Can a dynasty conform?

30 September 2003

Rupert Murdoch is not a man who likes to tangle with the regulators: his style is usually either to conform or, better still, to anticipate new laws and use his lobbying power to ensure they do not damage his business. His record in this slightly didactic area is one of considerable and almost unmitigated success.

But now a situation is evolving which could become a case story of corporate governance, and one which will be closely watched by companies worldwide to see how it plays out.

It concerns impending changes in the boardroom of British Sky Broadcasting, Britains most powerful broadcasting business, and owned 35.4 per cent by Mr Murdochs News Corporation. BSkyB is also chaired by Mr Murdoch.

The chief executive, Tony Ball, has decided not to renew his contract, and has agreed to Mr Murdochs suggestion of a lucrative pay-off and a well-paid consultancy, a reward for his hard work in building the company. This news has generated a ferment of unease among BSkyBs institutional shareholders, who have voiced their concern that Mr Murdoch wants his second son, James, to succeed the successful Ball.

This week managers from the ten largest institutional investors in BSkyB urged the companys independent directors to ensure what they called an impartial succession. Their meeting was organised by their trade body, the Association of British Insurers, which has been the subject of complaints that its members have not been active enough in invoking the new mantras of corporate governance.

The headache for both BSkyB and News Corporation is that under the new British corporate governance code, independent directors are tasked with a prime role in appointing executive directors and succession planning. The chairman (Mr Murdoch) is strongly advised to meet with them without other directors being present. And appointments to the board should be made on merit and objective criteria, while pay should be set by an independent-minded remuneration committee.

Even if James Murdoch, currently running the Hong-Kong based Star TV, had the spectacular track record of Tony Ball or his predecessor, Sam Chisholm, it might be difficult for the independent directors to appoint him. There has been speculation in the financial press that Mr Murdoch might decide to step down from the chairmanship of BSkyB, but even that is not without its problems as the corporate governance code says new chairmen being appointed should be independents.

No one is suggesting that Adelaide-based News Corporation, also listed in London and New York, wants to flout the rules. The $45 billion company is one of only a limited number of corporations that has made a long and detailed statement about its policies on corporate governance. The News Corporation declares that it has a firmly established policy of conducting its affairs in compliance with all applicable laws and regulations, and observing the highest standards of business ethics, integrity, honesty, forthrightness and fairness

Its own corporate governance code is a model for other companies, and it has eight independent directors to seven executives, of whom one is Murdoch. On close examination some of the independents are former recent employees or close associates, such as Ken Cowley, formerly chief of News Corporations Australian operation and Rod Eddington, currently CEO at British Airways, and formerly boss of Ansett Airlines, once part of the Murdoch empire. Another, Andrew Knight, a director of Rothschild Investment Trust, is a former chief executive of News International in London.

While all three are robust characters, not afraid to speak their minds, they all enjoy a friendly relationship with their former boss. Were they to be appointed after November, their appointments would breach UK governance guidelines, and those of many other countries.

This case study does raise, however, many of the difficulties faced by companies where one individual is dominant, or where there is an element of a family dynasty. While companies like News Corporation may be the exception in the West, they are the norm in Asia and much of the rest of the world. It is difficult to see how regulations could snuff out family businesses; it is perhaps more likely to drive them into delisting, which might also not be in the best interests of shareholders.

For a full look at News Corporation's interesting statement on corporate governance, including a detailed definition of the role of directors click here