Rupert Murdoch: Don't Lead Your Family Business Like Him

Rupert Murdoch speaks before Parliament.
Rupert Murdoch speaks before Parliament.

Any business owner thinking of bringing her children into the business must watch the unfolding Murdoch epic with fear and loathing. This week, James Murdoch is being grilled by the Leveson inquiry which was set up to investigate the British media in light of the phone hacking scandalthat has rocked British journalism, led to several arrests, and the resignation of James Murdoch from his United Kingdom board and executive roles.

Grilled first by parliament and now by the ongoing inquiry, Murdoch Jr. looks like any business founder's nightmare: the entitled son. From his every facial expression, his distaste for challenge and the peremptory tone with which he answers questions, his second-rate performance makes it clear that he doesn't really believe that anyone has the right to ask about his father's business. Wholly lacking in presence, his sulky attempts to display strategic insight give the game away. It's obvious that he occupies a senior role in the corporation not by rights but through kinship.

Family businesses have special demons and unique strengths. They're more likely to endure than other kinds of business. Kongo Gumi, in Japan, is the oldest continually-functioning business; it started out building houses some 1,400 years ago. There are many explanations for the longevity of family firms: their commitment to the long term over the short term, a sense of legacy and tradition, a necessary talent for managing conflict effectively.

An equally-powerful-but-opposite model of family companies persists however: The one that says the first generation builds what the next generation wastes and destroys. Having grown up with wealth, power, and influence, inheritors squander what their parents, or grandparents, have built and, bereft of their work ethic, realize too late that no one is owed success.

So how should successful entrepreneurs think about their children's role in the business? Rupert Murdoch is a charismatic and ingenious entrepreneur. His son James displays none of those characteristics and Rupert's public favor of his children over professional management has sent a clear signal to ambitious employees and investors alike. This is a family company, family gets priority, and everyone else's interests will always come second. This has disenchanted many investors and it has cost News International some of the media's most brilliant executives. More damaging still, the power structure within this organization has made it clear that advancement is not based on merit. Family ties and loyalty count disproportionately. One reason the company has been dogged with questions about its ethics is because it's clear that nothing matters more than pleasing the owner or his heirs.

Such family preference has distorted the company wildly. It has also sent a signal that, while merit clearly counts, it isn't the only thing that matters. And it has exposed a high profile leader, in the form of James, who lacks the presence required to pull off public appearances successfully. These are all, in effect, object lessons of the perils of preferring your children.

What interests me even more, perhaps, than the Murdoch family soap opera is that the very best companies I know almost invariably are described as being like a family. Employees feel that there is a long-term vision at play. They appreciate that loyalty and commitment operate two ways, not just one. I routinely hear stories about such companies standing by individual employees during tough times and it's clear they're repaid, many times over, for treating people like people.

Moreover, every entrepreneur I've ever known sooner or later talks about the company as being her 'baby,' something they love and nurture, devote disproportionate amounts of time and attention to. But what strikes me about these companies is that while they may feel familial, their owners recognize that the ultimate good you can do any business is to prioritize talent and ethics above everything—and everyone—else.