Lachlan was frustrated by his lack of real authority. Some News Corp. executives say Lachlan lacked his demanding dad’s obsessive interest in running the company’s businesses. Rupert compounded the problem by belittling Lachlan’s performance in front of other News Corp. executives. The result: Lachlan and his wife have left New York and resettled half a world away, in Sydney, Australia.
That leaves only Rupert’s second son, James, laboring within his father’s business orbit (currently as head of BSkyB). But James is only 33 and apparently skittish about managing his father’s huge and disparate collection of TV properties (Fox Broadcasting), a film producer (20th Century Fox), scores of newspapers (London Times, New York Post, etc.), a book publisher (HarperCollins) and magazines (the Weekly Standard).
Compounding the problem is the fact that Rupert has also sired two young daughters from his third marriage, to 36-year-old Wendi Deng, who has been lobbying for equal treatment for her offspring (and also, possibly, for herself as her 74-year-old husband’s potential successor).
Murdoch’s adult children (who range in age from 47 to 33) and his two ex-wives have magnanimously agreed to share the family’s corporate assets with Wendi’s daughters. (The voting stock in the family trust alone is worth more than $5 billion, so why be piggy?) But they’re adamantly opposed to sharing voting power with two toddlers who are, after all, only two and three years old.
How Murdoch’s adult children feel about their new stepmother—who is younger than two of them—can be imagined but hasn’t been publicly recorded.
Have we heard this story before? Oh my, yes—many times in this very column, in fact. Consider:
American International Group. Like Murdoch, patriarch Hank Greenberg ran this global financial powerhouse seemingly forever. Like Murdoch, Greenberg groomed his two capable sons (Jeffrey and Evan) to succeed him. Like Murdoch, Greenberg operated as a one-man band and kept his subordinates (including his sons) in the dark. Like Murdoch, Greenberg often harangued his sons in front of their colleagues. Like Murdoch, Greenberg refused to contemplate retirement. And finally, like Murdoch, Greenberg lost both of his sons, who left AIG to run other insurance companies.
Marmon Group and Hyatt Hotels. Bob Pritzker and his late brother Jay built these two separate companies into a family empire valued at some $15 billion. But when it came to building families … that’s another story. Like Murdoch, Bob and his second wife produced two children who are a generation younger than their siblings and same-generation first cousins. These late-life kids of Bob’s are still in school while their siblings and cousins are playing active roles in the family firms. But that didn’t deter Bob’s second litter of offspring (as well as their mother, now Bob’s bitter ex-wife) from demanding an equal share of the family’s pie and power.
To be sure, when it comes to a second wife’s corporate ambitions for her children, the determined younger wives of Rupert Murdoch and Bob Pritzker have nothing on Kimberley Conrad, the former Playboy playmate who married Playboy Enterprises founder Hugh Hefner in 1989 and bore him two children. Although Kimberley divorced him six years ago, Hefner (now 79) has arranged to leave his entire 71% voting stake to Kimberley’s teenage children, Marston and Cooper. Hefner’s much older daughter from his first marriage—Christie, now Playboy’s CEO —and her brother David won’t share in any of their father’s stock.
Reliance Group. After their father died without a will, the controlling Ambani brothers fought so bitterly that they didn’t speak to each other for more than a year. Their obsessive feud threatened to destroy the whole conglomerate until their mother brokered a seemingly Solomon-like settlement that effectively divided the empire between the two sons. At first glance this sounds like a happy ending—every family is entitled to its internal feuds and sibling rivalries, after all. But the Ambani family controls only 46% of what is India’s largest private company—and most of that control is exercised through hundreds of companies with thousands of other shareholders. Like Murdoch (whose family controls less than 30% of News Corp.’s voting stock), the Ambani brothers seem blithely unconcerned with repercussions their blood feuds can cause beyond the immediate family.
Something similar occurred this year when Walt Disney Co. settled an equally bitter feud with its dissident former director Roy E. Disney. Roy, son of the company’s co-founder and nephew of its namesake, quit the board in a huff two years ago and began making a pain in the neck of himself with public criticisms of the company’s governance, not to mention a lawsuit challenging the selection process for choosing CEO Michael Eisner’s successor. This year Disney (the company) and Disney (the man) mended their rift in this fashion: Roy was given (a) an office at the company’s Burbank studios, (b) a consultancy and (c) the title “director emeritus.” In exchange, Roy and his ally Stanley Gold withdrew their lawsuit and promised not to nominate their own slate of directors or submit shareholder resolutions for the next five years.
In other words, the Disney Co. board paid Roy Disney (in cash as well as ego massage) to shut up.
This is a good deal for Roy Disney and for the company’s directors, who will henceforth be spared Roy’s annoying yapping. But if Roy’s past criticisms of the board are valid, his self-imposed silencing is a bad deal for Disney stockholders. If the Ambani brothers (with just 46% of Reliance shares) and the Murdoch family (with less than 30% of News Corp.) have no business subordinating shareholder needs to their family/ego needs, that goes in spades for Roy Disney, whose stake in the Disney Co. is less than 1%.
With all these cautionary examples, why hasn’t the Murdoch family taken steps to avoid repeating them? The simple answer, I suspect, is that a family company’s greatest asset—its ability to follow its instincts and intuitions—can also be its greatest curse. People who operate instinctively can make and execute decisions faster than their rivals, and business families that operate instinctively in tandem can be the most effective teams of all. But instinctive leaders are unlikely to study and analyze the mistakes of others, and consequently they’re often doomed to repeat those mistakes. Perhaps those who read these words of wisdom are similarly doomed—but I pass them on in the hope that you are the exception.
Different companies, different solutions
Sulzberger of the Times and Pearlstine of Time answered to two different kinds of pressure.
Last summer a special prosecutor investigating White House leaks demanded that two reporters testify and provide personal notes about their confidential sources. One reporter, Judith Miller, worked for the family-controlled New York Times. The other, Matthew Cooper, worked for Time magazine, a subsidiary of publicly traded Time Warner Inc. Both reporters, as well as their publications, agreed that the prosecutor’s demand could impair the news media’s most important function: to find out what’s really going on within the murky halls of government. But when a federal court ordered both reporters to cooperate with the prosecutor under threat of jail and fines, their employers responded very differently indeed.
New York Times publisher Arthur O. Sulzberger Jr. supported Miller’s refusal to testify, and the reporter was jailed for contempt of court—an act that presumably enhanced the Times‘ ability to inform its readers. (Although that principle was sound, Miller’s unwillingness to come clean with her own employers suggests that she didn’t deserve their impassioned support, and she left the Times in November.) Time magazine’s editor-in-chief, Norman Pearlstine, on the other hand, concluded that the press isn’t “above the law” and released Cooper’s notes, over Cooper’s strenuous objections.
Pearlstine explained this decision to violate a source’s confidentiality by citing “institutional issues.” He said he came to appreciate the legal differences between defending an individual and defending a corporation. Time Inc. technically owned an electronic file that contained Cooper’s notes, he explained. The parent company could potentially be held in contempt of court and forced to pay large fines if its magazine and reporter didn’t cooperate.
In other words, in this case Sulzberger worried about the journalistic principle and Pearlstine worried about the cost to the company.
Both men reached their decisions under tremendous pressure, albeit very different kinds of pressure. Sulzberger had three generations of ancestors looking over his shoulder; Pearlstine had Time-Warner’s tens of thousands of stockholders looking over his shoulder. Pearlstine (a former colleague of mine at the Wall Street Journal) is a dedicated journalist of intelligence and character, but when push came to shove his mind seems to have been cluttered by the conflicting claims of journalism, the law and the short-term bottom line.
You may recall that a similar showdown occurred during the Watergate scandal that ended Richard Nixon’s presidency. When the notes of Washington Post reporters Bob Woodward and Carl Bernstein were subpoenaed in 1973, their publisher and second-generation controlling stockholder, Katharine Graham, personally took possession of the notes and announced that she would go to jail before her reporters did.
If anyone ever wonders why some businesses (especially in the media) prefer family ownership, these cases provide a concise answer. To do their best work, journalists must work independently—and it’s tough to feel independent when you answer to public investors. As David Boardman, managing editor of the Blethen family’s Seattle Times, observed shortly after Judith Miller went to jail, “I’m fortunate to work for an independent publisher who has no hesitation to challenge government through journalism.”
The trouble with Asian family firms
When fallible relatives begin to look like models of efficiency and integrity.
One trait that Asian family firms seem to share these days is psychotic behavior. Reliance Group, India’s largest private company, recently split up after suffering fraternal feuding between its founder’s sons (see above). In Hong Kong, casino mogul Stanley Ho’s Sociedade de Jogos de Macau has been rocked by open warfare with his sister over her share of the dividends. At South Korea’s SK refinery group, foreign investors are fighting to remove as chairman a scion of the founding dynasty who just happens to be a convicted felon (he was convicted for illegal trading and accounting irregularities). Samsung, the most powerful of Korea’s chaebol family conglomerates, was recently roiled by allegations that it used Korea’s future ambassador to the U.S. to funnel bribes to candidates in Korea’s 1997 presidential elections.
A visitor from Mars might well inquire: What is it with large Asian family firms? Is it something in the drinking water?
But those are the wrong questions. In Asia or anywhere else, family firms flourish in the absence of better alternatives. Asia’s colonial history (not to mention China’s current Communist regime) long stunted the development of truly responsive institutions. When you can’t trust your country’s government, banks, stock markets or public corporations, your fallible relatives begin to look like models of efficiency and integrity. Come to think of it, the U.S. government in Iraq and New Orleans, the New York Stock Exchange in its overcompensation of former CEO Richard Grasso, and such U.S. private sector players as Enron and WorldCom haven’t exactly covered themselves with glory either—which may explain why, even in the U.S., at least 80% of all businesses are family firms.
How did such seemingly crazy Asian companies become so powerful? What Winston Churchill once said about democracy applies as well to the dominance of Asian family firms: “It’s the worst of all possible systems, except for all the other systems.”