Five Murdoch Family Mistakes You Can Learn From

The recent revelation that 93-year-old Rupert Murdoch has been locked in a secret legal battle against three of his children over the future of the family’s media empire makes for fascinating reading. According to the New York Times, Murdoch set the drama in motion late last year, when he made a surprise move to change the terms of the family’s irrevocable trust to ensure that his eldest son and chosen successor, Lachlan, would remain in charge of his vast collection of media assets. Prior to that move, the trust contained an “equal governance provision” that provided one vote to each of his four oldest children upon Murdoch’s death, which Rupert famously and publicly described in a 2006 interview with Charlie Rose. As one might imagine, the proposed changes (and their public revelation) have created significant drama and conflict, driving a wedge between Rupert and three of his four oldest children.

It might be easy to dismiss the Murdoch turmoil as extraordinary and not something that most family businesses would relate to. But in the public details (we are not privy to any inside information), we see some important lessons for any business family about what not to do if you want to ensure a healthy generational transition while still preserving the value of your family enterprise. We gathered Banyanites Rob Lachenauer, Nick Di Loreto, Alison Isaacson, and Leigh Blank for a discussion about what we can learn from the Murdoch saga.

Curious about how to avoid the pitfalls the Murdochs are facing? Here are five Murdoch mistakes you can learn from:

Mistake #1: Falling Prey to the Sequel Fallacy

The Murdoch empire has famously had an owner-operator culture. Owning the business and staying involved in major decisions, Rupert played his operator role effectively for decades. Because he clearly places so much value on that model, he set up intense and extended internal competition between his children for who would become his “anointed” successor to operate the business. When he attempted to cement his son Lachlan as the next owner-operator by petitioning to adjust the trust terms and give Lachlan control, he effectively sidelined his other children.

When the senior generation assumes that the next generation can simply take over without fully considering the evolving business, family, and ownership context, including how decisions will be made, they may be setting the next generation up to fail. We call this the “Sequel Fallacy.” Rupert has clearly made an assumption that we see a lot of families make – the governance that worked for one generation will also work for the next generation. In deciding that the business must be run in the same iron-fisted manner by one owner-operator, he has created significant conflict in the short term, and potential failure in the long-term.

In our experience, successful so-called sequels are more the exception than the rule. Families have broken up, reputations have been lost, and businesses have failed all because the generation in control did not deeply consider how the context is different and how roles, structures, governance, and decision-making should adjust to set the next generation up for success. “Blindly continuing what worked for one generation without considering the evolving landscape is a rarely an effective approach in the next generation” says Nick.

For more on this, see: https://banyan.global/ideas/does-your-family-business-have-a-succession-plan/

Mistake #2: Failing to establish multiple owner roles

One of the common unspoken tensions in a family business is that different owners — including future owners — can’t or don’t all want to be involved in the same way. As families grow, different family members will want to play different roles as owners – and ownership documents will often differentiate available roles as well. But too often those desires, expectations, and constraints are not discussed or normalized.

The Murdoch saga seems to highlight a focus on one owner role, the operator, who is deeply involved in the business. But even absent the proposed Murdoch trust changes, other owner roles exist in the system and would benefit from additional clarity. Even if James, Elisabeth, and Prudence Murdoch don’t have a vote or role in operations, they are still beneficial owners and likely have significant connection to the business. Clarifying their role as beneficial owners, including how much they are involved, what information they receive, where they have a voice on issues, and how their perspectives are factored into decision making could defuse some of the ongoing tension. For example, Lachlan could make room for their voice in overall direction of the business so they can contribute their passion and interests to the success of the enterprise.

“Current generation owners often don’t acknowledge or appreciate the evolution of how different individuals in the next generation want to engage. Failure to have meaningful dialogue, create clear language, and set expectations for the different roles owners play can lead to unintended consequences and conflicts,” says Nick

In our experience, we see five different, important roles that owners in a family business can play, each contributing in their own way. For more on this, see: https://banyan.global/ideas/5-kinds-of-ownership-roles-in-a-family-business/

Mistake #3: Failing to create a shared Owner Strategy in the next generation

As owners, you have the right to define what value you expect from your company. An effective Owner Strategy can help your family business clarify those expectations by defining the rules of the game, how you keep score, what winning looks like, and what moves are not allowed.

Apparently from the press, the Murdoch owners have not yet aligned on core elements of their owner strategy. Perhaps most strikingly, their differences show up on how they keep score and define winning. Rupert and Lachlan have stated their desire to increase the value of the company via specific editorial approach. In comparison, James’ has made public criticisms focused on climate change and battling “high-tech illiberalism”. Their differences also appear on what is not allowed – for example via the phone hacking scandal.

Absent a shared Owner Strategy, the current conflict is expected and likely long-lasting. “If the next generation doesn’t share a common Owner Strategy, conflict is embedded in the system,” says Rob.

For more on this, see: https://banyan.global/spotlight/owner-strategy/

Mistake #4: Retrofitting Governance to Paper Over Owner Strategy issues

The Murdochs seem to have decided that they want to keep the “reserved right” of editorial content of Fox News in their Owner Room, rather than delegate it to their board or management. As owners, they can make any decision they want with respect to their businesses. But that is only good governance if they have a strong Owner Room and an aligned Owner Strategy.

Rather than have the hard conversations to resolve their differences on Owner Strategy and explicitly clarify the role of the owners, it seems that Rupert is trying to take that reserved right from the four siblings and embed new decision authority in Lachlan – furthering Rupert’s strategic priorities at the expense of owner harmony.

But retrofitting governance in this manner only addresses a current symptom rather than the strategic root causes that will persist long into the future. And those symptoms are likely to reemerge if Lachlan acts like an owner-operator and does not allow his siblings a voice on a core owner topic. “Overruling fundamental strategic differences by retrofitting new governance seems to be a risky approach,” says Rob. “As the saying goes, ‘a house divided against itself will not stand.’”

Mistake #5: Not Reversing Predictable Stages of Conflict Before Losing Control.

Conflict in a family business escalates in predictable (and predictably damaging) ways. We track the severity of conflict through something we call the Conflict Spiral. The 7th and last stage of the spiral, filing lawsuits, is almost always counterproductive, expensive (both financially and psychologically), and avoidable. But most often, turning a family difference into a lawsuit is an act of all-out war. We’ve seldom seen a business family remain intact after resorting to battling each other in court. It’s hard to imagine the family relationships improving after this current legal battle.

Perhaps more than damaging relationships, Murdoch, who seemingly seeks to control his company’s destiny even after he’s no longer around to run it, has ironically given up agency over the decisions with the current legal battle. By allowing the judge to decide the ultimate fate of the family business that has defined him for decades, Murdoch has lost the control he has so long prioritized.

As we say, each step down the conflict spiral may be entirely rational in the moment. But continuing to go down the spiral often leaves owners in a place that they never intended or wanted to be. “Many families who experience severe conflict want to avoid lawsuits knowing that communication and relationships will become even further divided. Refocusing on shared interests can help unite rather than divide them. Usually, there is some common ground that can be unearthed when the right support, governance structures, and processes are in place,” says Leigh. “Let’s hope the Murdochs can climb back up the Conflict Spiral.”
For more on this, see: https://banyan.global/ideas/the-conflict-spiral-from-diverging-interests-to-family-wars/

Conclusion

Conflict is inherent in a family business. The Murdochs, like other families in business together, have differences to work through. But conflict that rises to the level of lawsuits can be difficult to recover from. While the Murdochs have gone so far as to challenge each other in court, anything is possible when the family chooses to work together toward resolution. Perhaps they can find a way forward together, if they can work together to align as owners of their family business.

Other families can certainly learn from the Murdochs’ mistakes. As you anticipate generational transition, you must think about adapting governance, clarifying owner roles, keeping your discussions private, and creating and aligning on an Owner Strategy. Otherwise, you’ll likely be setting yourself up for conflict that might be harder to resolve down the line.