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Rupert Murdoch with sons Lachlan and James at his wedding in London, March 2016. EPA/FACUNDO ARRIZABALAGA

The Sky takeover and the next generation of the Murdoch dynasty

The Murdoch family’s sale of 21st Century Fox’s entertainment assets to Walt Disney raised a lot of eyebrows when it was announced last year. And now the company is clear to take over Sky (pending the sale of Sky News) it seems that one of the world’s most successful family businesses is back in the fast lane – but who is behind the wheel?

For years, speculation was rife over who would succeed Rupert Murdoch. The role of leader was being fought over by his two oldest sons, Lachlan and James. The two Murdoch heirs have been swarming all over senior posts at both News Corp and 21st Century Fox for years.

This led the Murdoch empire to become split between two separately listed companies – 21st Century Fox led by James and News Corp led by Lachlan.

In June 2015, Rupert announced he would be leaving his position as CEO of 21st Century Fox and that James would take over. By this point James had been gaining popularity among the Fox investor base for his leadership, deep knowledge of the company’s operations and his contribution to the company’s expansion in digital distribution. At that point, the impression was that James would have the primary role in running Fox.

Rupert Murdoch and son Lachlan in Idaho, USA, July 2015. EPA/Andrew Gombert

Return of the prodigal son(s)

But Lachlan has always been seen as “daddy’s boy”. He left the family firm in 2005 to pursue his personal business interests. But after his return in 2015 as co-executive chairman of 21st Century Fox, he has been caricatured as the prodigal son. In fact, Lachlan will continue to run the remaining assets under the Murdoch’s family control, including Fox News as well as what remains of 21st Century Fox (which will be spun off into the new Fox company).

James, on the other hand, was initially thought to be continuing his career outside the family empire. It was thought he would play a role in the process of integrating operations between Disney and 21st Century Fox, possibly becoming the next CEO of Disney.

But his recent announcement suggests that he is motivated to continue the family dynasty and to enrich the Murdochs’ foothold in the emerging digital media business, even if this means starting up an entirely new business on his own. In light of this, the Sky deal may create new opportunities for James to return in the future of the Murdoch dynasty.

Rupert’s choice

The Disney deal of 2017 finally signalled that Murdoch Snr had made a choice between his sons. Arguably, he put his chips on Lachlan. But at the same time, this story demonstrates that family business is not just a matter of operational aspects, like succession planning. On the contrary, the Murdochs have shown that succession should be seen as a unique opportunity to renew a company’s strategic focus in order to lay the basis for a sustainable long-term future.

As my research into the strategies of long lasting family companies illustrates, strategic decisions in family companies are complicated because they are not only concerned about financial wealth, but also emphasise non-financial – or “socioemotional” – aspects. Things like preserving the family’s founding values and identity and ensuring the continuation of the family business across generations.

The problem is that financial and socioemotional wealth do not always go hand in hand. For example, in a study of all companies that went public in Europe from 1995 to 2011, I found that the financial benefits attainable through relinquishing family ownership and selling the business (or parts of it) come at the expense of some losses of socioemotional “wealth”. Such “losses” include: diluting family members’ power or weakening their identity within the family and the firm. Interestingly, the most successful family firms are those which are willing to accept some emotional losses in the short term in order to achieve both financial and non-financial gains in the future.

This is the key to understanding Rupert Murdoch’s decision to sell 21st Century Fox while appointing Lachlan as the next leader of the family business – two decisions that are remarkably aligned. On the one hand, after years of struggling to acquire 100% of Sky, the Murdoch family decided to relinquish its stake in the media entertainment industry. But, at the same time, this move was critical in obtaining the Sky deal – which will now enable the Murdochs to regain their position in media entertainment.

The fact that James has given up his leadership role in the family business shows that it is a price the family is clearly willing to pay in order to ensure the future of the dynasty. But he could still return as a next generation leader after a short period outside the empire.

Rupert Murdoch holds copies of The Sun and Times at his new high technology print works in Wapping, East London, in 1986. PA/PA Archive/PA Images

Lessons for the budding dynasty

Succession planning is certainly important, but a comprehensive plan is virtually impossible. What really matters is to establish a strategic vision for how the succession will enable the regeneration of the family company’s competitive advantage.

The choice of a family business successor is certainly more complicated when there is more than one capable candidate. But rather than focusing on the choice, a better result can be achieved by designing the right leadership role for each successor.

Finally, family business leaders should make sure they have an overarching strategy in the first place. As the Murdoch family demonstrates, succession can be a unique opportunity for a family firm to redefine its strategic purpose, refocus its core business and perhaps even jettison some dead weight in order to fully realise the next generation’s full potential.

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