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Thicker Than Water

The Murdochs offer a few lessons in running a family business 8/05/2005 08:00:00 PM Eastern

It's hard to feel much sympathy for Lachlan Murdoch, a young man at the center of the wealth and power of News Corp. But it's easy to empathize with him on the special frustration meted out by the family business.

The resignation of Lachlan as deputy COO of the media giant highlights problems at the conglomerate that are nearly universal in the world of family business. The troubles, of course, flow from patriarch News Corp. Chairman Rupert Murdoch, whose business prowess is creating conflicts common to all sorts of businesses—and families.

As Liberty Media Chairman John Malone recently cracked to analysts begging for information on the family drama, “half of the shareholders are afraid Rupert will die; half are afraid that he won't.”

For Lachlan, scion of a business legend, running some of News Corp.'s slowest-growing divisions became too aggravating, so he quit and blew town, jetting from New York to Australia Aug. 3.

As for News Corp. President/COO Peter Chernin, an outsider looking in, playing a permanent No. 2 will never resolve his desire to be No. 1 at a big company.

While Lachlan's exit triggers a scramble to fill the void he leaves behind, it highlights a few rules about family businesses:

• Money doesn't help. It's easy to be mesmerized by the Murdochs' immense wealth, pegged by the annual Forbes 400 at $7 billion. The friction in rich families can be every bit as painful as in tiny businesses. If the Murdochs owned a deli or dry cleaner, they'd be having the same fights, but the arguments would go on in the storage room.

But because the family business is a multibillion-dollar media empire, disputes spill across the pages of every major newspaper (except, of course, at Lachlan's former unit, the New York Post, which is uncharacteristically mute on the issue).

“Imagine the issue of 'Who does Daddy love more?' playing out on a global stage,” says one former News Corp. executive. “I think it's a burden no child should have to bear; a life-altering burden.”

• Family issues trump business issues. A son irritated by Dad's lecturing as a teenager will bristle under Dad's micromanaging him as an adult.

Lawyer Michael Horvitz's father and two uncles battled in court for a decade for control of the family's $1 billion Horvitz Enterprises real estate, cable and newspaper company. Horvitz has built part of his practice counseling other family businesses and funds a center at Case Western University studying the issues.

“I'm sure there are complicated business issues, but, in these situations, the personal and family issues dominate,” he says. “The business issues are an expression of the personal issues.”

• Even the most careful planning will fail if not all the key parties are represented. Murdoch's adult children—Lachlan, Elisabeth, James and Prudence—thought that issues about control were resolved in a trust developed as part of Rupert's 1999 divorce from his second wife.

But key players weren't represented and, indeed, weren't yet born at the time of the settlement. After divorcing, Rupert (now 73) married Wendi Deng (now 36), and they've had two children. Deng is pushing Rupert to amend the family trust to give the toddlers, Chloe and Grace, a full share of both the money and voting power when they grow older.

Deng thinks—sensibly—that Murdoch should treat all of his children equally. The adult Murdoch kids, unsurprisingly, have a different view.

• Family companies can be tough on non-family executives. Despite all your successes, all your smart decisions, you'll probably never rise to the very top spot. At companies whose shares are held widely, the CEO has to leave sooner or later, even at Disney. But at a family-controlled company, even an imperious mogul's death won't necessarily clear out the top spot. Blood succeeds blood.

This is Chernin's problem. He has made no secret of wanting to one day be CEO of a company. Guys like Chernin want to be in charge. His contract states he can leave for a CEO slot elsewhere.

Industry friends say he was “bitterly disappointed” at missing the top slot at Disney. “He is frustrated by the fact that he hasn't gotten to run his own show,” says another ex-News Corp. executive. “His dream would be CEO of News Corp. I don't think he is ever going to be that.”

So where does this all leave News Corp.? Lachlan wasn't the only Murdoch at the company. His older sister, Elisabeth, left in 2000. Younger brother, James, 33, is in on-the-job training as CEO of English satellite company BSkyB. In a couple of years, News Corp.'s board could name him CEO.

One remaining question involves control of the TV-station group Lachlan was running. Fox News Channel Chairman Roger Ailes, who has long had Murdoch's ear and is hungry for more power, is being considered for the role. But does Ailes want to be held accountable for a business whose prospects are relatively bleak? If asked, he will probably serve. He lobbied Murdoch to name his Fox News lieutenant, Jack Abernethy, president of the TV stations last year.

But Ailes doesn't want to run News Corp., which is one way to avoid frustrations in a family business.

E-mail comments to
jhiggins@reedbusiness.com

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