Nepotism in Rupert Murdoch’s empire

Murdoch’s two sons have been appointed executive positions within the companies, going against traditionally accepted practices of corporate governance in publicly traded companies

Investors of publicly traded companies like to expect a certain amount of adherence to corporate governance and democracy from executives, but Rupert Murdoch’s investors enjoy no such luxury. Murdoch is notorious for ignoring corporate convention, and with the recent appointment of his two sons to various executive positions within his empire, he reinforces that reputation. 

Reuters reports that Lachlan, the older son, will become the non-executive co-chairman of 21st Century Fox and News Corp. Lachlan returns to positions of leadership within Murdoch’s empire after he left the position of deputy chief operating officer in 2005 — partly because of conflict with other News Corp executives.

The younger, James — who was embroiled in the high-profile hacking scandal that centered around News Corp’s illegal activity in the U.K. — will become 21 Century Fox’s co-chief operating officer. He will work with Chase Carey — a stalwart figure of leadership in the cable networks and viewed by many as a stable executive. 

The issue at hand with these appointments is the fact that they contribute to a dynasty-like atmosphere within Murdoch’s companies — something investors wrestle with, but are forced to accept. The notion of traditional corporate governance, with investors having a say in executive appointments, is not a reality for those who back Murdoch’s empire. Reuters quotes former Murdoch editor Roy Greenslade as affirming that the company remains a family dynasty regardless of its public listing, and quotes analyst Alan Gould:

“If there is any surprise, perhaps it's bringing Lachlan back into Fox…I would assume it does set up a little bit of a bake-off as to who will ultimately succeed at Fox…As long as Chase Carey is still there and continues to run the cable networks, that is critical.”

But Carey is scheduled to move on in three years, according to the Sydney Morning Herald. His contract is up in June, and investors are lobbying for his retention. While returning executives — particularly ones in the family — after their associations with international hacking scandals and bad relations with other executives is not a traditional method of corporate governance, but Murdoch clearly eschews such practices, and investors do not have much of a choice.

 

Further reading:

High returns dwarf corporate governance in fund managers’ minds

News Corp. agrees to $139 million shareholder settlement

Dealing with misbehavior in the C-Suite, part 2

Contributing Author

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Juliana Kenny

Juliana Kenny is a contributor to InsideCounsel.com, covering a range of topics including patent litigation, conflict mineral laws, executive compensation, and antitrust regulation. Juliana earned B.A.s...

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