Margareta Pagano: It's Murdoch's fault he hasn't built a dynasty

Now the media tycoon must anoint an heir and sort out the succession
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The Independent Online

What brilliant spin; the whirling dervish sort that only the Murdoch family knows how to do best. James Murdoch, the younger son of media mogul Rupert Murdoch, has been slammed by Ofcom, the broadcasting regulator, for falling short in his duties as the former chairman of BSkyB, raising questions about his attitude towards wrongdoing at News International, where he was also chairman. While Ofcom gave the green light to BSkyB to operate as a "fit and proper" broadcaster and found no criminal wrong-doing by the Murdochs, it was unsparing in its criticism of James and his lack of action during the phone- hacking scandal.

Yet within hours of Ofcom's report, the Murdoch spin machine went into over-drive, leaking well-informed reports that the young Murdoch is to take charge of the television interests of News Corp. Murdoch junior is expected to oversee the Fox broadcast network, FX cable channel, regional sports networks, Fox International networks and National Geographic channels, which are some of the most glittering prizes and most profitable assets in the $34bn- turnover media conglomerate.

It's certainly a big prize for the 39-year-old, who moved to New York from London after the phone-hacking scandal, and who is already deputy chief operating officer at News Corp – making him third in line behind his father and Chase Carey, the chief operating officer. He has already resigned the UK news- paper division and BSkyB chair, although is still a director. What everyone wants to know now is whether his latest move to Fox is the last bit of the jigsaw puzzle for the line of succession in the Murdoch clan.

Reports in the Los Angeles Times claim Murdoch will not yet be running the controversial Fox News Channel and the 27 other TV stations but will work alongside Roger Ailes, the powerful boss of Fox who reports directly to Murdoch senior. But Peter Rice, chairman of Fox Networks Group, will report to Murdoch junior rather than to Chase. In the US, the latest buzz is that Murdoch senior wants to give James a much more defined portfolio, giving him back some of the responsibility he's lost in the UK over the phone- hacking mess and the chance to win back his father's respect.

Under all the spin, the 81-year-old Murdoch is still left with a headache. He's got to sort out the succession planning to divide up the spoils between James, Lachlan and Elizabeth and finally anoint an heir, unless he wants a Medici-style bustup on his death bed. There's a view that Murdoch's recent decision to split News Corp into two entities — media and publishing – was a way to allow Lachlan, the elder son, to return to the family business as boss of a newly- floated publishing business. Elizabeth, too, has been creating her own waves and is perhaps the odds-on favourite to take a more senior role. But then there is also the step-mother, Wendi, who is said to be hugely ambitious and will want a say.

Rupert Murdoch has only himself to blame for this succession mess, according to Oxford professor Thomas Noe. A leading expert on governance in family firms, Noe argues that Murdoch has blown the chances of building a solid and credible business dynasty by not playing a straight bat. In a report published last week, Blood and Money, Noe claims that one of the drawbacks of family firms is that they are too altruistic towards their relatives, and lack monitors of their companies. Indeed, he claims Rupert Murdoch gave James too much leeway to handle the phone-hacking scandal precisely because he was the favoured son and heir to succeed him.

In words that Murdoch will not like to see published, Noe says the media tycoon could have founded a business dynasty: "Instead he has flunked every corporate patriarch's defining test." His failure? Murdoch flunked it by over-protecting his own kin, says Noe, and by appointing outside directors who were not sufficiently independent of the family. One of the reasons why News Corps shares have carried such a discount is the market's perception that the group is poorly governed.

Ironically, Murdoch has tried two tactics common to family founders in an attempt to reduce conflicts. First, by putting management between the founder and the relative – in this case Carey. Second, having a stock market listing and outside investors in a two-tier voting structure makes the family even more vulnerable when the founder dies. Both have back-fired, and it may be that the group needs to break itself up and go private again.

So how can Murdoch detangle himself? Succession is a zero sum game, so all his children will act in a self-interested way. Uncertainty is the worst of all traits, as Murdoch should know. If it's not too late, he should decide on the succession now and allow his children to step up to the responsibility in the open. Now that would cause some headlines.

Why Pentagon may just reckon BAE-EADS tie-up is a good idea

It's no surprise that Boeing has come out guns blazing against the proposed £30bn merger between BAE and EADS, claiming it is against US national security interests and demanding a full-scale review into the controversial tie-up.

The US giant is an arch-rival of EADS in civil aerospace as its jumbo jets compete with the pan-European group's Airbus planes. So the last thing that Boeing and domestic rival Lockheed Martin want is another strong competitor in the US. However, Boeing may be in a weaker position to try to throttle the deal than it likes to make out. One of the biggest hurdles the proposed merger faces is clearance from the US authorities – the Congress Committee of Foreign Investment is the main body that will scrutinise the deal. They will look at two main issues; antitrust and national security.

But the merger raises no direct anti-trust issues in the US as EADS doesn't have a big US business. (Boeing might try to argue that BAE will become stronger as a result of the deal as it will provide cash to expand and so forth but it's not likely to hold much water.)

This means the argument will focus on the second, security. It's for this reason that BAE has said it will ring-fence its US defence division – which is the fifth largest in America – away from the rest of the European business to contain any leakage of sensitive security issues to the French and Germans.

To date, BAE has had good relations with the Pentagon and has earned its trust. There doesn't seem to be any reason why this should change with the deal. So how about this as a pot-boiler? Maybe the Pentagon secretly likes the idea of having a new global giant such as BAE and EADS – or BEADs as it's being nicknamed – on the scene ? That's the talk I am hearing from across the Atlantic: the Pentagon reckons a third rival will force Boeing and Lockheed to stay lean. War is a costly business.