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RICHARD BRANSON is Britain’s best-known entrepreneur, but it is not for his business activities that he is famous. Branson first achieved celebrity with his 1985 attempt on the Transatlantic sea speed record. Since then, he has ballooned across the Atlantic and the Pacific; spent an unhappy year at the helm of a Conservative government campaign to clean up the environment; launched a new brand of condoms in the hope of encouraging young people to have safer sex; and made a bid to run Britain’s National Lottery, which was unsuccessful despite his promise to give away all his profits to charity.
Even when it is his business interests that bring him into the public eye, it is more often Branson the public-relations man than Branson the entrepreneur that is on display. If his picture is in the newspapers, it might be in order to announce a new plan to redevelop the old GLC County Hall on the south side of Westminster Bridge, and to drum up interest in the hotel and leisure complex that Branson hopes to build there; or to persuade the Radio Authority that Virgin 1215, Branson’s medium-wave pop-music radio station, should be allowed to change to a more profitable frequency on FM. Or it could be to announce Virgin’s participation in a consortium running trains between London and Paris through the new Channel Tunnel; or to win a £5m legal case against Lord King’s British Airways. In every case, the coverage has a sound commercial reason behind it.
Only rarely does Richard Branson find his business activities under scrutiny against his will – and almost never does the public see this most public of entrepreneurs doing what he spends most of his time doing. But there should be no mistake: like most people who run companies of comparable size, Branson devotes most of his waking hours to his businesses – hiring staff, negotiating deals with other companies, conferring with lawyers and accountants, telephoning scores of his managers all over the world, answering letters from behind his desk. Few questions are asked about this side of his life; fewer still are answered.
This may be paradoxical, but it is not accidental. There are two Richard Bransons, one behind the other. The public man is informal, friendly, idealistic, happy-go-lucky, attached to his family, guided by strong principles, concerned to improve the society he lives in. The private man is a ruthlessly ambitious workaholic; a hard bargainer, an accountant with an instinctive feel for minimizing the losses on each new venture; a gambler who prefers to put his assets at risk every day rather than retire to a life of luxury on what he has already made. He is an empire-builder who keeps the inner workings of his businesses secret, and requires senior employees to sign binding confidentiality agreements before they come to work for him; a figure of great wealth and political influence who would not dream of breaking the law, but is equally determined not to pay a penny more in tax than he has to; an important customer for a number of top legal and accountancy firms, who knows the value of highly paid advice; and a business partner who may be informal and positive when he is being fairly treated, but will go to the High Court for a writ without a moment’s hesitation when he believes he is not.
Most public figures would be hard put to maintain such a distance between their outer and inner selves. Yet there is nothing fraudulent about the way Richard Branson behaves. The key to understanding him is that his warm public persona is not a façade. It is every bit as real as the commercial steel underneath. But Branson has realized, instinctively if not consciously, that his business interests dictate which Richard Branson he should put first, and which the public should believe in. His motto ought to be ars est celare artem – art lies in concealing the art.
In many ways, Richard Branson is a model of what the socially responsible company chairman ought to be. A visit to his office provides the first clues. It is not an office at all, in fact, but a large white stucco house in Holland Park, a few miles to the west of Marble Arch in central London. The house could hardly be described as modest – it is worth at least £5m – but less than a dozen people work inside, an astonishingly small number for the centre of a group of companies whose value is approaching £Ibn. Branson himself keeps a desk in a sparsely decorated room on the first floor, but prefers to conduct his business from an apricot-coloured sofa in the sitting room that occupies the left half of the entire ground floor. To the right of the entrance hall, there is a large dining room for business lunches and dinners, with twenty or more chairs around its table. Branson’s diary and his correspondence are dealt with by a personal assistant and two other secretaries; his press chief works in another room, with an assistant of his own. All the different Virgin Group businesses have their own headquarters, mostly in modest buildings scattered within a mile or two of the house. The nearest thing that the company has to a headquarters, apart from Holland Park, is in a three-storey building of brown brick around the corner in Campden Hill Road. That is where Trevor Abbott, the group’s chief executive, keeps tabs on the money; that is the registered office of many of the hundred or so companies that make up Branson’s empire.
‘Small is beautiful’ is evidently the guiding principle. Branson believes firmly that people work better in teams that are too compact to be impersonal. But separating the companies that make up the group into lots of small suburban houses and offices is not only more human than installing them in a single tower block in London’s financial centre; it is also cheaper and more flexible. There have only ever been two exceptions to the rule: Branson’s airline, Virgin Atlantic, which employs several hundred people in a couple of offices in the town of Crawley near Gatwick Airport; and the Virgin Music Group, which occupies a vast mansion set back from the Harrow Road. The reception area at Harrow Road boasts a stunning combination of Victorian cornices and minimalist art and furniture which was installed by a fashionable architect, and reputed to have cost £80,000. But this was not Branson’s initiative; the man responsible for this act of corporate patronage was Simon Draper, who ran the Virgin Music Group until Branson sold it to Thorn-EMI in 1992.
While others make money from buying big companies that have lost their way, cutting out the dead wood and returning them to profitability, Branson has made only a handful of acquisitions in his life, none of them costing more than £10m. Instead, his speciality is to build from scratch. In a business career spanning twenty-five years, he has used this approach to build an international retail chain, an airline, and a music business that includes records, music publishing and studios. The principle of starting from nothing applies to people as well as to businesses. Rather than hire in specialists from outside who will be expensive and may not be loyal, Branson prefers to offer big jobs to people who already work for him. This is by no means a rule: Trevor Abbott, the Virgin Group chief executive and Branson’s most senior adviser, joined him when he had already been in business fifteen years; and one of the two managing directors of the airline was brought in only in 1990. Yet most of the leading players in the Virgin story are people who joined straight from school or university. One, Barbara Jeffries, first worked for Branson as a housekeeper at Shipton Manor in Oxfordshire; by 1992, she was managing director of all his studio businesses.
Since inexperienced staff necessarily make a few mistakes before acquiring expertise, it helps in such circumstances to take a long-term view. Luckily, Richard Branson has never evaluated his businesses on the basis of how much profit they make each year. When he signed musicians to the Virgin record label, he was often willing to pay advances that his competitors considered ruinously high – but in return, he would demand rights over a larger number of albums, and would want to keep control of the copyright over those albums for longer than other record companies. The record shops under the banner of Virgin Retail grew steadily in number for more than a decade, without ever making a proper return. But Branson ignored the advisers who told him time and again to close them down or sell them – and was proven right in 1988, when WH Smith, one of Britain’s leading stationery chains, paid over £23m for the smaller and less successful stores, leaving him with a more closely focused chain of Virgin megastores. Branson has weathered equally stormy days at the airline, which took four years from its creation to turn in a reasonable profit. He kept his nerve during the 1991–2 recession in the air transport industry, emerging triumphantly at the beginning of 1994 with a daring deal that replaced his fleet of ageing Boeing 747s with more economical Airbus A340S.
This patience extends to his negotiating style, too. During the same recession, Branson was under huge pressure from his bankers to sell parts of the Virgin empire in order to reduce the mountain of debt he took on at the end of the 1980s. Yet he took more than a year to sell Virgin Music Group – and succeeded, like a carpet dealer in an Oriental bazaar, in persuading potential buyers that he neither needed nor especially wanted to sell. This strategy was rewarded in the astounding price that Thorn-EMI eventually paid in cash and assumed debt for the company: £560m, or almost $1bn at the prevailing exchange rate.
In the speeches that he is increasingly often asked to give, Branson is fond of pointing out that while conventional business analysis puts the interests of a company’s shareholders first, followed by those of its customers and then its employees, he takes the opposite approach. For him, it is Virgin’s employees who take top priority, particularly those who deal face to face with members of the public. If they are happy in their work, he hopes, then they will perform well – and in doing so they will satisfy his customers. Branson believes that the interests of Virgin’s shareholders (which in effect means himself and his family) can be safely left behind, on the assumption that a company that pleases its customers will prosper itself.
Fame has brought Branson an array of rich and powerful friends, and an ability to arrange a meeting with almost anyone he wants in politics or business. When his libel action against British Airways was settled in the High Court, the Princess of Wales sent him a handwritten note of congratulation on a card headed ‘Kensington Palace’ bearing a monogram of a capital D with a coronet above it. ‘Dear Richard,’ it read. ‘Hurray! Love from Diana. X.’ The friendship was cemented a few months later, when Diana agreed to preside over the launching ceremony of the airline’s first new Airbus. Her light-hearted appearance, which came only a few days after an announcement that she intended to retire from most of her public duties, put Branson and his company on the front page of newspapers all around the world.
Yet Branson himself is the opposite of elitist, and his company is one of the least hierarchical one could come across. To the annoyance of his senior managers, Branson seems to pay as much attention to a chat with a clerk in the airline’s post-room as to a memorandum from his marketing director. Letters from his staff are always read first; when Branson travels on his own airline, he spends about half his hours on board talking to the cabin crew, and he travels into town at the other end not in a private limousine to a hotel at the city centre, but in the crew bus to the airport motel where those who will be flying back the following morning spend the night. Until he became an airline owner, and thus acquired the right to travel first-class for free on other airlines, Branson used always to fly economy class.
Richard Branson may work his secretaries hard, but he resists the temptation, to which many other company chairmen have succumbed, of ordering them around as if they were servants. He will ask for a mug of tea during a meeting at Holland Park as hesitantly as if he were a guest in someone else’s house. Until recently, he used to dial his own telephone calls; he only stopped doing so when a growing number of people at the other end refused to talk to him because they thought he was only a practical joker pretending to be Richard Branson. (Given that Branson used to specialize in telephoning his friends and pretending to be other people, that is richly ironic.) It is no coincidence that Penni Pike, Branson’s senior personal assistant, has worked for him in the same job since 1977.
He manages and motivates his staff by example. Branson is hugely energetic. He needs his eight hours’ sleep a night, but is nevertheless able to put in very long hours without rest – keeping himself awake where necessary by snatching naps during the course of the day or en route between one meeting and the next. He travels by air on average once a week. Dozens of the present and former Virgin employees interviewed in the course of the research for this book have been influenced by his almost blind determination. Where others would try to put an idea into practice but then give up when obstacles appear to make it impossible, Branson takes it as an article of faith that there is a way around – if only it can be found. Sometimes, of course, he is wrong; but surprisingly often, the extra effort pays off with success – and others begin to imitate the Branson technique. The most extreme example of this approach was the establishment of Virgin Atlantic; by dint of extreme effort from a team of a dozen or so people, the airline was up and flying within four months of the day on which Branson first started discussing the idea.
While many businesses suffer from a ‘Not Invented Here’ syndrome – a resistance to ideas that come from other organizations – Branson has no shame in picking up suggestions wherever he finds them. All day long, he carries around with him a black A4 notebook – standard issue, bought from the Rymans stationery chain – into which he jots not merely ideas that might be put to use in his businesses, but also names and telephone numbers, notes on conversations, and lists of tasks to carry out. Richard Branson’s daily to-do list usually contains thirty items or so; the idea is that by numbering them, he can attend to the most important first and thus make best use of his time. Such is the respect he is held in by his employees that many senior staff in the different Virgin companies now carry the same notebooks with them, and can be seen scribbling down thoughts and notes of conversations in exactly the same way. Like the rest of Branson’s life, the notebook is resolutely low-tech. He neither types nor uses a computer, and he acquired a mobile phone for the first time only in late 1993.
As well as a second house in Holland Park, two doors down from the one that he uses as his office, Branson owns a villa in Minorca, a country house in Oxfordshire surrounded by fields and a large pond, and a private island in the Caribbean. There is a swimming-pool in the basement at Holland Park. The Oxfordshire house, his weekend retreat, has its own cricket pitch; Branson flew in a pair of Balinese craftsmen to build a cricket pavilion in the style of a traditional temple, complete with carved wooden doors and a roof of thatched rice straw. Necker Island, part of the British Virgin Islands, now belongs to the company rather than to Branson personally; it boasts a house large enough for twenty or more, a chef brought over from the Michelin-starred Manoir aux Quat’Saisons restaurant (in which Branson happens to own a controlling stake), and an extensive cellar that includes vintage clarets and burgundies as well as lighter whites suitable for quaffing on the beach.
Yet Branson seems oddly detached from the outward details of his life. It does not bother him that paint is flaking off the back of his house in Holland Park, or that the swimming-pool filter no longer works. He owns a Range Rover because he was given it by the buyer of the Virgin Atlantic Challenger II, the speedboat that broke the Atlantic speed record; but he is perfectly willing to allow his two children, both of primary-school age, to drive it around his fields in the country. He has always eschewed the ostentatiously high living of the music industry, particularly the chairman of one record company who makes a point of parking a spanking new Rolls-Royce or Bentley outside the front door of his offices. Since he married his second wife, Joan Templeman, Branson has supplemented his trademark collection of sweaters with more expensive casual jackets and shirts. Yet he often succeeds nevertheless in looking as though he picked the clothes he is wearing out of the cupboard at random in the dark – and he specializes in wearing brown shoes that look as though they were on special offer at Woolworths.
Nor does he have expensive gastronomic tastes. While many of his top managers have become connoisseurs of food and wine, Branson is the first to admit that he is unable to appreciate the finer points of the Quat’Saisons cuisine on his private island. He used to make it a rule never to spend more than £15 on a bottle, and was scandalized when colleagues wanted to spend company money tasting good vintages in restaurants.
Most rich men of Richard Branson’s age start to collect things as a way of finding a use for the millions they have amassed. The pond in the grounds of his Oxfordshire house duly contains a number of rare species of duck and goose from around the world, their wings carefully clipped to prevent them from flying away. Branson takes pleasure in strolling around the pond pointing out the bright colours on the plumage of each one – but cannot quite remember which is which. He is fond of telling the story of how, when he used to live on a houseboat oh the Regent’s Canal, he and Joan once returned from a weekend away to find that the boat had flooded and sunk. Yet Branson had no regrets to discover that all his worldly goods had been lost – for he knew that his photograph album, which was more precious to him than anything that mere money could buy, was safely stored somewhere else. Proof of how little his attitude has changed can be seen in his decision to put the two houses in Holland Park on the market at the turn of 1994 with a price-tag of £15m, and to start looking for another houseboat so that his family could move back to the canal from which he started twenty years ago.
Indeed, most of Richard Branson’s pleasures could be enjoyed just as easily without great riches. He loves tennis and swimming in the sea; underlying his boating and ballooning in the second half of the 1980s were great reserves of physical courage, which allowed him several times to face death without panic. He plays practical jokes that are more physical than intellectual – throwing people into swimming-pools, dressing up in bra and suspenders at parties for Virgin employees, pushing cakes into people’s faces in the style of television cartoons. At an airline-industry awards ceremony, he once grabbed hold of Ivana Trump, the former wife of a leading American property billionaire, and turned her upside down in front of hundreds of astonished black-tie guests. It is this humour above all that makes Richard Branson such an object of affection among his employees. The ear-to-ear smile that he wears for so many hours every day conveys a simple message: business is fun.
Underneath this gregariousness is an insecurity. Richard Branson’s lack of verbal fluency was intimately linked to his poor academic record at school, and his decision to leave rather than to go to university. For a man who has made his money in industries that are all about communication and people, Branson is sometimes astonishingly inarticulate. He will talk with passion when his interest is raised, but can be stumped by an utterly straightforward question. During one of the last interviews he gave for this book, Branson took a fifteen-minute break in order to record for a camera crew waiting in his sitting-room a short speech of welcome to a charity dinner that he could not attend. The speech was warm and friendly, conveying all the right points about the charity’s work, and ending with a rousing demand to guests that he would never see to give generously to the appeal at the end of the evening. But its three minutes were punctuated with umms and aahs – hundreds of them, separating not just sentences and phrases but also single words. Despite the decade of practice he has had, and the hundreds of television interviews he has given, Branson remains clearly ill at ease with the spoken word. When he got up at the end of a chat-show interview in 1992 and poured a glass of water over the head of his host, the audience took his action as a joke, and laughed uproariously. They were probably wrong. Emptying the glass of water was more a sign of Richard Branson’s frustration at being outmanoeuvred by the glib questions he had been asked.
If there is one respect in which Branson can fairly claim to have been valued by the public at less than his real worth, it is to do with his charitable activities. He is not a giver of huge sums to charity in the way that some businessmen are; nor does he have to his credit, as the Sainsbury family do, a gift to the cultural life of the nation on the scale of a new wing for the National Gallery. But Branson has been involved in three important projects in which he has attempted to give something back to the community from which he has made his riches. The first was the UK 2000 campaign, a scheme to bring together a number of different government and private initiatives to improve Britain’s environment and to provide useful work experience for the young unemployed. From the very day Branson took on the chairmanship of the campaign, he was dogged with the tabloid misconception that it was nothing more than a litter-picking organisation; his departure from the job a year later, after acres of hostile press coverage, was a relief to himself as well as to his advisers at Virgin.
His second venture for the public good was the launch of Mates, a brand of cut-price condoms intended to shake up the monopoly in the British condom market that allowed the manufacturers of Durex not to advertise. The project was a commercial triumph: the new brand was easily established, and took more than a quarter of the market in less than two years. In terms of public health, however, the outcome was mixed; although condom advertisements were shown on British television for the first time, Mates did little to change the reluctance of young people to take elementary precautions against the spread of AIDS. Branson himself also came in for a good deal of criticism – despite the fact that he had risked large sums of his own money in a venture whose proceeds were intended only for charity.
Branson’s bid to run the National Lottery suffered a similar fate. Once again, his intentions were altruistic; he would take no profits personally from the exercise, and the lottery and the money it raised would be administered by a foundation kept entirely independent of the Virgin empire. Branson was bitterly disappointed when the franchise was instead awarded to a business consortium; but he was angrier still to find himself criticised for his involvement in an exercise for the good of others. Somehow, despite the clear separation of the lottery from his business interests, Branson never quite managed to dispel the suspicion that he was hoping to benefit personally from running it.
Most public figures – politicians and sports stars as well as business people – would be less sensitive. They would expect their motives to be impugned, their failures exaggerated, their successes attacked, their physical characteristics made an object of fun. The very fact that Richard Branson can take such offence is proof of how unaccustomed he is to public criticism, and how he has come to take it for granted that a little effort and imagination in arranging what information is made public will inevitably result in positive coverage.
Achieving good press has been as important in Branson’s business career as making sure that the books balance at the end of the year. From his first days as a magazine publisher and record retailer, Branson knew that descriptions of his ventures as successful and expansionary could become self-fulfilling. That is why he would arrange, when a newspaper journalist came to talk to him, for an employee to go to a nearby telephone box and ring in constantly during the interview in order to give an impression of activity; and why he similarly drafted in a couple of friends to pose as musicians signed to his record label for a television documentary when in fact Virgin Records had no artists at all on its roster. It took two factors, however, to turn Branson from a moderately well known and eccentric pop millionaire into a fully fledged celebrity. One was the launch of Virgin Atlantic, which gave him the opportunity to indulge his taste for dressing up in a series of outlandish outfits. (The apparent thirst for personal publicity which he then acquired had a great deal to do with the need to compete with British Airways on a shoestring advertising budget.) The other factor in his current fame was the danger involved in his record-breaking sea and balloon crossings of the Atlantic and Pacific. In public, Branson would talk about his thirst for adventure and his love of competition and the outdoors. In Virgin board meetings, he defended the spending of company money on these exercises by saying that they were the cheapest possible way of advertising group companies.
By the end of the 1980s, Branson’s image as popular hero had become a bankable asset for his businesses, arguably even more valuable than the Virgin brand name itself. He would be wheeled out to meet rock stars signing contracts with Virgin Music, even though he had not been involved in the negotiations; and they, accustomed to receiving the adulation of fans themselves, would be awed as if they were in the presence of royalty. Four years after he sold Virgin Music, Branson took me on an impromptu tour of the company’s recording studios at Shipton Manor in Oxfordshire. The woman who opened the front door was visibly delighted to see him, and reminded him as they kissed that she had worked for him a decade earlier. When we went into the studio itself, rich in the nostalgic smell of marijuana smoke, the band who were working there took their feet off the desks when he walked in.
One example of the commercial value that Branson squeezes from his own public persona and the strength of the Virgin brand was the air service that City Jet began to operate under the Virgin name between London’s City Airport and Dublin in 1994. Another was the launch in 1993 of a Virgin personal computer, which was in reality being built entirely by a separate company that paid a royalty for use of the Virgin name. Even firms that have no dealings at all with Virgin want to cash in on the Branson name. American Express, Mercury and Fiat are only three of the companies that have used him in their advertisements. In the Mercury television advertisement, Virgin received a double benefit, for Branson’s script required him to be an uncharacteristically fast-talking salesman of the attractions of Virgin Atlantic’s service.
Lack of cash has been a constant theme throughout Virgin’s history. Founded on a shoestring, the company was desperately undercapitalised throughout the 1970s, and narrowly avoided collapse in the recession that followed the election of Margaret Thatcher as Prime Minister in 1979. Even after it had established banking facilities suitable for a company of its size and had raised £25m from institutional investors, it still required great skill and assiduous chasing of debtors to make sure that none of the company’s cheques bounced. Don Cruickshank, the management consultant brought in to take Virgin public, described the group during the time he worked for it as ‘teetering on the edge of disaster, seven days a week’. In February 1985, after American aircraft had bombed Libya and passengers decided to avoid air travel, Cruickshank sat around a pub table with Branson and Trevor Abbott to discuss whether Virgin Adandc should be closed down altogether. Once Virgin’s shares were quoted on the Stock Exchange, there was more money about; but Branson’s decision to take the company private in 1989 saddled it with a mountain of debt that was paid off only by giving up the ‘crown jewels’ of the business – the Virgin Music Group itself. Perhaps surprisingly, given his wish to reassure outsiders of the stability of Virgin’s foundations, Branson himself describes his entire business 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 turned to the lawyer and smiled. ‘I know this is probably the worst deal I will ever do in my life,’ he said. It may yet prove to be; but Draper, who now runs a private publishing house and owns thirty-nine Aston Martin sports cars, has enough money not to care.
Richard Branson’s wish to make sure he always does as well as possible from any business arrangement applies equally to his dealings with the Inland Revenue. He discovered early in his career the risks of breaking the law, when his botched attempt to evade purchase tax was detected by Her Majesty’s Customs & Excise. Luckily, the Customs were willing to settle for the payment of a £53,000 penalty, so the young entrepreneur was spared the humiliation of a prosecution, and the risk of a gaol sentence that might have put an end to his ambitions. From that clumsy attempt at fraud he learned the distinction between tax avoidance (which consists of arranging matters so as to minimise the tax bill) and tax evasion (which is illegal); and he learned to make use of top-class advisers to ensure that every step he took was watertight and could be defended against challenge. But Branson’s instinctive reluctance to see his hard-earned profits paid over to the Chancellor of the Exchequer never left him. In 1973, when Branson was not yet twenty-four years old, the first trademark of the Virgin record company was registered as the property of an offshore trust, thus legitimately placing beyond the taxman’s reach part of the royalties that overseas companies paid to Virgin. Later in the 1970s, Branson made use of a number of carefully prepared tax-avoidance packages bought in from experts. Early in the 1980s, Don Cruickshank had to warn Branson that he might actually be wasting time and money with these convoluted schemes, since Virgin was growing so fast that the schemes could not keep up.
Before Virgin went public, Branson took the step that has saved him tens of millions in tax. He transferred ownership of many of his shares in the company to offshore trusts of which he and his family are beneficiaries – so that when the company went public, and when the music business was later sold in a transaction valued at 2560m, the bulk of the capital gains could be free of tax. There the position still stands. The offshore trusts, resident in the Channel Islands, are the major shareholders in the holding companies of Branson’s present businesses; and they are able, quite legally, to invest money in his ventures if the independent trustees believe it wise to do so. If Branson ever decides to retire, he will be quite at liberty to take a one-year tax holiday abroad and to come back to the UK several hundred million pounds richer without owing anything to the Inland Revenue. Hostile questions were asked in Parliament about these arrangements soon after the sale of Virgin Music Group; but the lawyers and accountants have done their jobs too well for there to be anything to criticise.
This book is an attempt to capture what makes Richard Branson distinctive as a businessman. It is therefore in part a biography, and in part a history of the Virgin empire that he has established. But it does not seek to do both jobs in full. There is little on these pages, for instance, about Branson’s marriage to Joan Templeman, his second wife; and little about the companies in his empire with which he has so far had little to do – notably the communications businesses run by his brother-in-law Robert Devereux, and the Voyager hotel interests. In some cases, such as his participation in a consortium running train services through the Channel Tunnel, the projects are still at too early a stage for any serious conclusions to be drawn about them at all. Broadly, however, this book tells the story of Branson and his ventures one by one, starting from the mail-order record firm that was his very first serious venture at the end of the 1960s, and ending with his abortive attempt to run the National Lottery in 1994. Whether the reader will agree with the conclusions and predictions to be found in the epilogue, however, remains to be seen.
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1969: Easy Work, Good Money (#ulink_4dd08bd5-186f-56ca-bfab-a6627c545a67)
