Tim Jackson - Virgin King (Text Only)

The irony was that Kristen’s relationship with Kevin Ayers was doomed not to last. After bearing his baby, she began to feel that he had laid siege to her mostly because it was a challenge to steal from Richard Branson his most prized possession. She was only to find happiness in marriage many years later. But as the wounds healed, Branson and his former wife were able to restore some of the old brother-sister relationship that they had had in the earliest days. Kristen and her German husband Axel Ball would be invited to spend holidays with their family on Branson’s private island. By the end of the 1980s, the two families were even in business together: Branson bought a controlling interest in a luxury hotel that they had opened in Majorca, and a new hotel was being planned in Hydra for which Kristen and her second husband would provide the architectural and managerial talent, and her first husband the money.

A matter of months after Richard Branson married Kristen Tomassi, his business partner Nik Powell married Kristen’s younger sister Merrill. A matter of months after the failure of Richard and Kristen’s marriage, the marriage of Nik and Merrill failed also.

But the twin marriages, at which Richard and Nik served as each other’s best man, said as much about the two founders of Virgin as about their wives. Nicholas Powell had been Branson’s earliest real friend; they had met at the local private school at Shamley Green at the age of four. They were, as the closest of friends can sometimes be, almost opposites. Richard was fair-haired, gregarious and rudely healthy. Nik was dark, shy and epileptic. Richard was an indifferent student; Nik was more academic. When Richard went to Stowe, whose foundation in 1923 made it a parvenu among public schools, Nik was sent north to Yorkshire to be educated in the gloomy tradition of Ampleforth College, founded by Benedictine monks before the Reformation. Richard was the leader, Nik the follower; it was not clear who needed whom more.

Powell had lived at Albion Street in the gap between school and university, and had helped out on Student. But it was only when he gave up his place at Sussex, returning to London to become Branson’s partner in the mail-order business, that the structure of their relationship was formalized in a business agreement. Powell was given 40 per cent of Virgin. As the venture grew, the two slipped into complementary roles. Powell would produce financial figures for the bank; Branson would take the figures to the meeting and persuade the bank manager to lend another few tens of thousands of pounds. Branson would decide suddenly that Virgin needed to open more record shops, and would galvanize everyone with the enthusiasm necessary to get the job done swiftly; Powell would do the stocktaking. Branson would rush off on one implausible scheme after another; Powell would provide the voice, sometimes gentle and sometimes not so gentle, telling him not to be such a damned fool. It was Branson whose gusto for life persuaded people that working for Virgin would be fun; it was Powell who stopped the biscuits in the coffee cupboard when times became hard. One did not need to know about the 60–40 split to know which was the senior partner and which the junior.

But there were other junior partners, too, who were given shares in the businesses they worked for because Powell thought that equity was the best possible incentive for hard work. One was Simon Draper, who was given a 20 per cent stake in the record company. Another was Tom Newman, who had 20 per cent of the studio business. A third was Steve Lewis, who received 20 per cent of Virgin’s management company. In common with the share split between Branson and Powell, these minority holdings were not negotiated. None of the three was asked to pay a penny for their shareholdings, nor to accept any financial risk on their own heads. Branson was prepared to take all the risks and to find all the money; the shareholdings were simply a reward, an expression of confidence in the future and a gesture of thanks for useful advice already given and work already done.

At first, this approach threw up no problems. In common with almost everybody else working for Virgin, Draper, Lewis and Newman were not much bothered by money. They were young and without responsibilities. Their salaries were perfectly adequate to cover the cost of renting a flat in London, going out for meals with friends, buying tickets to the movies, and, if they wished, smoking the occasional joint. Many of their living costs were paid by the company in any case. At the big communal dinners they all went out to, Richard would slip away and pay the bill before anyone had even noticed that he had gone. The fleet of company Volvos provided free transport for the trusted insiders. Perhaps most important of all, all three of the minority shareholders were doing what they wanted to do. Music was the passion of their lives; to be able to spend their days doing something they enjoyed, when many of their contemporaries were dressing up in drab suits and doing dull jobs in old-fashioned offices, seemed the greatest privilege of all. Who would be ungracious enough to start quibbling about equity?

Simon Draper was the first. In 1975 he went back to South Africa for a holiday and had a long chat about his work at Virgin with his older brother. He explained the way Virgin was structured. There was a holding company at the top, of which Branson owned 60 per cent and Powell 40. That company did business through a number of subsidiaries that it owned, covering records, studios, retail, mail-order and management. When someone at Virgin had been given a minority shareholding, it was always a shareholding in the subsidiary company. So Branson and Powell together owned 80 per cent of the subsidiary, and the rest belonged to the individual minority shareholder.

Draper’s brother told him that since Virgin’s shares were not quoted on any stock exchange, the value of a stake in the Virgin holding company was not clear until it was actually sold. But a minority shareholding in one of the subsidiary companies – which was what Draper himself possessed – was worse still; it was fundamentally unsafe. There was simply too much scope for Branson and Powell to change matters to their own advantage: if, for instance, they decided to dismiss Draper outright, he would be able to claim only the par value of his shares, not their real value as assets. Under company law, Draper’s 20 per cent of the record company was not a large enough stake to give him a veto over decisions that might become important later; and the presence of the holding company above it could allow profits from the record company to be used to finance other companies in the group. The advice from Older Brother was simple: Simon Draper should try to swap his stake in the record company for a stake in the holding company – and if that were not possible, he should at the very least obtain some safeguards to protect his position.

Branson and Powell would not agree to the first option. But Draper extracted from them an agreement on what he would be paid if he were ever to sell out his 20 per cent of the record company. He would still be required to offer Branson and Powell first refusal on his shares; but they would be obliged to buy him out not just at any arbitrarily agreed price, but at a ‘fair value’ or £100,000 – whichever was the less.

The matter became more complicated in the 1980s, because Draper saw the financial transactions between the record company and other group companies being arranged in such a way as to reduce the record company’s profits and liberate money for spending on the expansion of other companies in the group. Draper therefore insisted that the accounts should contain a note recording that for the purposes of valuing his shares, the record company’s profits should be considered higher.