When the founder becomes the problem in the business

Jul 25, 2011 Business Daily, Leadership

“In the US they call it the “Murdoch discount”.
This is the amount by which US analysts reckon shares in News Corporation are depressed because of the controlling stake held by the Murdoch family; about 40 per cent of the B voting shares, although only 13 per cent of the share capital. Analysts never like powerful shareholders, mainly because their impact can be so profound. And in Rupert Murdoch’s case it’s because they can’t predict what a media tycoon with megalomaniacal tendencies will do next.
In recent years, Wall Street has watched as he has bought some pretty strange and very expensive businesses: he paid $500m for Myspace and sold it for $35m and then earlier this year paid $615m for his daughter Elisabeth’s Shine production company. But the purchase they really didn’t like was of Dow Jones, the Wall Street Journal newspaper group, for which he paid $5.7bn and has written off $2.8bn.”

MARGARETA PAGANO, The Independent (17 July 2011)

As scandal and disgrace swirls around Rupert Murdoch’s News Corporation empire, many a shareholder and analyst is asking the hitherto heretical question: could the problem be the great man himself?

How can this be? Rupert Murdoch is, after all, the world’s most powerful media baron. The buccaneering Australian who took on the world’s hidebound media mandarins in four continents, laid waste to established practice, and put together an enviable global empire. How can this visionary founder be the problem?

He can be, and is. Rupert Murdoch, at 80 years of age, now presides over a media conglomerate so vast it cannot be run like a family enterprise. And yet it still is. Murdoch’s hands-on leadership style, his appetite for risk, his linking of his business brand to his own persona – these were very valuable attributes in the early days. They are no longer so.

Murdoch has kept his family members in key positions around News Corporation. He has retained powerful control of shareholding rights. He has ensured that he is the all-powerful chairman AND CEO of the corporation. He personally selects and appoints both executive and non-executive directors. All those issues are now problematic, and other major shareholders are beginning to rebel.

When a corporation has become a certain size and span, having an all-powerful founder as its unchallenged leader is no longer an asset – it’s a liability. Take the phone-hacking scandal that has so engulfed News Corporation. The scandal happened at the News of the World newspaper in the UK – which made up less than 1% of the group’s revenues. Yet its toxicity is poisoning the entire global organization.

What was needed was independent challenge to Murdoch, whose laissez-faire attitude towards journalistic ethics is now coming back to haunt the corporation. This issue should have been addressed and eliminated years ago – but who was going to take on the grand old man? If he didn’t see the problem, who, in his stable of family members, old loyalists, cronies and sycophants was going to see one?

This issue is very pertinent to us in Kenya, with our tradition of all-powerful founder CEOs. The wiser ones in that group, as their businesses grow beyond their grasp, may wish to consider the following lessons from the Murdoch situation. First, let go sooner rather than later – and have another life to retire into. Second, take your family off centre-stage, and professionalize management at all levels. Third, allow many voices to enter the fray in key decision-making as you yourself fade gently into the background.

Big-man leadership only pays off at the earlier stages of business evolution. Later on, it becomes a liability. Single-source decision-making has no place in large, complex enterprises. I hope many of our visionary founders learn that lesson early enough.