Sat, Jul 30, 2011 - Page 9 News List

All in the family business

Big corporations run by families have strong relationships with customers and suppliers, but on the downside they rely on political entanglements and have notorious problems of succession

By Harold James

Illustration: June Hsu

Big economic crises often cause iconic companies to falter. News Corp chairman and CEO Rupert Murdoch’s media empire is a model of the modern global enterprise. A particularly dynamic and innovative business model came from outside and took over central aspects of British and then US public life. That model is now threatened by the fallout from the scandal that started with phone hacking in Murdoch’s British press operations.

The Murdoch experience is a microcosm of how modern globalization works. Murdoch always looked like a foreign intrusion into British life. It was not just that he was Australian; he also brought new ideas.

In particular, the application of digital technology, introduced after a ferocious struggle with the powerful print unions, brought substantial cost savings and allowed a new era of journalism. Even more importantly, Murdoch represented a concept of family business that is common in many parts of the world, but relatively rare in Britain and the US.

Family capitalism in the continental European model uses relatively little capital to achieve maximum control. It frequently depends on very complex corporate structures, with multiple layers of holding companies, as well as privileged shares that can guarantee the continuation of control.

This sort of firm is also very common in the most dynamic emerging-market economies in Asia and Latin America. The Murdoch family holds only 12 percent of the shares of News Corp, the top-level holding company, but it wields about two-fifths of the voting rights; other votes are held by a loyal Saudi prince.

For decades, academic analysts have been fighting over whether such large-scale family businesses should be considered beneficial. Their defenders point out that such companies often have a much longer-term vision than is true of managerial capitalism, which enables them to establish strong and enduring relationships with their customers and suppliers.

At least in the case of the Murdoch empire, it now appears that they pursue long and binding relationships with politicians and the police as well. Indeed, political entanglements are one of two sources of weakness in European-style family capitalism, as owners seek political advantages and preferred access as much as they strive for technical innovation.

Murdoch’s empire depended on its closeness to politicians. In retrospect, three successive British prime ministers — Tony Blair, Gordon Brown and David Cameron — were on overly familiar terms with a manipulative business leader.

Cameron now talks about the need for “a healthier relationship between politicians and media owners.”

And Murdoch apparently is now saying that he wishes that all these prime ministers would “leave me alone.”

The second notorious weakness of family businesses is the problem of succession. When he appeared before the British parliament this month, Murdoch looked like an old man, remote and out of control. In old-style family firms, there is a clear rule of succession that the oldest son takes over. However, that rule is rightly recognized as being potentially dysfunctional. There is obviously no guarantee that the oldest son is the best businessman, and the result could be bitter and ferocious sibling rivalry.

Such succession disputes become even more acute when there are multiple marriages and multiple sets of competing children. Until the eruption of the current scandal, the youngest of Murdoch’s three children from his second marriage, James, was generally believed to stand the greatest chance of succeeding his father.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top