IE 11 is not supported. For an optimal experience visit our site on another browser.

Murdochs' infighting clouds future of News Corp.

The disclosure of widespread phone hacking at News Corporation’s British newspaper division was only the latest episode to test a father-son relationship that has frayed.
Image: Rupert Murdoch and his son James attend the Cheltenham Racing Festival in 2010.
A file picture taken on March 18, 2010, shows News Corporation Chief Rupert Murdoch (L) and his son James at the Cheltenham Racing Festival in central England. Adrian Dennis / AFP - Getty Images, file
/ Source: The New York Times

It was a striking display of unity: Rupert and James Murdoch, father and son, walking side by side through central London as they faced a crisis that had laid siege to their company. Pushing through a crush of paparazzi on a street not far from Buckingham Palace, James reached out to place a reassuring hand on his father’s back.

But behind that facade, the disclosure of widespread phone hacking at News Corporation’s British newspaper division was only the latest and most serious episode to test a father-son relationship that has frayed over the last few years, leaving both men at times not even on speaking terms. And that rift, which has been known only to those closest to the company, has opened up a question central to Rupert Murdoch’s legacy — can one of his children ever take the helm of his $62 billion media giant?

Their disagreements, which were described in detail by more than half a dozen former and current company officials and others close to the Murdochs, stemmed in large part from the clashing visions of a young technocratic student of modern management and a traditionalist who rules by instinct and conviction. The tension grew worse as the gap between the New York headquarters and James’s London operations, where he oversees the company’s European and Asian holdings, proved difficult to bridge.

The elder Mr. Murdoch reached his boiling point last winter, said one of the former officials, and delivered a blunt ultimatum to his son.

“You’re coming back to New York, or you’re out.”

James and Rupert Murdoch pictured in London at the height of the phone hacking controversy in July.Facundo Arrizabalaga / EPA FILE

The son consented. But now, as investors place more pressure on the Murdochs to disentangle themselves from the company they have tightly controlled for three generations, his role in the company is under threat. Shareholders will meet on Friday in Los Angeles to decide whether to re-elect the News Corporation board, which includes Rupert, James and Lachlan Murdoch, the eldest son. Though the family holds a 40 percent stake, giving the Murdochs effective control, and most analysts expect them to be re-elected, several large shareholders and a prominent investor advisory firm have recommended voting against them.

James Murdoch, 38, who approved a settlement in 2008 of more than $1 million to help resolve allegations of voice mail hacking at News of the World, the tabloid that News Corporation shut down in July, faces additional pressure back home in London. He is scheduled to testify before Parliament for a second time next month to address questions about the payment, with several ministers suggesting that it was part of an intentional cover-up of the phone hacking.

Within the company, James’s position became tenuous enough at one point this summer that he and other senior executives considered whether he should step aside, said one person with knowledge of the conversations.

Both Murdochs, through representatives, declined interview requests.

Rupert Murdoch, now 80, has long said he hopes one of his children will eventually run the company he built from an Australian newspaper franchise into one of the world’s most powerful and profitable media empires. With his daughter Elisabeth focused on her television production company in London, and Lachlan determined to continue running his media business in Sydney despite the elder Murdoch’s desire to bring him back into the company, James has been the heir apparent. But the hacking scandal and the simmering animosity with his father have destabilized his once inexorable ascent within the company.

“Rupert always thought of News Corp. as a family company because it had been given to him,” said Barry Diller, who helped the elder Mr. Murdoch build Fox into a formidable rival to the traditional networks. “It had been given to him through a tiny newspaper in Adelaide, but nevertheless it was his father’s company. I think that meant to him that tradition should continue. If, as he’s always said, his children were worthwhile.”

Succession twist
James was not always viewed as the Murdoch who would end up running News Corporation. That mantle, it seemed to everyone inside the company, belonged to Lachlan. James, the youngest of Rupert’s four adult children, was a willful child. When he was served last at dinner, as was the family custom for the last born, James strenuously objected and, according to the Murdoch biographer Neil Chenoweth, repeatedly tried to rearrange the seats around the table.

He attended Harvard, but in 1994 dropped out to start a hip-hop record label, Rawkus, which News Corporation bought two years later.

But once inside the corporate fold, James made a rapid ascent. At 24, he was put in charge of the digital publishing business in the United States. At 27, he was named executive chairman for Star TV, News Corporation’s Asian satellite television service, and three years later, he was installed as chief executive of BSkyB. Even by independent assessments, his stints leading both satellite providers were successful. He expanded Star’s businesses into India and subscribers to BSkyB soared.

Those successes helped him earn acclaim as an executive in his own right. Today he is widely recognized as having transformed News Corporation’s pay television business into one of its strongest assets, a feat that has given him credibility on Wall Street. “He’s one of the more seasoned executives among media conglomerates when it comes to international markets,” said Aryeh Bourkoff, head of investment banking at UBS. “And he grew up where technology and innovation were integral to media consumption and trends.”

When Lachlan Murdoch, who is one year James’s senior, left News Corporation in 2005, Rupert began looking for places where his only remaining child in the business could gain more experience. Lachlan’s exit was particularly fraught. He became ensnared in a feud with Roger Ailes, the Fox News chairman, and Peter Chernin, News Corporation’s president and chief operating officer at the time. Lachlan, who ran the company’s American television stations and publishing divisions, felt boxed out and undercut by the two.

Rupert was eager to avoid getting his youngest son into the same mess. He began to look across his vast company for the best proving ground for James. The film and television businesses in Hollywood were not an option. Mr. Chernin had too much interest there. The Australian businesses did not seem to be a good fit. So the solution was to put James in charge of News Corporation Europe and Asia, a promotion he received in 2007. The responsibility was immense: James was able to hire his own legal counsel, chief financial officer and chief operating officer, creating a new layer of senior management that he said was necessary for a company that generates about half its revenue outside North America. And his new portfolio included the British newspapers, an area of the business with which James had little experience and almost none of the sentimentality his father held for it. Nonetheless, Rupert was insistent that he learn the trade.

Even before James took on his new role, he began making some bold moves. He had one of his executives in London moved to New York to head a new global human resources division. The appointment, which represented just the kind of management restructuring James was eager to make at News Corporation, made some at headquarters who were already wary of James suspect he was trying to install a shadow regime there, those with direct knowledge of the company dynamics at the time said.

‘One company, not two’
Those suspicions were only reinforced later, after James tried to move one of his closest advisers, Matthew Anderson, to New York as well, a move Rupert rebuffed. Mr. Anderson has said he never sought to move to New York. The tensions between the power centers also claimed one of the elder Murdoch’s closest advisers, Gary Ginsberg, the company’s communications strategist, who seldom saw eye to eye with James.

Early this year, this perception of the company as having two head offices became a more pressing issue, and his father gave James the ultimatum to return to New York or leave the company altogether.

“This is one company, not two,” Rupert told James, according to one person told of the exchange. “And it is run out of New York.”

James acquiesced and said he would move. In a skillful spin job that masked the melodrama behind the scenes, News Corporation emphasized that the move was a promotion, and James received a new title of deputy chief operating officer.

It was the newspaper business that would ultimately prove the point of deepest fissure between father and son. After taking control of News International, the company’s British newspaper subsidiary that publishes The Times of London, The Sun and News of the World until it was shuttered this summer, James made some abrupt course corrections.

In September 2009, as a major Labour Party gathering was under way, The Sun, News Corporation’s mass market, populist tabloid, stunned the British political establishment by switching its allegiances to the Conservative Party after more than a decade of Labour support. The audacity of the move was reinforced by the fanfare with which it was announced. The Sun featured a blaring front-page headline “Labour’s lost it,” floodlit its printing plant in Conservative blue and pumped blue smoke from a smokestack at its complex in Wapping, on London’s east side.

Rupert, who was still quite close to Prime Minister Gordon Brown and his wife, Sarah, had cautioned his son against supporting David Cameron ahead of an election more than six months away. The endorsement severed the longstanding friendship between the Browns and Rupert and his wife, Wendi, a development that one person with knowledge of the family dynamics said upset Rupert deeply. The reversal also made News International a willing political combatant, a status that seemed only to embolden its critics when the hacking crisis broke. Indeed, a major force in the revolt against News International has been Tom Watson, a member of Parliament and a loyal Brown ally.

It was in his role as head of the newspaper division that James approved a 2008 settlement with Gordon Taylor, head of an organization representing Britain’s professional soccer players, over allegations of voice mail hacking. That settlement is now at the center of a significant public dispute between James and two former News Corporation executives in London, who offer a conflicting account of events leading to the payment. The executives claim that they had informed James that the voice mail hacking went beyond the work of a lone “rogue” reporter and a private investigator that the company had acknowledged at the time. If that was the case, then law enforcement could argue that the settlement was intended as an attempt to buy the silence of victims, which legal experts say could provide the basis for British prosecutors to pursue criminal charges.

James has forcefully denied their assertion, saying the men did not tell him about a broader pattern of phone hacking. Some who know him have suggested that the most he is guilty of is listening to advisers who told him the settlement would be less costly than a court fight.

“James is one of those guys who, unlike his father, trusts his advisers,” said Alan Sugar, a British entrepreneur who sold his electronics manufacturing business to BSkyB.

Moving to New York
James, whose family is firmly established in London, has yet to comply with his father’s order to relocate to New York. He visits the headquarters on Sixth Avenue in Manhattan typically once a month. And when he is there he works from a visitor’s office on the side of the eighth floor occupied by Dow Jones managers, not the side where his father and other News Corporation executives have their offices.

His new office, which he plans to occupy more regularly by the end of the year, will be a couple of doors down from his father and outfitted with the same kind of standing desk he has in Wapping. Sitting while working, he believes, is inefficient.

In March he bought a townhouse on the Upper East Side for $23 million. His longtime friend Jesse Angelo, who now edits News Corporation’s tablet-only newspaper The Daily, signed the property transfer for him through a limited liability corporation, helping to mask the sale. He declined a $6 million bonus this year, and has been keeping a low profile around London. Most Murdoch watchers say they believe the top job is still his to lose among his siblings. Lachlan is said by friends to be perfectly happy in Australia, the first time in his career he has been truly out of his father’s shadow.

Elisabeth, the older sister, returned to the company this year after News Corporation acquired her television production company Shine in April. She runs her part of the business not from Wapping but from Shine’s offices across town. Because she was not part of the company when the phone hacking took place, and changed her mind about becoming a member of the board this summer, she remains more removed from News Corporation’s trouble than her brothers. “She very elegantly or ruthlessly created a definitive separation for herself,” said a person who has known her for years, speaking on the condition of anonymity to protect their relationship.

The person said that Elisabeth was “very competitive with her brothers,” but was skeptical whether she would push for the top job, speculating that she instead might prefer a top creative position supervising the entertainment units. Rupert’s eldest child, his daughter Prudence, is not involved in the company.

Short-term plans call for Chase Carey, the chief operating officer, to take over for Mr. Murdoch whenever he departs. But for a company where the belief in the immortality of the chief executive is almost sacrosanct, James might be waiting a while if his career survives intact.

“Can you detoxify the company without de-Murdochizing, or is something more fundamental needed?” said Mathew Horsman, who has covered News Corporation and the Murdochs for two decades, first as a journalist and now as director of Mediatique, a consulting firm in London.

“Even though Rupert is often criticized for running his company like a fiefdom, there is a custodial role he must play,” he added. “And he realizes that. So I don’t know if succession can involve a clean anointment of a Murdoch.”

Bill Carter contributed reporting.

This article, "In Rift Between Murdochs, Heir Becomes Less Apparent," first appeared in The New York Times.