Appointment of James Murdoch at Sky sparks succession debate

Rupert Murdoch yesterday sparked fresh speculation about the succession at his global media empire by appointing his son James to the board of BSkyB. The move pits James head to head with his elder brother Lachlan to take over from Mr Murdoch, 71, when he retires as chairman and chief executive of News Corporation.

The appointment also drew criticism from some shareholders in BSkyB about corporate governance at the satellite TV broadcaster. Morley Fund Management, which holdsa 2 per cent stake in BSkyB, said the appointment of James Murdoch as a non-executive director was a step backwards. The National Association of Pension Funds and Pirc, a shareholder advisory body, also said they were worried about the lack of independent voices on the Sky board.

Anita Skipper, the head of corporate governance at Morley, said: " We've always been concerned about the independence of the board. It is disappointing that they didn't use this opportunity to move on this. It is made a bit worse because its Rupert Murdoch's son."

Ms Skipper said the composition of the board created a "risk that we have to keep at the forefronts of our minds" that decisions may be taken that are not in the interests of all shareholders' interests.

The news of three new directors was announced along with Sky's interim results yesterday, which again beat City expectations. Operating profits, before goodwill, more than doubled to £158m, for the six months to 31 December. In the last three months of that period, the company added 244,000 subscribers to take its direct customers to 6.56 million.

James Murdoch, 30, is chief executive of Star TV, News Corporation's Hong Kong-based Asian satellite operation. His brother Lachlan, 31, is based in New York with his father and, as deputy chief operating officer of News Corp, considered to be the more likely heir to the top job. But Rupert Murdoch recently indicated the succession was undecided, saying: "My son Lachlan is coming on very strong. So is my son James."

The family owns some 30 per cent of News Corp's voting stock, and News Corp in turn holds a 35 per cent stake in BSkyB. The Sky position was seen as a vote of confidence in James from his father.

Along with James Murdoch, Chase Carey, another News Corp executive, joined the Sky board as a non-executive, to replace two other News Corp directors who left. There was one additional non-executive appointed yesterday who is universally considered independent, Lord Wilson of Dinton, a former high-flying civil servant. Vicky Bolton, at the National Association of Pension Funds, said: "The small number of independent non-executive directors on the board, which was in breach of the 'combined code' [on corporate governance] and will be in breach of Higgs [report] when it comes in."

At the company's annual meeting in November, 10 per cent of the voted shareholdings opposed the election of News Corp appointees, including Rupert Murdoch as chairman.

Stuart Bell, at Pirc, said: "The whole thrust of things is for a more open nomination process. This sort of appointment flies in the face of that.... The latest board changes entrench the situation rather than improve it."

The recent Derek Higgs report recommended that independent non-executives form a majority on a board. Sky has five non-executives nominated by News Corp but eight directors that it says are independent. However, the NAPF and Pirc say that three of these directors – David Evans, John Thornton and Lord St John of Fawsley – do not qualify as independent. That means that Sky has five independent non-executives (counting Lord Wilson) versus eight who are not considered independent.

However, analysts said many shareholders would not object to the composition of the board too much unless Sky's operating performance deteriorates and there is no sign of that.

Hilary Cook, at Barclays Private Clients, said: "When you buy the shares, you have to accept the way Rupert Murdoch runs his companies. He walks sideways around rules.... Sky has been an extraordinary success story."

Tony Ball, the chief executive, said Sky would hit its two key targets – 7 million customers by the end of this year and average revenue per user (Arpu) of £400 by the end of 2005. It reported Arpu of £351 for the end of 2002.

James Murdoch's new position provoked protests from some investors over corporate governance at Sky Reuters