Rupert Murdoch shows his creative flair for corporate governance

Rupert Murdoch shows his creative flair for corporate governance

Elizabeth Knight

Businessman Lachlan Murdoch takes the helm of his father’s news empire, being named co-chairman of News Corp and 21st Century Fox. Nine News.

Rupert Murdoch has never been one to adhere to the niceties of corporate governance. The news that his son Lachlan will take the role as joint chairman of both arms of the listed empire and that Murdoch’s younger son, James, will assume the mantle of joint chief operating officer of 21st Century Fox is unsettling for many investors.

Murdoch’s long-serving lieutenant, Chase Carey, will move on within three years, according to the timetable devised by Murdoch and enabled by the fact that Carey’s contract comes up for renewal in a couple of months.

Investors viewed Carey as the stabilising and experienced hand within the Murdoch empire and have lobbied for his retention.

Murdoch’s daughter Elisabeth has been given no position in the succession plan outlined by both 21st Century Fox and News Ltd.

While Murdoch has further inked his stamp on the empire, investors in both companies must continue to resign themselves to the fact that while both companies are publicly listed, they operate like family owned ventures.

Under normal circumstances an executive who walks away from the business, as Lachlan did in 2005, would not be welcomed back into the fold. Similarly, an executive with the baggage that James carries from the UK phone-hacking affair would not be elevated on the corporate ladder.

But Murdoch snr is no stranger to ignoring corporate convention. And those who invest in his companies have become accustomed to the absence of corporate democracy.

For example, in recent months Australian investors have needed to come to grips with the fact that 21st Century Fox will lose its Australian listing – a move that will prevent many local institutional investors from holding the stock.

The moves on succession planning are designed to ensure the dynasty prevails, rather than appeal to the broader shareholder base.

Murdoch’s disregard for the conventions of corporate governance have now extended to Ten Network where Lachlan’s requirement to vacate the chairmanship has resulted in chief executive Hamish McLennan being elevated to the position of executive chairman – a dual role that is frowned upon in Australia.

Lachlan Murdoch must vacate his controlling position at Ten under Australian media rules and he will no longer be able to exercise any control beyond his 8.9 per cent shareholding.

But it is unlikely there will be any significant Ten investor backlash given the register controlled by a tightly knit group of investors that, along with Lachlan Murdoch, includes James Packer and fellow billionaires Bruce Gordon and Gina Rinehart – none of whom are renowned for following convention.

The bigger issue is how or whether this plays into the current speculation that Murdoch will seek to acquire the beleaguered Ten Network.

Such a move has been denied several times by News Corp but the audience doesn’t seem to be listening. Regardless of potential designs on Ten, Murdoch will be unlikely to make any moves until or unless the federal government relaxes the media ownership laws – a move that is currently under consideration.

Insiders believe it is more likely that Foxtel (which is jointly owned by News Corp and Telstra) is a more likely bidding vehicle. It has also been suggested that 21st Century Fox could be the Ten suitor.

But one thing is clear about Ten. The management and board are, in theory, governed by former News Corp executive McLennan.

Meanwhile, the corporate hierarchy at 21st Century Fox is now very muddy. Indeed, Murdoch has rewritten the rule book on governance structure with his sons’ appointments.

Rupert Murdoch sits on top – no debate. On paper it seems that Lachlan is the next in line. But he has no executive responsibility, so in theory his younger brother is not his direct report. But it seems that Lachlan and Carey are both senior to James.

The Murdoch camp is selling it as a partnership between the two Murdoch sons, but whether there is a junior partner remains to be seen. There is plenty more room for evolution within his empire.

If James comes away from the hacking scandal without too many scars he could well make a run for the title – and he would almost certainly take on sole responsibility as chief operating officer when Carey leaves. It could be that the sons ultimately get a company each – Lachlan would take News Corp and James would take control of the larger 21st Century Fox.

This board/management reshuffle smacks of an interim solution that is unstable and will ultimately need to be sorted out.

James and Lachlan will inherit equal voting rights in both News Corp and 21st Century Fox – a recipe for the soap opera to continue. But this will not happen until Murdoch snr leaves the boardroom and with longevity in the Murdoch DNA, who knows when that might be.