The Atlantic and The New York Times recently published stories detailing the Nevada trial among members of the Murdoch family over control of the Fox media conglomerate. Because the trial exposed many of the common problems that arise in multi-generational family business transitions, it merits some detailed consideration.

The origin of the Nevada litigation began in in the divorce between Anna Maria Torv and Rupert Murdoch, patriarch of the family. Anna, who otherwise would have been entitled to half of their marital property, agreed to surrender that right in exchange for alterations to the family trust that controlled Fox. There was testimony that one of Anna’s motivations in seeking those alterations was her concern that Rupert had encouraged a destructive rivalry between their two sons, Lachlan and James. The changes Anna wanted to the family trust divided control of the trust among the four then-living children of Rupert (including Lachlan and James) once Rupert passed away. Until then, Rupert would control it, and most relevantly for the Nevada litigation, could unilaterally make a change to the trust if that change was in the best interest of the beneficiaries.

Over time, Rupert came to see his legacy as the continued conservative political direction of the Fox media empire. He grew concerned over one possible outcome of the trust: that this political orientation may change after his death. In particular, he viewed the influence of James (whom he regarded as hostile to conservative causes) as particularly troublesome. In the end, Rupert decided that the best way to ensure that continued control over the political direction of Fox was to adopt changes to the family trust to give Lachlan – reliably conservative, in Rupert’s view – effective control after his death. Rupert informed James and two of his sisters of his action of his amendment. They testified that they felt blindsided, virtually to the point of betrayal by this action. James and these sisters then moved to block Rupert from changing the trust. After a lengthy trial, the Nevada probate commissioner rejected Rupert’s attempt.One generation in a family business attempting to control another

One generation in a family business attempting to control another

Any attempt by a patriarch or matriarch to control an enterprise after their death always carries substantial risk. By its nature, such an attempt limits the flexibility often required for effective management to respond to changes in circumstances that cannot be accurately anticipated, such as consumer attitudes, regulatory changes, and pressures from outside forces, such as advertisers. Even if the matriarch or patriarch correctly judges the skills and attitudes of a designated successor – always a fraught determination when a parent is evaluating a child – there is no guaranty that the successor will retain those indefinitely into the future.

The impact of loss of trust on a family business transition

Another important issue the Murdoch family story presents is the extreme difficulty any such attempt to control the future encounters where trust among family members has been severely damaged. The loss of trust is almost always deeply problematic in such a circumstance. The testimony in the Nevada litigation revealed that there was very little trust among the warring family members involved in it. At the time of Rupert’s attempt, James and Rupert had only infrequently communicated for many years, and James and other family members interpreted many of Rupert’s acts as overt manipulation, rather than fatherly love. At one point, James received a handwritten note from Rupert at an important juncture in which Rupert stated his desire to see his grandchildren. In many families, this would be interpreted as a grandfather’s healthy and normal desire to have time with his grandchildren. In this case, however, the relationship between Rupert and James had so deteriorated that the note had the opposite impact: James took it as an attempt at manipulation, as James could not recall the last time his father expressed any interest in his grandchildren. In the years prior to Rupert’s attempted revision of the family trust, the divisions among family members were so apparent that at Rupert’s suggestion, Lachlan offered to buy out his siblings. The problem was that his first offer was only 50% of the fair value of their interests in the trust, which further damaged trust among his siblings. Even if one accepted Lachlan’s basis for the discounted offer – that the interest in the trust would not be free of restrictions for several years – a discount of 50% was still inadequate by any measure.

The loss of trust among family members not only damages family functioning but also impacts the functioning of any family business in which they have an interest. In the case of the Murdochs, it appears that at least as early as 2010, the family was aware of the problems and Rupert convened a family retreat in Australia. It produced a family constitution which contained such mutual commitments as: “We will be vigilant of and defend against divisiveness, either between us or that which could infiltrate from without.” Notwithstanding, the history demonstrates that family members were immersed in conflict a few months after the constitution’s adoption.

Were there alternatives?

At the very least, it is clear that Rupert did not attempt to foster any consensus to his desire to promote his legacy prior to taking the extreme step of unilaterally changing the terms of the family trust. While it is impossible to say with any degree of confidence whether any such consensus was possible, one thing is clear: the attempt to force that amendment not only did harm to the legacy that Rupert sought to preserve, but did further damage to already fractured relationships among his four oldest children.