11.22.11

Why James Murdoch Might Never Take Over Rupert’s Media Empire

Rupert Murdoch sees James as his last hope of keeping News Corp. under family control, but the younger man may not be able to withstand attacks from shareholders, investors, and members of Parliament, who accuse him of running a mafia racket.

UPDATE | Nov. 23, 9:30 AM EDT
James Murdoch has quit the boards of the companies that publish Britain's Sun, Times, and Sunday Times, filings showed on Wednesday. He will stay on as executive chairman of News International and chairman of British broadcaster BSkyB. The announcement leaves the family completely absent from the board of any major British newspaper.

On the face of it, James Murdoch’s reelection as chairman of the British satellite broadcaster Sky at the annual general meeting Nov. 29 should be a shoo-in. After all, his father, Rupert, controls 39.1 percent of the voting shares.

But these are not normal times for the Murdochs and News Corp. Sky’s non-Murdoch directors have taken the unusual step of issuing a statement ahead of the meeting in London saying James has their full backing. “He has always acted with integrity in the eyes of both the board and the senior management,” they declared.

Since the phone-hacking scandal in Britain, the increasingly eccentric Rupert Murdoch has been defiantly resisting popular clamor for him to stand down from his dual post of chairman and chief executive of the family-owned global media behemoth, while James has been summoned back to the British Parliament to be cross-examined about whether he told the truth about how much he knew about the widespread criminality going on under his nose at his father’s newspapers.

Unable to prize Rupert from the bunker, his perennial opponents, backed by an angry British nation incensed at the wholesale theft of hundreds of thousands of voicemails left by everyone from Prince William and Paul McCartney to a murdered schoolgirl and the victims of a Qaeda terrorist attack on London, are concentrating their fire on the next best thing: James.        

Whether James should continue to chair meetings of Sky’s board is of little moment when set against the often bitter and tangled family drama unfolding behind the scenes. Having failed to keep his daughter Elisabeth and his elder son, Lachlan, at his side in the company hierarchy, Rupert sees James as his last hope of ensuring that the business founded by his father, Sir Keith, remain under family control.

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For while the grand façade of News Corp.’s steel-and-glass headquarters on Sixth Avenue in New York, is imposing, it disguises the fact that News Corp. is run like a mom-and-pop shop. And investors are losing patience with the Murdochs always putting family first. As the shareholders suing because they believe the old man paid too much for Elisabeth’s film production company, Shine, put it, “Murdoch has treated News Corp. like a family candy jar, which he raids whenever his appetite strikes.”

With the crumpled-faced Rupert looking every one of his 80 years and—as was clear to those attending News Corp.’s AGM in Los Angeles last month—now incapable of chairing a public meeting on his own, the time has come when even his children are starting to think that after decades of one-man rule, he has entered the endgame and should start planning to vacate his tarnished throne.

There are many battles ahead if James is to claim what he believes is rightfully his.

There are a number of problems with their logic. First, Murdoch has no intention of giving up without a fight, even to his nearest and dearest. Second, Rupert’s mother, Dame Elisabeth, is 102 years old and shows no sign of giving up her hectic social round in Melbourne, Australia. If Rupert has her genes, he may hang on for at least 20 more years. And third, his sentimental wish to keep the business in the family is being jeopardized by the unfolding scandals that are engulfing the company. If he cannot hand it over to one of his children, he may not pass the mantle on to anyone.

James is under attack from British members of Parliament who accuse him of running a mafia racket. They say he has advanced News Corp.’s business interests by turning a blind eye to the private detectives and sleazy journalists who spy on lawmakers who will not tow the company line. They accuse him of being unaware that his lackeys have been snooping on them, the very lawmakers investigating the wrongdoing at his father’s newspapers, and have also been stalking the lawyers representing the victims of their crimes.

To which James can only say, sorry, he had no idea what has been happening on his watch. Yet despite this storm of public disapprobation, James remains Rupert’s favorite child and the one he still hopes, increasingly against the odds, will eventually succeed him.

The scene, a News Corp. management retreat in Sun Valley, Idaho, 15 years ago: top executives troop in to hear James Murdoch, then just 23, make an impassioned plea to his father to embrace the Internet without delay.

While a pedestrian, workmanlike speech from his elder brother, Lachlan, met with no more than polite applause from his father, the more James berated Rupert for being a short-sighted Luddite for not grasping the importance of the digital revolution that was fast upon them, the more the old man’s faced creased into a broad grin of pride and admiration.

Rupert’s second son had dared say what no one present could say without first taking the precaution of hiring a lawyer to negotiate a payout: the old man was wrong. James, it was clear to all those who witnessed the sight, was the unrivaled apple of his father’s eye.

As all the trusties who have been allowed to penetrate the Murdoch family compound testify, Rupert sees in James a carbon copy of himself. Once a truculent young shaver with a ring in his eyebrow who failed to make the grade at Harvard and dropped out to sign rappers like Mos Def to his hip-hop music label, James straightened up in time to be sent by his father to head up News Corp.’s satellite-TV interests in India and China before running the British milch cow Sky and also, latterly, nominally overseeing his father’s London tabloids.

Few—either outside the company or within—think James would have been given such golden opportunities if his surname hadn’t been Murdoch, but, as his performances in front of the Commons committee testify, he can rely on his quick wits and deft intelligence to adequately acquit himself when pressed into a corner. He is a quick study and a hard worker. He knows about marketing and has a vision far beyond his father’s love of ink and newsprint.

What the hacking scandal has exposed, however, is that James is no master of detail, and for such a keen intelligence is strangely incurious, not least when it means treading upon his father’s exclusive territory—the day-to-day running of the newspapers.

Not only is Rupert a masterly popular journalist, but he alone understands the hidden company agenda fulfilled by the cash-hemorrhaging papers like the New York Post and London’s Times, both of which at a conservative estimate have lost $1 million a week since he bought them. For the papers are strategic assets owned for a particular purpose in a much larger game: to pressure and intimidate politicians however mighty, including presidents and prime ministers, who threaten to get in the way of the relentless expansion of his burgeoning media empire.

In the case of the purchase of The Times, antimonopoly legislation was swept aside without a whimper in exchange for support for Margaret Thatcher at the polls. In the case of the Post, even prickly opponents like Hillary Clinton eventually were brought to heel.

All the Murdoch editors and former editors who watched Rupert’s fumbling performance before the Commons—half cowed, half crazy—spluttered in disbelief as he claimed he did not know the News of the World was stealing stories from hacked voicemails. His suggestion that he didn’t pay attention to such a minor element in his vast global business made little sense. For Rupert, newspapers are the business, and the movies and the TV stations, which he barely understands or interferes with, come last.

James’s inability to effectively manage his father’s core businesses, the hard-copy newspapers, so long as Rupert is in charge is an important mark against him eventually succeeding his father. In September he secretly resigned from the U.K. newspapers’ boards, a sure sign he is no longer prepared to accept responsibility for aspects of the business his father continues to run. Another key factor against James is that it was his bright idea to buy the half of Sky that News Corp did not already own. That Murdoch grab set off the concerted firestorm of opposition by media and political rivals that led to the unearthing of the hacking scandal.

Scotland Yard had investigated allegations of wrongdoing in 2007, but Andy Hayman, the top cop who headed the inquiry, found no case to answer. Soon after, Hayman, who had been wined and dined by Murdoch senior executives Les Hinton and Rebekah Brooks, who resigned in disgrace this summer, inked a deal to write a regular column for the London Times. If James had not persuaded his father to move in on Sky, the police would have kept their silence and no one would have been any the wiser.

Instead, James has pulled the wardrobe down on himself. His inability to master the London operation with his father breathing down his neck has led shareholders to question his general competence and his fitness to remain at the top of Sky. Corporate governance watchdog Pensions & Investment Research Consultants thinks James’s “involvement in the News Corp. phone-hacking inquiry raises concerns over whether he is fit to fulfill the role of chairman at the company” or fulfill his duty to “enhance the company’s public standing and image overall.”

The same sentiment is echoed by the Local Authority Pension Fund, which has $100 billion invested in Sky. The Odey Asset Management, which owns $270 billion in Sky shares, agrees the Murdoch influence is too powerful. “We do want more independent directors on the board,” said Odey’s CEO, David Stewart.

Rupert’s London media rivals have piled on. James “did little at the latest [Commons] hearings to suggest he should be allowed to remain as chairman” of Sky, wrote Alex Brummer in the Daily Mail. “He may not have seen or heard any evil, but his failure to track the cash at News International, a fully-owned subsidiary of publicly quoted News Corporation, smacks of inexperience and even incompetence.”

Even the chief independent director at Sky, Nick Fergusson, admits that some shareholders, hearing James tell the Commons that the London papers were too small a part of his onerous duties worldwide to keep close tabs on, were concerned. They expect he will need to focus on News Corp. at a time when 200 Scotland Yard detectives are investigating the 5,000 phones hacked by News Corp. employees, leaving him little time to concentrate upon Sky business.

While the Murdochs have been distracted by the scandal, corporate raiders have moved in, betting that the criminality eventually will lead to Rupert being pushed out by a combination of Murdoch children anxious to protect their birthright, and shareholders eager to see the share price soar when the old man no longer can stand in the way of offloading his troublesome and increasingly costly newspapers.

The jackals are circling. London hedge-fund manager Chris Hohn has taken an almost $1 billion stake in News Corp., 53.8 million class A shares, while New York hedge fund Eton Park Capital has bought a further 25.9 million. Neither hopes to wait too long.

What must particularly hurt James and Rupert is that even The Times last week roundly condemned their clumsy handling of the scandal that has put their family’s control of the company in jeopardy. “The lesson is clear,” wrote editor James Harding. “The company should always be its harshest critic and its own most assiduous investigator. A powerful organization with a victim complex has the capacity to do great damage, not least to itself.”

For once, Rupert’s repeated assertion that the trouble in London was rustled up by his commercial rivals was pricked by one of his own. Rupert’s heated denials and shifting of the blame to persons unknown, like O. J. Simpson searching for Nicole’s killer, are deemed nothing more than an old man’s “victim complex.”

James may well survive for now as chairman of Sky. But his move to take up his post as deputy chief operating officer in New York, where he and his American wife, Kathryn, are reported to have bought a $23 million townhouse on 69th Street that was once home to the Muppet master Jim Henson, will further add to voices calling for him to resign his London posts.

The larger issue, whether James will ever succeed his father, will remain unsettled, with many battles ahead if he is to claim what he believes is rightfully his.

The corporate governance campaigner Stephen Mayne, the Murdochs’ perennial Australian tormentor, has been following the Murdoch family saga for decades. “Maybe it is time for everyone to recognize that there only ever was one Rupert Murdoch,” he told Newsweek/The Daily Beast.