Rupert: the bear we have to cross

PUBLISHED : Monday, 31 October, 2011, 12:00am
UPDATED : Monday, 31 October, 2011, 12:00am


Feeling sympathy for Rupert Murdoch is an entirely new and slightly uncomfortable sensation, especially for someone like me. I've spent some four decades striving never to work for a Murdoch publication.

Yet, even for a Murdoch sceptic, there was something unedifying about Murdoch's treatment at the recent News Corporation shareholders' meeting in Los Angeles.

What was it that these News Corp shareholders did not understand about the company, which revolves entirely around Murdoch's personality? It has been controlled by Murdoch since his father died, and has paid them good returns in the past.

Some shareholders tried to remove Murdoch as chairman, others lined up to denounce him for the company's poor performance and the scandal enveloping his British tabloid publications.

But Murdoch and his Saudi allies own a sufficient number of the voting shares to fend off a challenge. So, there was never any serious chance of removing him or his family from the board.

Yet it appears that the discontented shareholders were at least as concerned about leadership succession as they were over the current leadership. They understand that the 80-year-old Murdoch is not looking outside the ranks of his family to find a successor, and they are determined to thwart his plans.

Murdoch's succession plans have more than a familiar ring for Hong Kong investors, who are also well aware that most of the leading local companies are in the hands of the powerful tycoons who created them and want to hand the business over to their sons.

Daughters rarely figure in these plans, although Murdoch thinks highly of one of his daughters.

In Hong Kong, company founders tend to own a larger proportion of the equity of their companies than is common in Europe and the US. Indeed, the free float of companies is often no more than the minimum allowed under stock exchange rules. Yet these are public companies and, as such, are not supposed to be run in the same way as private entities.

Generally speaking, investors do not worry about the way companies are run when they churn out healthy profits and increase shareholder value. It is only when things turn sour that they suddenly remember that the company is being run like a private fiefdom, that the so-called independent directors are markedly supine and that these companies are severely transparency-challenged.

The irony at News Corp is that the source of the company's problems is the already underperforming newspaper division. Its contribution to profits is entirely overshadowed by the film and television business. The woes of the newspaper business have had an impact on the more profitable side of the company - as seen when the radioactive phone-hacking scandal forced News Corp to drop its bid for full control of BSkyB, the immensely profitable British-based satellite television network.

Hong Kong public companies dominated by the personalities of their founders have avoided the kind of turmoil now seen at News Corp. But some of these companies have already been handed over by their dynamic founders to their sons. The results have been less reassuring.

The New World group, for example, is now losing the predominance it enjoyed under Cheng Yu-tung. Hang Lung Properties has departed from the first division under the leadership of the founder's son Ronnie Chan Chi-chung. Since the death of Sir Y.K. Pao it is unclear in which direction the Wharf Group is moving.

Investors who complain about one-man public companies and the consequences of family dominance are on shaky ground.

Everyone knows how these companies are run. Indeed, many investors take a stake precisely because of the personality of the big boss. So it is hard to feel sympathy for anyone who suddenly discovers that this kind of structure is at fault once things go wrong. The situation in Hong Kong is exaggerated because so many listed companies are one-man bands. There is little comfort from realising that the biggest alternative is mainland companies, where the controlling shareholder is the state. Are these semi-reconstructed state entities any more enticing than family firms?

The history of the industrialised world, including Japan, shows that family dominance diminishes over time. But this does not always have a positive effect.