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Murdoch divorce – experts warn of difficulties for family business

Lawyers and family business experts suggest a divorce like the one Rupert Murdoch is facing could be a big distraction for a company boss, particularly at a time when the business faces challenges – as the Murdoch empire might following its recent split into two firms.
Wendi Deng and Rupert Murdoch
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©Oxfam America

Lawyers and family business experts suggest a divorce like the one Rupert Murdoch is facing could be a big distraction for a company boss, particularly at a time when the business faces challenges – as the Murdoch empire might following its recent split into two firms.

Senior partner and co-founder of Banyan Family Business Advisors Henry Foley said divorce increases tension within the family business, and multiple divorces compound these impacts. Murdoch, 82, filed for divorce from Wendi Deng last week – he has already been through two other divorces.

Foley added that divorce could also reduce the credibility of the family business leader. “You would hope in the case of three or more divorces a business owner would begin to reconsider whether or not they are inclined to make good choices in choosing a spouse or ought to get remarried at all.”

When it comes to mitigating the effects of a potential divorce, Foley said his advice to family business owners is to marry carefully and plan well.

Despite pre- and post-nuptial agreements in place for the Murdoch and Deng marriage, past evidence suggests this might not necessarily lead to a smooth divorce.

Mark Haranzo, a partner at law firm Wither Bergman’s New York offices, said it is fairly common for a US-based spouse to contest his or her pre- or post-nuptial agreement during divorce proceedings.

He reckons the primary factor driving disputes was how generous the agreement was to the less monied spouse – in contrast to what they would be entitled to without the agreement.

Haranzo added that it was hard to guess whether Deng would contest her agreements (there are three in total), but he speculated that the last post-nuptial agreement is likely to have been more favourable to her due to the length of the marriage and the fact the couple had children.

“Given the assumed wealth involved and the sophistication of the parties, I also suspect that each of them was well represented in the course of negotiations of all three of the agreements,” Haranzo said. “Thus it may be difficult to seek to set such agreements aside.”

When it comes to succession at the Murdoch empire, shareholders have already been pushing for the media tycoon – who, at almost two decades past retirement age, will be executive chairman of both new arms of News Corp – to name his successor. The two News Corp spinoffs debuted on the Australian and New York stock exchanges today.

Murdoch has already announced that his daughters to Deng – aged 11 and nine – will have an economic interest in News Corp and 21st Century Fox, but not the same voting rights as his children from his previous marriages.

His children from his second marriage – James, Lachlan and Elisabeth – have all held active roles in News Corp, and along with Prudence, from Murdoch’s first marriage, hold half the family’s voting shares. It is expected they will inherit the remaining shares held by their father, when he dies.

Murdoch has previously expressed a desire for one of his children to succeed him at the helm of the company, but has not clarified which one.

Foley said: “From the outside, one has the sense that even among the children from the first two marriages who will have voting shares, that this is a somewhat fragmented family and that there is not a clear plan for succession at the present time.”

He said it was hard to speculate on Murdoch’s motivation for excluding his youngest daughters from a controlling share in the business, or whether it would be an effective succession plan or not.

But he suggested that this was probably immaterial compared with other tensions that appear to exist in the next generation ownership group.

Justin Zamparelli, a partner at Withers Bergman and leader of the firm’s family business practice, said the age gap within the next generation of the Murdoch family compounds the already complex task of succession planning, but said this is common in multi-generational family businesses.

“Having significantly younger children of a later marriage can be thought of as effectively creating another generation or making it difficult to identify who should be thought of as belonging to which generation. This also happens with siblings that have children at different stages of their lives.”

He said it was important to build flexibility into succession plans to deal with changed circumstances, to determine the family’s values and policies in terms of employment and liquidity and to apply these consistently. It remains to be seen whether Murdoch has built in such flexibility into his succession planning.

Murdoch married Deng in New York harbour in 1999, aboard his 155-foot yacht. 

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