Virgin King (Text Only). Tim Jackson
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career as a struggle for survival.
There is a tension at the heart of Branson’s wooing of the media. Although he wishes himself and his businesses to be written about and filmed, he is less willing to make himself accountable to outsiders. When he decided to take Virgin public, one of the investment bankers who discussed the flotation with him (though not, interestingly, the one that was eventually chosen to handle it) warned Branson and his colleagues that life as a public company would be very different. The banker was right Branson disliked having to pay dividends; he disliked having to explain to hostile analysts in the City why he had taken this or that decision; and although his small shareholders were always faithful, he disliked the thought that institutional investors might have the right to question business decisions that had hitherto been his sole prerogative to take. Branson was also uncomfortable with the need to win the approval of his fellow directors before spending the company’s money – and on one occasion, which was successfully kept secret, had to find £700,000 from his own pocket when some shares he had bought on his own initiative lost value in the market crash of 1987. Branson’s wish to be given back full control over Virgin was as important a factor as any other in the decision to take the company private. With the transaction now safely accomplished, he likes to tell the story of a Japanese businessman who was discussing the possibility of taking an equity stake in a Virgin business and trying to convince Branson of his own merits as a docile minority shareholder. ‘Would you rather have Japanese wife or Western wife?’ the businessman asked. The answer was, and is, quite clear: when the marriage in question is a commercial one, Branson would far rather have Japanese wife.
What makes the accountability issue particularly sensitive for Richard Branson is that he has always been a generator of ideas who needs someone else to follow behind him – attending to details, pruning back ventures that later prove mistaken and, where necessary, warning him against putting his wilder ideas into practice. Throughout his career, his relationship with the person who has performed this function has always been unstable. Branson’s first partner was Nik Powell, a childhood friend to whom he gave a forty per cent shareholding in Virgin at the beginning of the 1970s. A decade later, dealings between the two had deteriorated sharply; Powell thought that Branson was taking foolhardy financial decisions, while Branson himself came to the conclusion that Powell was no longer contributing enough to the business to justify his position in it. It was more than two years after Powell’s departure that Don Cruickshank, the managing director who took Virgin public, took on the responsibility. But this new pairing was not to last either. Five years later, after the two had clashed frequently, Branson’s decision to take the company private again left his MD without a clear role. The gap was filled by Trevor Abbott, the group’s more emollient finance director. Promoted to group managing director, Abbott has been more cautious than Cruickshank in saying no to his boss; five years into the job, he seems to have retained Branson’s confidence without challenging his authority. Part of Abbott’s secret is that he has no enthusiasm for the limelight that has so changed Branson’s life. Although he wields considerable power both inside and outside the Virgin empire, Abbott passes almost unknown in public, save among a small number of suppliers, partners and customers, who hold him in high regard.
Each of these three men in turn has tried to devise a strategy to account in public for the essentially spontaneous decisions that Branson himself makes. Powell had grand ideas about vertical integration, believing that Virgin would make money from all the different activities involved in the production of music and film; but that notion was damaged fatally by the group’s withdrawal from film production. Cruickshank preferred to cast Virgin as a music conglomerate whose core was the record company; but Branson had no compunction in selling it. Abbott has picked out Virgin’s long-term cooperative ventures with other companies (notably in retailing and in the company’s video-game business, but also in the airline itself) as the core of its vision. It is too early to offer a judgement on this, since Abbott’s tenure in the group managing director job has only just reached five years. But by 1994, Virgin had already dissolved two of these strategic alliances (with Fujisankei in the record business, and with Seibu-Saison in the airline) – and the company was contemplating selling its video-game business to one of its minority American shareholders. Only months before, Branson had described that business as one that could grow to the same size as the airline within a decade.
These deals with other companies do illustrate, however, a skill that has become a Virgin hallmark. Richard Branson is a brilliant and ruthless negotiator. When the company was small and he was striking agreements on his own, Branson had enough cheek to demand far more than he ever hoped to win – but also enough patience to argue a deal point by tiny point if his adversary so demanded. He was highly skilful at hiding behind others, telling those he was negotiating with that it was the objections of his lawyers or his colleagues, rather than his own misgivings, that made him unable to agree to a proposal. To this day, he has an uncanny ability to portray a transaction in the terms that make it attractive to the person he is negotiating with, rather than allowing them to focus on what he intends to get out of it. He knows when to speak and when to stay silent; and he is capable of letting others leave a meeting under the impression that they have got what they want, even if they have not in fact done so. Finally, Branson is a masterful haggler: rather than accept an official fixed price when buying something, he will put in a lower (and often a significantly lower) offer. On many purchases – an aircraft, a house, an island, even the removal bill for a snooker-table – he will succeed. One of his friends jokes that if you ask Richard Branson to lend you a fiver, he will counter with an offer of £4.50.
It is this skill that has helped Branson to perform the most extraordinary feat of his business career. Most entrepreneurs who start businesses begin by owning all the company’s shares, but find themselves forced to give away a growing proportion of equity to others as the need for new investment capital grows. Richard Branson’s control over Virgin, however, has moved in the opposite direction. When Tubular Bells became a hit in 1973, Branson only owned 60 percent of the main Virgin holding company, and Nik Powell owned the remaining 40 per cent. At Powell’s suggestion, others had been given 20 per cent holdings in subsidiary companies including the record company, the studios, and the Virgin management company. So Branson’s effective holding over these companies was just under 50 per cent. Today, the various Virgin businesses are worth over £1bn – yet Branson and his family interests own more than 60 per cent of them.
Two policies allowed Branson to do this. First, he used the cash generated by the businesses themselves to make them grow. Second, he succeeded with great skill in easing out his minority shareholders. A shareholder in one of the subsidiaries departed the company in high dudgeon with Branson, leaving his shares behind him. Another subsidiary shareholder lost his stake when the company for which he worked was closed down altogether. Branson asked Nik Powell to go during the 1981 recession, giving him £1m cash, a cinema and some other assets in return for his 40 percent stake. (Within five years, that stake was to be worth almost £100m.) There was a similar pattern at Virgin Atlantic. When Randolph Fields brought Branson the idea of flying across the Atlantic, both men were originally to own half of the airline. During the negotiations before the airline’s launch, Branson forced Fields to reduce his shareholding to 25 percent; later the same year, Fields was made to step down as the company’s chairman; another year later, Branson bought out his remaining stake for £1m.
The one exception to this pattern was Simon Draper, Branson’s South African cousin, who established the record label for him. Draper took the precaution of asking his older brother for advice, and demanded that his 20 percent shareholding in the record company should be converted into a less risky 15 percent holding in the parent company. As his position in the business strengthened, Draper demanded further safeguards – with the result that he became a millionaire many times over when the company went public in 1986. Draper was also unique in never negotiating directly with Branson. The arrangements would first be discussed by lawyers or other intermediaries; when Draper and Branson came to meet, the usual pattern was that Draper would make his demand and Branson would quickly accede to it. Yet Draper’s craving to be financially independent from Branson, and immune from whatever decisions Branson might make inside Virgin, cost him dear. So keen was Draper to limit his risk on the airline that, after Virgin went private, he sold his ten percent stake in Virgin Atlantic back to Branson for £6m. As he signed the papers, Draper