Amid scandal, Murdoch's children not as sure to rise to top

Sometimes, the sons also set

The ever-expanding phone-hacking scandal has already had effects on the U.K. government. While Rupert and James Murdoch survived their July 19 grilling before a Parliamentary committee, there will clearly be long-range effects on News Corp. under Rupert Murdoch — now and in the future.

In his testimony, Murdoch pointed out that the now-defunct News of the World was only 1% of his empire. While various facets of that empire will no doubt see shifts, the bigger question is the longterm DNA of the company’s style.

Murdoch pere sits at the top of the public company, and his actions have always been accountable to stockholders. But in the past, investors were willing to go along with him, even when he paid billions for Dow Jones and its crown jewel the Wall Street Journal. Now his every move is under scrutiny, and it will be harder for him to work unilaterally within the company.

The question of succession has always been a point of pride for him. When he made it clear that his older son Lachlan was the designated successor, questions were raised, but nobody raised fists. Similar acceptance occurred when younger son James replaced Lachlan as the heir apparent.

The televised hearings before members of Britain’s Parliament have shown Murdoch to be a lion in winter. The image of the single-minded media baron gave way to a view of an 80-year-old who was sometimes flustered and confused.

The blogosphere acknowledged that the July 19 pie-throwing incident made him look vulnerable and human. (And the bloggers embraced his wife Wendi Deng Murdoch for going into fast action, calling it her “Charlie’s Angels” moment, her “Crouching Tiger” action, spurring admiring words like, “Talk about a tiger mom!”)

But James has been given the third degree, both in court and in the press, while daughter Elisabeth and Lachlan seem

to have come out of the scandal relatively unscathed.

Now the mogul has one and only one searing ambition: saving the reputation of his younger son.

“The key is preserving James,” says an expert in corporate succession who specializes in family-owned companies. “The risk is that he could be implicated, if for whatever reason, they come looking(for those) at the top.”

James, 38, runs the international arm of News Corp. It’s not impossible he could be arrested if the probe widens.

In the U.K., the police can arrest people without necessarily charging them. So far, 10 people have been arrested in the scandal, including the powerful Rebekah Brooks, the head of News Intl., News Corp.’s U.K. newspaper arm, who was extremely close to Rupert.

If necessary, some speculate, Murdoch pere could “serve himself up” to ensure James’ continued upward trajectory at News Corp. by relinquishing his CEO title in exchange for that of executive chairman. Current chief operating officer Chase Carey might slip into the CEO slot, with James continuing his education under that seasoned vet until he’s ready to live his father’s dream and take the helm himself.

A senior News Corp. official says any “suggestions that plans for CEO succession are currently being accelerated or implemented are inaccurate.”

Rupert Murdoch insisted at the Parliamentary hearing that he has no intention of stepping down. “I have not considered resigning because I feel that people I trusted — I’m not saying who, I don’t know at what level — have let me down, behaved disgracefully, and it’s for them to pay. I think that I’m the best person to see this through.”

Murdoch has some vocal supporters, including high-profile independent board member Tom Perkins, a Silicon Valley venture capitalist.

In actions taken so far, the offending paper, the News of the World, was shuttered. The company dropped its $12 billion bid to buy the 61% of BSkyB it does not already own. Two highly placed executives in the News Corp. pantheon stepped down.

James studied hard and put in a decent showing at the televised hearings, watched by millions. He and his father have apologized profusely.

But all these actions haven’t eliminated the taint of illegal acts and shoddy self-policing at News Intl.

“When you start bringing the police in and the investigation starts, it doesn’t just stop because you held yourself well on TV,” says one Wall Streeter. “The question legally is, what can they pin on the CEO? He’s responsible. The investigation is not going to stop, but what’s the real price they are going to have to pay?”

As ripples spread, some on Wall Street had wondered whether James might even be arrested during the hearing to deliver maximum impact in a city whose resentment of the Murdoch name may not be fully comprehended Stateside. That didn’t happen and, at least as of this writing, the situation appears calmer. News Corp. stock regained some of the ground it lost — more than $7 billion in market cap — in several weeks of horrific publicity and unsuccessful attempts at damage control.

Rupert Murdoch’s insistence over the years that his children will run the company after him has never wavered despite grumbling from investors. While Murdoch has sold off shares, he has kept control in the family through a kind of super-voting stock.

James’ older brother Lachlan’s days as the anointed one were numbered after he clashed with other top executives in New York. He left News Corp. in 2005 to move back to Australia, although there’s been speculation of late that Lachlan has become more active in the family business. He launched a firm called Illyria that invests in media companies.

Their sister Elisabeth recently entered the fold when News Corp. acquired her successful U.K. production company Shine for about $670 million in April.

Elisabeth worked at BSkyB until leaving in 2000 to form Shine, which produces shows including “MasterChef” and “Merlin.” She has talent and a good eye but, Wall Streeters noted, little operational experience.

She’s married to high-profile communications guru Matthew Freud and is well ensconced in the U.K. — just as Lachlan is in Australia.

“I think Lachlan is pretty happy in Australia,” says one high-ranking media executive. “I don’t know that he wants to leave, and that he wants to run it (News Corp.), and that he’s got the chops to run it. And Lis, her husband is well-known in the U.K., and she can’t run (News Corp.) from there.”

Murdoch also has a daughter, Prudence, from his first marriage, who has chosen not to join the family business. He has two young daughters, ages 7 and 9, with his current wife Wendi Deng.

Deng has perpetually argued with Murdoch’s adult children to gain her daughters a voting position in the family trust — an eventuality Murdoch was said to have renounced in the divorce agreement with Anna.

He met Deng in China, where she was working at News Corp.’s Star TV in Hong Kong. She left the company when the two became a couple and hasn’t had any formal position in the News Corp. empire since, although she’s a close confidante of her husband as well as a promoter of Chinese cinema.

James is clearly the one who has been being groomed, having been rotated through News Corp.’s various businesses in Asia and Europe. In April, News Corp. named him deputy chief operating officer, a new position, and announced his move from London to New York. He remains chairman-CEO of international operations.

Even with the scandal putting his leadership and judgment under the spotlight as never before, Rupert Murdoch last week reiterated his company succession plans at the hearings.

In fact, while the hard-charging mogul, surprisingly, appeared barely able to muster more than one complete sentence at a time during the three-hour session — leaving most of the talking to James — on the subject of succession, he waxed eloquent.

“I just want to say that I was brought up by a father who was not rich, but who was a great journalist and who just before he died bought a small paper, specifically in his wi
ll saying that he was giving me the chance to do good.

“That just addresses the question of it being a family business. I would love to see my sons and daughters follow if they are interested.”

Through the din, Chase Carey, the nuts-and-bolts company man with a distinctive handlebar mustache, is keeping things together. Wall Street loves Carey and doesn’t much care what combination of letters makes up his title — COO or CEO. He worked for years at News Corp. before leaving to make investors buckets of money as head of DirecTV.

Carey returned to News Corp. when Peter Chernin exited in 2009 after years as Rupert Murdoch’s second in command.

“Chernin and Carey kind of came up through News Corp. together. Peter sort of won the contest to be the No. 2,” says one industry insider, noting that Carey was putting together Sky Global, a collection of worldwide satellite assets the cable biz had dubbed the “Death Star.”

“But Sky Global blew up with the Internet bubble and Chase took off a little time, and in a few years was running DirecTV,” adds the source. “He bought back a lot of stock there, which investors like, and Rupert has always been averse to share buybacks.”

Until recently, that is. News Corp. last week announced a $5 billion stock repurchase program.

After he left, Chernin set up Chernin Entertainment in Santa Monica. One can now only speculate whether the top job would have been his had he stuck around another few years.

But Chernin got a great exit package, and in a photo taken July 9 at the BAFTA Brits to Watch event in Los Angeles, he looks relaxed, tanned, even beaming, as all hell started to break out at his former employer.

The exec couldn’t be reached for comment on the scandal. “He’s very busy, and we’re not taking those calls,” says Chernin’s spokeswoman.

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