Denise Kingsmill: Keeping it in the family

Rupert Murdoch is lucky to have talented children to pass his business on to, but what if your kids don't want to take over?

by Denise Kingsmill
Last Updated: 24 Aug 2011

Earlier this year the patriarch of the Murdoch family rode into town to knock heads together following the Coulson/News of the World phone-tapping scandal, forgoing the joys of Davos to exercise some forthright Aussie/American control over News International, the UK subsidiary of his mighty media company, News Corporation. Rupert Murdoch's motive was not shock and horror at the privacy-invading methods employed by one of his stable of newspapers. He was much more concerned about the fallout the scandal and its clumsy handling would have on his attempt to buy the 61% remaining share of British Sky Broadcasting, the hugely cash generative television channel, that he does not already own.

At the time of writing, his bid hovers in the limbo between minister and regulator. I should declare an interest here, having chaired two enquiries involving Sky when deputy chair of the Competition Commission, the regulator which may decide the fate of the proposal.

However, it is not the merits or otherwise of the Murdoch bid which interest me but rather the way in which the 80-year-old chairman has found it necessary to assert his authority over the company. Having inherited at the age of 22 a small but thriving Melbourne newspaper business which he then built into the world's third biggest media company, he is now facing the question with which all family businesses must eventually grapple - succession. Although his talented children are clearly able to take over, he apparently has no intention of letting go soon - possibly with good reason. Murdoch senior is undoubtedly aware of the dismal reputation of the third generation as destroyers of family businesses; as in the old proverb 'From clogs to clogs in three generations'.

Only around 30% of family-owned firms survive the first generation and only about 3% are still in business into the fourth generation. Lack of talent, or ambition, or just a desire to break free of the legacy and do their own thing means that many heirs do not succeed in developing the family business. Often lucrative buy-out offers tempt younger successors, no longer hungry entrepreneurs but softened by the material success won by their forefathers, to sell up and get out.

Today the UK has relatively low levels of family ownership compared with the US and Europe. Here only about 8% of businesses are family-owned, according to 2008 Credit Suisse research. This may be because the UK's highly developed financial sector has, until recently, made it easy to raise capital outside the family. Many have also blamed high levels of inheritance tax that have made passing on family businesses more costly.

Nevertheless, there are many successful, entrepreneurial family business in the UK, such as the Swire Group, Associated British Foods (which owns the Kingsmill brand!) and SCH, the largest privately owned IT group in Europe. Of the great British Quaker family businesses, such as Cadbury, Rowntree and even Lloyds and Barclays banks, only Clarks Shoes remains in largely family ownership.

Family ownership is highly correlated with entrepreneurial activity but also with a greater emphasis on the human dimension of business. People are valued and the businesses tend to be more creative and less impersonal, founded as they are on family relationships. However, inherited wealth frequently destroys entrepreneurial drive. I well remember sitting in the home of a very successful entrepreneur some years ago and gently asking who he hoped would take over from him when he retired. He had helped his father in the small business he was forced to set up to support the family after he had lost his job. When his father died he took over and built a huge and successful business. He had no doubt that his children would do the same when the time came. He pointed proudly to the grand piano and to a series of photographs of his children, still very young and said 'that is the succession'.

But more recently he has come to recognise that professionalising the management of his company is the only way to preserve his legacy, as none of his children show any signs of wishing to pick up the entrepreneurial baton. He was wise enough to recognise that birthright does not always make for good succession planning in a modern company.

There is of course a big difference between family ownership and family management. Although some of largest family businesses in the US Fortune 500 have become public companies, the descendants of the founders still own the majority of the shares, whether through trusts or in person. Companies such as Walmart Stores, Ford Motor Company and Anheuser-Busch are family controlled but professionally managed.

Family members may not be working in the companies, but through their shareholding they can have an influence over the values and direction of the company. But only up to a point. Many of the Bancroft family resisted Rupert Murdoch buying Dow Jones and The Wall Street Journal, fearing the loss of independence and wary about him using it to further the interest of News Corp. In the end, money talked and they agreed to sell.

Perhaps Murdoch and others could resolve their succession problem by following the example of the great American industrialist Andrew Carnegie who sold up and devoted his entire fortune to philanthropy - rather as Bill Gates and Warren Buffett have pledged to. But given what we know of Murdoch that seems unlikely.

- Baroness Kingsmill CBE has been a non-executive director of various private and public boards. She is a non-executive director of International Airlines Group and Korn/Ferry International

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