The Murdochs: A Family in Crisis

10:57 AM PST 07/22/2011 by Kim Masters

Amidst their growing public scandal, the new edition of 'The Hollywood Reporter' exposes the private drama going on behind the scenes between the media mogul’s heirs.

This story appears in the July 29 issue of The Hollywood Reporter.

A pie attack. The unseemly disruption in the midst of the July 19 hearing seemed to underscore Murdoch family unity before England's Parliament. Rupert's wife, Wendi, lunged to her husband's defense, while son James, perhaps ironically, was reported to have demanded of the police why they hadn't done more to prevent the incident.

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It was just one more astonishing display in a month full of them, as reports of rampant phone-hacking and settlement payments have exploded. At times during the hearing, called to compel Rupert and James to answer questions about the hacking, it was unclear whether father was protecting son or the other way around. Rupert often hesitated to answer, and James made attempts to respond on his father's behalf. At one point, he even admonished Rupert to stop gesticulating.

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The message that the Murdochs were sending was clear: They had known nothing of wrongdoing and relied on those they trusted in the astonishing phone-hacking scandal now threatening every corner of News Corp. Among them was the now-departed and arrested Rebekah Brooks, former head of Murdoch's News International who had also been News of the World editor.

One member of Parliament couldn't resist asking Rupert, 80, about the memorable evening of July 10, when the embattled media mogul emerged from his London home, smiling, and put his arm around Brooks, then at the center of the inferno. Asked by reporters about his priorities, Murdoch gestured toward Brooks and declared, "This one."

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At the hearing, Rupert rebuffed the question. He wasn't even sure he had actually said the words. But to many high-level executives who have worked for Murdoch, that moment was unforgettable. How, they asked, could the wily baron make such an obvious blunder? One referred to it as "lunacy." Another questioned why Rupert, who would "fire anybody at the drop of a hat," would cling to Brooks.

Perhaps, this person speculated, Brooks was safe because of what she knew. Or maybe the play was "to keep her as a buffer between all this and James," the 38-year-old presumptive heir to the News Corp. throne. Or it was possible, as former Fox studio chairman Bill Mechanic suggested, that Rupert was simply so used to winning, despite having been "a rogue his whole life," that he thought he could do as he pleased.

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Clearly on that evening, it was unimaginable to many -- including Rupert -- how quickly the dominos would fall. By now the long-feared mogul finds himself engulfed in a scandal that will exact a heavy toll on all he holds dear: his empire and family. Having first reacted with defiance, Murdoch has been forced to apologize publicly, repeatedly, in a seemingly futile attempt to contain the damage. The man worth $7.6 billion visited the parents of a murdered British girl whose phone was hacked by News of the World employees to say he's sorry. He lost the $12 billion acquisition of BSkyB, which was supposed to be a crowning achievement. Meanwhile, among his top lieutenants who have been forced out is Dow Jones CEO Les Hinton, a trusted employee for more than 50 years. The two top cops at Scotland Yard have also resigned, denying wrongdoing but under a cloud due to allegations of bribery and cover-up by the police.

Rupert's enthusiasms have gotten him into trouble on occasion before, but never has he faced a crisis so severe that previously supine board members are said to be pushing him to designate a successor whose last name isn't Murdoch. (News. Corp.'s stock price, in the wake of the woes, has plummeted 12.6 percent.) Still, some former News Corp. executives believe that even if Rupert yields, designating COO Chase Carey as CEO, he will do his best to ensure this setback is temporary. (Asked during the hearing whether he will resign, Rupert replied, "No.")

Rupert is known for loyalty to his business, not to any individual. But News Corp. veterans say he also has long been committed to having one of his children inherit the throne -- a notion he seemed to reiterate before Parliament, saying, "I would love to see my sons and daughters follow [me] if they're interested." And that, in part, is what made his destructive defense of Brooks seem so misguided.

Rupert maintains that he took Brooks at her word when she said she was ignorant of wrongdoing. To some, believing that involves a stretch that could only be achieved with the type of rack once used in the Tower of London. But others think Rupert's bond with Brooks was real. It had become cliché to say that he saw her as the daughter he never had.

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What is awkward is that Rupert actually has four daughters, including one seen by some in the News Corp. ranks as the overlooked best choice to succeed him. As her father favored first one son and then the other with no good result, these observers concluded that the only obstacle facing Elisabeth was Rupert's old-fashioned sexism.

Even if 42-year-old Liz had not felt snubbed before, how infuriating it must have been that Sunday evening to watch her father draw close to Brooks, of whom Liz has never been overly fond. And where was Rupert headed as he and Brooks made their way past the cameras but to dinner with the favored son of the moment, James. If, as reported, Liz was overheard remarking that "Rebekah and James f--ed the company," the indiscretion seems understandable. She denied making the comment, but if that spectacle didn't strain the bonds of familial love, what would?

But as Murdoch watchers know, there had been plenty to strain the family even before the British tabloids disaster. "It's like The Godfather," says a film executive familiar with the family. "They all come together for events and play the role, but in terms of real emotion, it's awkward. … It's a business, and it's a family. Families are hard enough. When there are financial issues, it's much worse."

Now, with News Corp. facing years of investigation and litigation, the questions that confront the Murdoch clan go well beyond which child enjoys the father's favor -- though it's worth noting that Lachlan, self-exiled from the company except for his board seat, has turned up in London and, according to a source with knowledge of the situation, has been playing "a key role in crisis management."

That message suggests that as James recedes, the old tycoon might mean for Lachlan to re-emerge. If so, Rupert will still have two children in contention to take control of what remains of his empire -- an arrangement he seems to find comfortable, even if the children don't.

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The question of succession used to absorb a lot of attention in the media world and, of course, among Rupert's colleagues at News Corp. But despite his supposed commitment to entrusting the empire to one of his children, he has not made it easy for them. And it's fair to say they haven't made it easy for him. The story seems to have become an iteration of a familiar tale: siblings pursuing approval from a powerful but elusive father even as they strive for an identity of their own, and a father who isn't sure any of his prospective heirs is up to running his empire (even if he were ready to relinquish control).

To review: Rupert has six children, but only three have been considered potential heirs at News Corp. His eldest child, Prudence, from his 10-year first marriage, has never worked for the company (though her husband does). Rupert also has two young daughters with current wife Wendi Deng Murdoch; they are 10 and 8. The children from Rupert's 31-year marriage to Anna Murdoch -- Elisabeth, Lachlan and James, in that order -- have been viewed as possible successors.

As a very young man, Lachlan, now 39, had seemed steadiest at the wheel -- Liz and James were more rebellious -- and he shared his father's love of newspapers. After graduating from Princeton in 1994, Lachlan went to work for the company's Australian newspaper group and was well-regarded and well-liked. By 2000, handsome Lachlan had married model Sarah O'Hare and moved from Australia to New York with the impressive title of deputy COO.

Some later concluded that it was too much, too soon. Lachlan was constantly measured against and diminished by his father. Expecting to spend time learning about the company's entertainment operations in Los Angeles, Lachlan found then-COO Peter Chernin to be much more interested in corporate politics than teaching. Lachlan began to focus on New York, attempting to shore up the money-losing New York Post. But if Chernin had jogged easy circles around him in Los Angeles, Fox News chief Roger Ailes did the same in Manhattan.

For Lachlan and his siblings, the tensions at this point weren't all about the business. In 1998, their father left their mother and, just 17 days after the divorce was final, married Wendi Deng. Then 30, Deng was a few months younger than Elisabeth and a couple years older than Lachlan. After Rupert dismissed Anna from the News Corp. board, it was Lachlan who escorted his weeping mother out of the building.

The new marriage invigorated Rupert, who started working with a personal trainer and seemed to overcome prostate cancer with barely a shrug. Soon, two young daughters were toddling about his $44 million New York apartment. But Anna's children were asked to accept what they might have seen as a fresh betrayal of their mother and themselves when Rupert asked to change a trust that had given them control of the family's News Corp. shares upon his death.

Anna had made big sacrifices in her $1.2 billion divorce settlement to protect her children's position, and now Rupert wanted to cut their little half sisters in on the trust. That -- plus the possibility that Wendi would end up controlling a share of the trust if Rupert died before the girls were of age -- was anathema to Anna. Lachlan took the lead in fighting the battle. Exactly how it was resolved is not public, but Rupert has indicated that his young daughters will have a financial stake in the trust but no control.  

Even though Anna had done everything to secure her children's position, she was still distressed about their father's habit of playing one off against the other and deeply worried about how the succession question would affect them. "I think there's going to be a lot of heartbreak and hardship with this," she told Australian Women's Weekly. "There's been such a lot of pressure that they needn't have had at their age."

Certainly Lachlan felt it. In 2005, after 11 years at News Corp., he had grown tired of his father's interference -- an issue that seemed to be crystallized after Rupert sided with Ailes in what would seem to have been a minor dispute over a proposed police series for the TV group that, on paper at least, reported to Lachlan. (Ailes wanted it, Lachlan didn't, and Rupert counseled Ailes to proceed anyway.) Lachlan flew to L.A., and during an emotional lunch with his father, gave up his role at the company. Ailes took Lachlan's old office in New York.

At the time, Rupert was said to have told a friend that he hoped Lachlan would return in a few years -- but noted that James was doing very well at BSkyB and Elisabeth might return to the company, too.

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Like her siblings, Liz set out to establish her own identity even as she was inextricably bound to and supported by the family and its fortune. After graduating from Vassar, she went to work for her father first in Australia and then at FX. Against his wishes, she married a fellow student from Vassar, Elkin Pianim, the son of a Ghanaian father and Dutch mother. Liz and her husband moved to England, and in 1996 she became second-in-command at the then-troubled satellite firm BSkyB. The first-in-command was the ruthless New Zealand-born Sam Chisholm, who would turn the company into a major success. But he and Elisabeth clashed publicly. Although he departed before she did, Rupert was not prepared to promote her, and she left the company in 2000.

By then, Elisabeth had been making news for reasons that weren't just about business. She had met PR executive Matthew Freud, great-grandson of Sigmund, in 1997, when she and Pianim were expecting their second baby and Freud was the married father of two boys. To Rupert's dismay, Freud and Liz rocked London society by becoming a couple. In 2000, they welcomed a daughter, then separated for a time but married in 2001. They became an exceptionally connected power couple and welcomed a dazzling network of friends and celebrities to their homes in Notting Hill and Oxfordshire, numbering then Prime Minister Tony Blair -- and Brooks -- among their frequent guests.

In 2001, Liz began to build her TV production company, Shine, which poked along for several years before morphing into a successful enterprise. A great part of that success lay in its 2007 acquisition of Reveille, the production company founded by her good friend
Ben Silverman. The deal, worth $125 million, gave Shine bragging rights to American hits including Ugly Betty and The Biggest Loser; Reveille was expected to generate about two-thirds of Shine's revenue. Shortly after that acquisition, Liz told The New York Times that building a company of one's own was "validating ... and makes you feel like more of a full person."

By then, James already had been moved to fill the void left by Lachlan's departure. Rupert is said to have told a friend that Lachlan was the most charming of his adult children and Liz had the most ambition, but James was the sharpest. Certainly whatever James may have had in brains he seemed to lack in personality. Associates describe him as chilly, abrasive and impulsive. Any number of News Corp. execs, whatever their dismay at the chaos in Britain, will not mind if -- when? -- James is knocked off his perch.

James has metamorphosed since the days when, as a Harvard dropout with a beard, earrings and an eyebrow stud, he struggled to launch a hip-hop record label. The transformation began when his father engineered the purchase of a faltering record company in 1996 and put James to work first in a News Corp. music division and then as head of News America Digital Publishing. Like his brother, James married a model, American-born Kathryn Hufschmid, and in 2000, despite a lack of conspicuous success in his endeavors to that point, he was sent to Hong Kong to run Star TV.

In that job, he was criticized in the pre-Murdoch Wall Street Journal for "craven" submissiveness toward the Chinese communist government. But his father seemed to be impressed, and in 2003, James was dispatched to BSkyB, of which News Corp. owned a 39 percent stake. At that point, Lachlan was still supposed to be in the lead, but Murdoch watchers began to perceive that James had an oar in the water. James was now a button-down executive, interested in technology, disciplined in his habits and not nearly as much of a tabloid magnet as his siblings. By the time Lachlan withdrew from his role at News Corp. in 2005, James was reporting stellar numbers at BSkyB.

He continued a steady rise, though he also showed impulsiveness and questionable judgment. In April 2010, he and Brooks, who reported to James, barged uninvited into the offices of The Independent to protest an ad campaign that the paper was running with the slogan, "Rupert Murdoch won't decide this election -- you will." The surprise visit was described in a Guardian column at the time as "pretty uncool" -- and a sign of possible insecurity in the Murdoch clan.

Only a few short months ago, in March, James was promoted to deputy COO of News Corp. and chief executive of its international operations. But even as he seemingly was confirmed as heir, his father brought Elisabeth back into the fold. News Corp. acquired Shine in a controversial deal valued at nearly $674 million, prompting a group of unhappy shareholders to sue, charging that Rupert "did not even pretend that there was a valid strategic purpose" to the deal.

Despite her father's appraisal of Liz's ambition, there had been a lingering question as to whether she wanted to inherit the mantle. At this point, she seems to be making her voice heard in the Murdoch councils of war. The family-owned Sunday Times reported that she -- allied with her half sister Prudence -- insisted that it was necessary for Brooks to resign. James and Lachlan preferred to put her on a leave of absence.

Murdoch watchers also are keeping their eyes on the part played by her husband, Freud, said to be allied with Wendi but for some time on shaky terms with James. A News Corp. veteran says Freud is likely to have an impact on how hard his wife will fight for a leading role. "The question is how much he wants this for her," this person says. "She's obviously very influenced by him."

An avid networker, Freud made news last year when he publicly attacked Ailes in The New York Times. By now, his quote reads with considerable irony: "I am by no means alone within the family or the company in being ashamed and sickened by Roger Ailes' horrendous and sustained disregard of the journalistic standards that News Corporation, its founder and every other global media business aspires to."

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By the time Liz returned to the News Corp. board, the seeds of the hacking scandal had been long planted, though they were slow to germinate. Once the story exploded, James was sucked into the vortex. He seemed to make matters worse for himself by stating that he had approved settlement payments to hacking victims without knowing the facts. As the scope and nature of the scandal became more apparent, the options with respect to James quickly became, as one executive with long experience at Fox put it, "Are you stupid or guilty?"

No one ever asked whether Rupert was stupid, but certainly he was slow to respond to the crisis. And never has he looked so vulnerable. At this extraordinary point, it's impossible to guess where the story will go and what the final toll will be for the Murdoch family and its empire.           

 
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