Blood pressure rises

Melanie stern is section editor of Families in Business

The resignation that fractured the Murdoch dynasty has been the subject of intense media scrutiny. Melanie Stern sifts through the cuttings and finds that this private drama made public reveals that succession is one of the most incendiary of issues

There are few genuine unexpected twists in the business world these days. But if anyone was going to supply one, it was probably always likely to be the world's biggest and most controversial newsmakers, News Corporation's (or just 'News') Murdoch family. When Lachlan, the tattooed, tanned surf-dude son of patriarch Rupert (pictured) resigned from his role as an executive director for the company and announced that he would be moving his supermodel wife and infant son Kalan back to Australia, no amount of gracious press release rhetoric between father and son could hide a family schism bad enough to threaten News' future as securely under Murdoch family control.

With the media industry's silly season in full flow for the summer, many column inches were generated across the globe that week analysing every possible fallout from Lachlan's decision, particularly on the family's succession plans and the future of News, now that Murdoch senior's chosen heir apparent had elected to go. (Rupert reportedly called Lachlan "the first among equals" from his three eldest children, Lachlan, James and Elizabeth, born to his second wife). Some speculated that Lachlan is leaving because he feels undermined by his dad, with some reports citing the final straw as a dressing-down Rupert delivered to Lachlan in front of colleagues, coming at the same time as Murdoch Senior allegedly met- unbeknown to Lachlan- with TV executives who report directly to him.
 
Still, in a joint statement on the news, Rupert said he was "deeply saddened" by his son's decision, who chose to soften the blow by agreeing to stay on as a consultant to the company – and in doing so, astutely kept himself in the loop, but from a comfortable distance.

Rumours suggesting the move was actually fuelled by arguments over 74-year old Rupert's decision to add his two infant daughters – Lachlan's half-sisters – from his third marriage to Wendi Deng, 36, to one of many family trusts that hold the family's 30% controlling stake in News, set the business press alight. Rupert allegedly tore up the divorce agreement with Lachlan's mother that guaranteed him and his three siblings 90% of their $10 billion inheritance, and in recent years seemed to be more concerned with wealth planning for his children with Wendi than for his existing brood. Predictably, the family strenuously denied any such issue, but this would be just the kind of altercation that those in the family business world will know is commonly a real threat to business and leadership continuity.

However, few chose to examine how Lachlan's decision could affect the lofty proprietor's own mindset and thoughts on how his style of owner-management could have damaged his children's feelings toward their business, and willingness to take over one day. After all, sister Elizabeth, 36, chose to bow out of the family business in 1998 after a stint in the chief executive role at News Corp's UK satellite TV arm, British Sky Broadcasting group (BskyB), the role filled by James since his high-profile and controversial appointment in late 2003. Indeed, Lachlan's departure has forced the spotlight back onto James just two years into his tenure, somewhat serendipitously, in the same week as the satellite broadcaster issued strong ­full-year 2004 financial results. James masterfully quashed suggestions that he might next join Elizabeth and Lachlan in their defections by telling a tense press conference, "you're stuck with me" – and in doing so, reinforced the concept that he will likely now take over as the heir apparent in Rupert's masterplan for global media domination. Rupert has not made any public comment on that.

Lachlan has been long groomed for greatness. His father did not hold back in piling on the pressure; at resignation, he was responsible for subsidiaries that collectively account for more than two-thirds of News Corporation's global annual revenues. Lachlan started small, taking a job cleaning The Mirror newspaper's printing presses while still at school, and spending time as a sub-editing intern. But he was hastily elevated into various management roles after graduating in philosophy from Princeton University, including general manager at Queensland Newspapers and deputy chief executive for News Limited. In keeping with the approach of most family businesses preparing offspring for succession, Rupert admitted Lachlan to the corporation's board in 1996, aged 25.
 
Before long, he was in charge of the company's Australian television group, and in 1996 moved to the USA to become publisher of the New York Post, then – as now – a loss-making pet project for Rupert, who as publisher between 1976-86 was known for getting his hands dirty, walking around the offices, commenting on stories, and calling his editors directly. In turn, staffers remember Lachlan surveying the editorial floors with his sleeves rolled up to his elbows, tattoos on show, scanning pages as his training had taught him to. In 2000 he was made News' deputy COO. But it wasn't all golden boy: Australia still has not forgotten Lachlan's involvement in the 2001 collapse of One.Tel, the communications firm that he and media mogul family-alter ego, James Packer of PBL, invested some $500 million in, only to see it fold amid allegations of gross auditing fraud. His first big deal as a News executive, and done jointly with the Packer family – who have since been accused of bribing witnesses to the collapse to protect Packer junior from recriminations – damaged Lachlan's standing back home, and as the case works its way through the courts four years on, could put the dampeners on a happy return.

So we turn our attentions to the remaining son, 31-year old James. If dedication was truly all one needed to reach the top, then surely he would indeed make Rupert Mark II, and an excellent successor to a formidable throne. After lacklustre beginnings at News in 1996, a Harvard drop-out and failed rap music record label entrepreneur, he has proved his tenacity and professionalism, and silenced catcalls of nepotism with results. As chief executive of Asian satellite arm STAR from 2000-2003, James took the company into its first ever operating profit, and kept a silence throughout the furore surrounding his appointment to the chief executive role at BskyB that ensured his dignity remained intact when the nay-sayers belted up, and he emerged a proficient leader.
 
BskyB's 2004 results reported profits up 35% to £425 million and share dividends up 58% (though its crucial subscriber numbers did not grow as fast as observers had hoped); his appointment at BskyB made him the youngest chief executive in the FTSE100 index of companies, then aged 29. Says James of his future post-Lachlan: "I'm not going to speculate on the long-term future. I am going to keep my head down and work with the team at Sky. I look forward to seeing a lot of hard work bear fruit." What looked likely to happen was a period of stewardship for the top job, with News' president and COO Peter Chernin poised to take up Lachlan's duties for a time. But Murdoch moved quickly to fill the vacancy, appointing Fox News' CEO Roger Aisles as network chairman.

At 33 years of age, Lachlan may have given his dad many years of loyal hard service, and driven many successes for the company. But perhaps Murdoch Senior, in his determination to forge a world-leading media behemoth managed and owned by his own, pushed his children too far, forcing two of them to claw back control of their own destinies at the loss of the Murdoch masterplan. In a touching farewell email to his colleagues across the globe, Lachlan alluded to as much as he mused about returning to Sydney with his family. His parting shot: "I know how much many of your husbands and wives, children and friends sacrifice for this company – often with little official recognition."