Branson: Behind the Mask (18 page)

The popularity of alternative jet fuels had been boosted by Branson. As his publicists highlighted, his advocacy had been followed by BA’s agreement in February 2010 to buy jet fuel manufactured from organic waste by the Solena Group in the US once the factory was completed in 2014. Branson himself had invested in Solazyme, a Californian biotech company that was spending $60 million to produce fuel from algae. An alternative supplier puffed by Virgin was AltAir Fuels. Based in Seattle, the embryonic company committed itself to supply 750 million gallons of jet fuel manufactured from farmed saltwater-plant and camelina feedstock to fourteen airlines.

The parade of Virgin’s investments was applauded by environmentalists. Despite the lack of progress and dubious science, the Virgin brand benefited from the portrayal of Branson as a concerned citizen spending millions of dollars to save the world. The jigsaw was completed by Virgin Unite, the charity set up by Branson.

Many billionaires in their sixties present themselves as benefactors by giving away in excess of $50 million every year from their bank accounts or a trust to the underprivileged. Branson took a different path. Business, he believed, should help the disadvantaged to help themselves. Under the banner of Virgin Unite, he cast business as ‘a force for good, helping people to thrive in balance with our planet’. He offered Virgin and himself as a beacon of selflessness. ‘We unite people’, he wrote, ‘to tackle tough social and environmental problems in an entrepreneurial way for the public benefit.’ Branson was not offering charitable funds like Bill Gates to eradicate Aids and malaria or
the Rockefellers to foster education; he said his fortune would ‘focus on great ideas and areas where we feel there is a gap’. In a declamation placing Virgin among the global leaders, he explained: ‘Our aim is to help revolutionise the way that governments, businesses and the social sector work together, in order to address the scale and urgency of the challenges facing the world today.’ His proof of Virgin’s contribution to the cause was to have ‘incubated and launched the Carbon War Room and the Elders’ – a group of retired politicians financed by Branson to dispense advice to the world. The next stage was ‘a new Global Leadership Initiative driving a new model of business leadership which would see businesses achieving charitable objectives as a fundamental part of doing business’.

Virgin Unite’s lofty ambitions in 2011 amounted to encouraging volunteering, campaigning in the media against homelessness, and making Virgin employees aware that they should encourage entrepreneur ship. The charity’s principal bequests were £209,000 towards the establishment of an HIV clinic in South Africa and a small contribution towards maternity clinics in northern Nigeria. The accounts did not clarify all the bequests made from the £5.7 million budget – except that the source was £3 million in cash, with the remainder in-kind resources donated by Virgin companies. The first accounts reported that staff costs were £2.2 million, while £1 million was lost in an investment managed by a hedge fund. The charity claimed to have generated ‘£20 million of free media coverage’. Spending less than £1 million on two health projects represented, in Branson’s words, funding ‘to tackle tough social and environmental problems in an entrepreneurial way for the public benefit’. Some had noticed a disparity between Branson’s promises and delivery.

Tim Flannery and Crispin Tickell had been pleased to be associated with Branson’s Earth Challenge. Since the triumphant
meeting in Kensington, Branson had praised ‘a bold call to action which stimulated a lot of thinking around the world’. In the four years since the $25 million prize had been offered, Virgin had received 2,600 proposals. Among them was a submission by Alex Michaelis, the designer of David Cameron’s eco-home in London. Michaelis was among the many waiting to hear a response. After examining the submissions, Alan Knight, the Earth Challenge director, had announced that there was no winner. ‘There’s no silver bullet,’ he explained in November 2011. Flannery and Tickell were surprised. Both understood that Branson would immediately give $5 million to the winner. ‘It might have come across as a beauty contest with an instant prize,’ Knight replied, ‘but we said it would take ten years before a winner was announced. It was never going to be a quick cheque.’ That was not Tickell’s recollection about the original invitation. Branson’s staff seemed to be prevaricating.

‘You have to announce a winner,’ he told Knight’s staff.

Instead, Knight produced a shortlist of eleven ‘pioneers’ with whom, he said, ‘we will work’. He added, ‘Richard is very excited we have eleven pioneers. It’s first past the post, not the best at the date. We will decide.’ The prize seemed impossible to win.

‘It’s not thought 100 per cent through,’ said another person involved with the contest, suspicious whether Branson would ever pay the money.

‘Branson launches something on Monday’, concluded Tickell, ‘and has forgotten it on Tuesday.’

The competition began to attract criticism from environmentalists as ‘barmy geo-engineering which is speculative and useless’, motivated by a man responsible for ‘a carbon-manufacturing business who promises to make it better’. Branson’s arrival in Calgary, the capital of Canada’s polluting tar-oil industry, to promote the competition’s shortlist brought him criticism for being the ‘friend’ of Big Oil, for being ‘ill informed’ and for causing the
public to be ‘duped by projects based on incomplete and in some cases downright false information’. His carbon-capture schemes were described as ‘nonsensical’. No one even mentioned any more his $3 billion contribution to Clinton’s campaign against global warming.

Defeat, Branson enjoyed saying, caused him little fear. ‘My mother taught me never to look back in regret but to move on to the next thing. I have fun running all the Virgin businesses so a setback is never a bad experience, just a learning curve.’

Virgin’s name had been slapped on to many ventures that had failed but, until 2008, pictures of Branson surrounded by blonde Virgin Atlantic hostesses or kite-surfing across the Caribbean with a nude ‘girlfriend’ clinging to his back had entrenched Virgin as the brand for the hip to fly, for the cool to buy their music and for the healthy to work out with at Virgin Active. Virgin at its peak epitomised the crazy spirit of teenagers disrupting the Establishment. Aspiring rebels worshipped Branson as the champion of the counter-culture. He was the modish billionaire inviting the public to party and profit, and Virgin’s customers defied convention by subscribing to a heroic maverick. Across the globe, his image as an intrepid buccaneer mitigated his declining fortunes.

An attempt to launch Virgin Radio in Dubai had been unsuccessful. Virgin Vie, his clothing company, was heading for closure, joining Virgin Cars. Virgin Cosmetics, which Branson had said in 1997 would have a hundred stores within five years, was running into insolvency. To save embarrassment, the founders were paid £8.8 million and the company’s name was changed to Effective Cosmetics. In America, the Virgin Megastores, which had opened in Los Angeles in 1992 and peaked in 2002 with twenty-three shops, were dying. Branson blamed supermarkets
for selling CDs too cheaply, an odd stance for the self-proclaimed consumers’ champion, who regularly accused rivals of ‘ripping off’ the public. In Britain, after transferring twenty-two Megastores rebranded as Zavvi to its managers, he watched the chain crash with losses of £122.5 million, exposing Virgin to liabilities of £57 million. In New York, an attempt to launch Virgin Comics in collaboration with Gotham Entertainment of India ended less than two years after it began. Virgin Vine, a new wine label, was launched and disappeared, and at the same time Branson finally quit the music business. V2, the successor to Virgin Music, had been established in 1996 with finance from the McCarthy brothers. Two years later, the business was bust and the brothers could barely afford to buy a pint of milk. After squeezing the McCarthys out of the business, Branson transferred V2 to Morgan Stanley, the bank who had loaned money to the failed venture, and Virgin abandoned the music business. Virgin Health Bank was another transitory business, unveiled in 2007 and encouraged by Gordon Brown, the then chancellor of the exchequer. Flagged as a non-profit blood bank to store stem cells taken from umbilical cords, Virgin Health Bank was established in partnership with Professor Christopher Evans, a biotechnology entrepreneur. Sufficient space was available, said Branson, to store 300,000 frozen samples for twenty years in order to regenerate tissue and treat blood cancers. Within the first months, the £1,500 ($2,940) charge was considered too high and the service was rejected by parents and the NHS. The facility disappeared from Britain.

Junking failed businesses never deterred Branson from announcing new ventures. In Miami, he told local journalists that Virgin was going into cruise holidays, but he failed to interest the owners of existing cruise lines in a partnership, so his idea was forgotten. During a visit in 2008 to Macau, in the Far East, he announced that, in co-operation with Tabcorp, an
Australian gambling company, he was going to compete against Las Vegas’s moguls and open a Virgin casino there. Although he had no experience of gambling – unlike other tycoons he rarely played roulette or blackjack in Las Vegas – Branson announced at the end of his first day in the city that he was ‘in advanced talks’ with Edmund Ho, Macau’s chief executive, to build a $3 billion resort. He was ‘close to buying’, he said, a fifty-acre plot for three hotels and a casino. ‘We hope to get all the boxes ticked in the next couple of months and start developing the site soon afterwards.’ Once Ho realised that Branson offered no money and expected Macau to pay for hosting the Virgin brand, the discussions ended. Virgin’s substitute was a virtual casino on the internet.

Casting around for other opportunities, Branson envied the fortunes earned in Russia’s mineral-rich economy. He flew to Moscow in search of business and associates. Virgin Atlantic, he announced, would soon be flying to the city from London, followed by the launch of a Virgin airline flying within Russia. ‘We’re in discussions with two or three different partners in Russia,’ said Branson, predicting an agreement within three months. He also announced the launch in Russia of Virgin Mobile and Virgin Connect, his new internet company. Virgin Connect, he said, under the management of Rostislav Gromov of Trivon, a Swiss company, would capture 10 per cent of Russia’s market within five years. ‘We will demystify the complex tariff jungle and bureaucracy seen in the market.’ His script was identical in every country, but, surprisingly perhaps, he attacked the oligarchs, his putative partners. ‘Having a large boat’, he said, ‘isn’t going to give you a lot of satisfaction and it gives capitalism a bad name.’ Branson believed that owning private islands and a fleet of planes distinguished him from the oligarchs’ gin palaces. Virgin made no progress in Moscow.

In his search for new ventures, he revisited past failures,
especially Britain’s national lottery. The combination of a vast cash flow and perpetual publicity by unveiling that week’s winner as a ‘Virgin Millionaire’ would undoubtedly have guaranteed Branson’s fortune. To deflect those suspicious of his personal enrichment, Branson had called his supposedly non-profit company the ‘People’s Lottery’. Not everyone was persuaded by his apparent altruism. The first rejection of his bid in 1994 in favour of Camelot had provoked Branson’s tearful anger. His second bid was rejected on similar grounds, amid questions about his suitability. In-between was the libel trial destroying the reputation of Guy Snowden, the American founder of Camelot. Ignoring his promise not to make a third attempt, in spring 2008 Branson sought partners to win an auction for Camelot, which was valued at about £450 million. After his attempt to raise sufficient money from Dubai International, a $12 billion wealth fund, failed, he withdrew.

Successive disappointments risked damaging Virgin’s image. Although his admirers at
Forbes
magazine had in 2002 rated Virgin as the fourth-best marketed brand in the world and probably the best in Europe, diversification was jeopardising the brand. Pertinently, after the death of Steve Jobs, Branson praised him as ‘the entrepreneur I most admired’. Both Jobs and Branson understood that brands created premium value, but the Apple boss focused on the innovation of a few unique products. He avoided Branson’s scattergun hunt for a windfall. While Apple’s reputation continued to grow, the Virgin brand was losing its youthful allure. Virgin had become mature and mainstream. The fizz had gone. Away from the interaction of a buzzing office and street culture, Branson was relying on managers regarded as conventional rather than adventurous. Belatedly, he realised they had squeezed the pips of Virgin’s original rebellious spirit. With them, he struggled to rekindle the zest and reinvent Virgin’s image.

His catalyst for regenerating the excitement was Virgin Galactic. In America, advertisements promoting Virgin Atlantic and Virgin America regularly featured the space pioneer offering relaxing intercontinental travel. The mocked-up images of the tycoon flying on a Virgin Galactic spacecraft encouraged American commentators to exaggerate Virgin’s empire as consisting of anything between 200 and 400 companies with an annual turnover, according to
Forbes,
of $17 billion. Branson’s publicists never contradicted the hyperbole. Contrary to the public’s perception, Branson owned only half of Virgin Atlantic and half of Virgin Trains, and only a small percentage of the other Virgin companies. Adding together the turnover of all the businesses bearing the Virgin name – and less than forty were active – Branson controlled outright at most four major companies with an annual turnover of about £6 billion.

The empire’s seed corn was the Virgin brand, owned by Virgin Group Holdings. Most companies carrying the Virgin label paid 0.5 per cent of their annual revenues for using the brand. In 2009, the licence fees earned about £35 million. Branson’s hope, said Peter Norris, Virgin Group Holdings’ chairman, was to double that income within five years. Future success depended on reglamorising Virgin and attaching the reinvigorated brand to profitable new businesses. Finding an opportunity was down to chance, but the financial crash in 2008 did throw up one unexpected punt – Formula One motor racing.

Hit by losses, Honda abandoned its sponsorship of motor racing. The most prominent casualty was the company’s Formula One team, which was managed by Ross Brawn, an outstanding designer. In the midst of the financial crisis, Brawn’s chance of finding a new sponsor with sufficient money was slim, not least because of the technical uncertainties which would inevitably follow his decision to replace Honda’s engine with one bought from Mercedes. Installing the German engine on to a chassis
designed for Honda’s jeopardised Brawn’s chances of winning the championship. Among the potential saviours of his team and 700 employees was none other than Richard Branson.

Trying to coax Virgin into Formula One was nothing new. At their occasional meetings, Bernie Ecclestone, the sport’s ringmaster, had tried to tempt Branson. ‘We would welcome you with open arms,’ said Ecclestone, mentioning Virgin’s guaranteed global exposure. ‘You’re exactly the type of person we want.’ Branson’s reluctance always puzzled Ecclestone. Unknown to the former car trader, who had personally pocketed over $4 billion in cash from the sport, he had overestimated Branson’s wealth. While Branson presented himself as a billionaire, he was unwilling to risk $80 million a year, the minimum required to run a Formula One team. Although Ecclestone paid at least $30 million of the TV rights to the weakest teams, their remaining income depended on attracting sponsors willing to buy media exposure. Champions like McLaren recovered their $300 million annual costs with the help of Vodafone and Santander each paying about $60 million for their logos to feature on the car’s body and the drivers’ outfits. Red Bull, the multibillion-pound global energy-drink company, flourished thanks to the success of its Formula One team. The sport would be ideal for promoting Virgin, but Branson had never been sufficiently rich to play.

The financial terms changed after Honda abandoned Brawn. The news prompted one of Branson’s executives to call Brawn. Decent but not supremely gifted, Alex Tai, a Virgin pilot, was also employed to hunt down new businesses. Brawn’s reaction to Tai’s call was predictable. After the mention of ‘Richard’, Brawn leapt at Tai’s hint that Virgin might be interested in investing millions of pounds. He hurried with Nick Fry, his chief executive, to the School House, Virgin’s headquarters in Hammersmith. Branson, appearing via video conference from Necker, shared Tai’s enthusiasm but dithered about commitment. ‘I don’t see
the commercial sense of Formula One,’ Gordon McCallum repeated.

‘Sponsors are as rare now as hens’ teeth,’ Fry grunted after they departed. To safeguard the survival of the Brawn outfit, half the Honda team’s staff had to be dismissed.

Over the following days, Branson was urged by Tai to take the risk. Without any competitors for the sponsorship, Tai said, Virgin’s fees could be minuscule. Branson agreed. ‘We’d like to sponsor the team,’ Tai now told Fry.

Promising sponsorship was, in Branson’s lexicon, an offer to use the Virgin brand without Branson paying any money. Fry grimaced. Hard cash was required, and the deadline was 28 March 2009, the eve of the first race of the season, in Melbourne.

Branson invited Brawn and Fry for dinner at his home, Kidlington Mill, in Oxfordshire. The atmosphere was jovial, but Branson could not mistake the resolution of his guests. Thanks to Ecclestone’s normal contribution to all the teams, they had nearly enough money to start the season but needed cash to get to halfway. Then, they would hope for the best. Branson again refused to commit himself. He would decide, he said, after Tai watched the teams’ trials in Barcelona on 9 March. By then, Branson’s interest had become known. ‘Formula One must tidy itself up,’ Branson commented in response to a newspaper’s inquiry about his possible involvement.

The Brawn team arrived late in Barcelona. The rival teams’ strengths and weaknesses had been registered during their test runs. No one expected Jenson Button, driving the Brawn, to pose a threat. Within minutes of him speeding around the track, the shock was palpable. Button completed the circuit a full second ahead of every other car, thanks to Brawn’s unexpected introduction of a double diffuser. By the end of the day, the car was recategorised as the favourite. Visibly excited, Tai telephoned Branson. Virgin, he said, could sponsor the winner. He urged a
deal. Branson called Brawn, again stipulating sponsorship without any payment. ‘No,’ replied Brawn, and flew to Melbourne. Just days before the deadline, Branson offered about £6 million in a mixture of cash and Virgin airline tickets. With the deal sealed, he rushed to Melbourne and headed for the racetrack laid out through the city’s park to watch the Virgin-sponsored team perform in the practice sessions.

Formula One fetes its heroes in a perpetual spotlight. This suited Branson perfectly. Inside the VIP paddock, he basked among the famous personalities. Pleased to have attracted an exceptional media scrum around himself, he was overwhelmed when Button, driving Virgin’s car, won pole position for the following day’s race. The spotlight intensified on the favourite to win. ‘You’re going to be my other Burt Rutan,’ Branson told Fry. ‘You can pull rabbits out of a hat.’

That evening, the whole team arranged to eat at Nobu. Fry arrived two hours late, to discover that Branson and his family had waited for him, drinking champagne but not eating. Minutes later, Branson headed for the lavatory. On his way back, he stopped by Jenson Button’s table. Suddenly, Button began remonstrating with Branson over his proposition to Jessica Michibata, his girlfriend. Branson returned to his table without Fry noticing the commotion. The following morning, they met in the hotel lobby. ‘I’m going to stop drinking,’ Branson told Brawn and Fry after describing his misbehaviour. ‘And I’ll apologise.’ The race was due to start, and neither man was interested.