Rupert Murdoch's $50K MySpace

The chairman's rent calls into question his ability to build a great company.

Jack Uldrich
Jack Uldrich
Sep 11, 2006 at 12:00AM
Other

The Wall Street Journal reported last Friday that News Corp. (NYSE:NWS), the recent purchaser of the hip Internet portal MySpace, is paying $50,000 a month to rent its chairman, Rupert Murdoch, an apartment in New York.

Now, I am not typically one to get all hot and bothered about executive compensation -- especially if the executive's company is performing well financially. And in Murdoch's case, News Corp.'s net income rose 9% and the stock has outperformed the S&P 500 in the past year.

Here's my beef. Mr. Murdoch is already earning an annual salary of $4.5 million. Plus, he received another $21 million in cash bonuses for the company's performance last year. From my perspective, he should be paying for his own rent out of this pool of money.

Let me also add that in the grand scheme of things, I don't believe that $50,000 a month is going to make or break a company the size of News Corp. Rather, such news gives me pause on a couple of different fronts.

First, it causes me to wonder how faithfully the board of directors is fulfilling its fiduciary responsibility to average shareholders, who probably find $50,000 each month to be a healthy chunk of money.

Specifically, such deals make me wonder if other sweetheart deals are lurking in the fine print of other News Corp. executive contracts. It's not that I necessarily believe the company is doing anything as dumb as allowing its CEO to purchase $6,000 shower curtains out of company coffers, as Tyco's (NYSE:TYC) board once permitted its former CEO, Dennis Kozlowski, to do. But then, what do I know? I wouldn't have imagined that News Corp. would have approved a bill for renting an apartment for $50K a month.

Second, I worry about the message this sends to regular News Corp. employees. It is hard for me to imagine how news like this could have anything but a negative impact on employee morale.

Lastly, and perhaps most importantly, this calls into question for me the integrity of Mr. Murdoch. In his book, Good to Great, Jim Collins suggests that one of the key factors in building a great company is having a "level 5" leader -- someone whom Collins defines as channeling all of their energy into building the company instead of satisfying their own ego-driven needs. I think Best Buy (NYSE:BBY) CEO Brad Anderson, who gave back 200,000 stock options, is a good example of a level 5 leader. I also think David Neeleman, CEO of JetBlue (NASDAQ:JBLU), is a down-to-earth, modest guy. He'll help the JetBlue crew clean a plane after he's taken a flight on it.

Murdoch's actions run directly counter to this notion. It seems to me that he is more interested in getting his space than in building MySpace. Investors are wise to consider what such an action bodes for his ability to help build News Corp. into a great company.

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Fool contributor Jack Uldrich would gladly rent out his house in Minneapolis to Mr. Murdoch should he ever visit. He does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.