Branson: Behind the Mask (6 page)

Since 2003, Branson had been battling to create Virgin America, a new airline based in California. To successfully break into the world’s biggest airline market would, he hoped, secure huge profits. However, vested interests were frustrating his efforts: in particular, the established airlines opposed the entry
of a new competitor. His would-be rivals complained to the Department of Transportation in Washington DC that Branson was breaking American laws. As a foreigner, he could own a maximum of 49 per cent of an American airline but control only 25 per cent of the votes. The majority of Virgin America’s shares, Branson was told, must be owned by American citizens. To obey, Branson sold 77 per cent of the airline to two American investors, Mark Lanigan of Black Canyon Capital in Los Angeles and Nicholas Singer of Cyrus Capital Partners in New York. Both received lawful guarantees from Branson that they would recover their whole investment plus 8 per cent profit. The US government could only acknowledge that Branson’s choice of financiers complied with the statutory requirement, but he was compelled to dismiss his American chief executive as one more condition for allowing the airline to take off. The executive was criticised for being too close to Branson.

To finally succeed, Branson needed Schwarzenegger’s support, and that materialised in 2006, during the governor’s re-election campaign. One of the themes was climate change. Schwarzenegger was posing as ‘The Emissions Terminator’, focused on the passage through California’s legislature of his Global Warming Solutions Bill, known locally as AB32. If the bill was approved, California would be the first state in America to compulsorily reduce carbon emissions, encourage solar and wind power and stimulate the production of alternative fuels. Inevitably, the bill met with vocal opposition. To prove he enjoyed the support of business leaders for his green agenda, Schwarzenegger needed a high-profile event to outflank his political opponents and the pro-carbon lobby. ‘If we focus on the leaders, the rest of the world will follow,’ counselled Terry Tamminen, Schwarzenegger’s environmental adviser. Tamminen asked Stephen Howard of the Climate Group for help. The Englishman suggested convening a round table of
chief executives to pledge their support for Schwarzenegger. Branson was on the list.

Tamminen first called John Browne, BP’s chief executive. As the head of the world’s second-largest oil corporation, Browne had successfully rebranded BP in America as Beyond Petroleum, an environmentally friendly energy producer. His success owed much to his relationship with an egregious network of international power brokers, including Tony Blair. The British prime minister agreed to be the guest of honour and endorse Schwarzenegger.

At BP’s expense, a gleaming white tent was erected at the company’s terminal on Long Beach’s dockside, adjacent to a new BP tanker. Among those who arrived for the reception on 31 July 2006 were the chief executives of DuPont, Timberland, Goldman Sachs, Swiss Re and American Electric Power, James Murdoch of News International – who had left his company’s annual gathering at Pebble Beach to support Schwarzenegger – and two hippy billionaires, Sergey Brin, the co-founder of Google, and Branson. Dressed casually, they sat together, casting themselves as ambassadors of the new business chic. ‘Branson arrived obsessed by biofuels,’ observed one of the participants. ‘He spoke of little else.’ As they waited for Tony Blair – delayed on his flight from Washington – an organiser calculated that those gathered around the table managed companies that earned half a trillion dollars a year and employed over 300,000 workers. Two years after paying $1 million to brand a rocket Virgin Galactic, Branson enjoyed a secure seat at the top table.

Amid dust and flying gravel, Blair’s motorcade roared into the compound. The warmth with which the politician greeted Branson was not lost on Schwarzenegger. The closeness of Branson’s relationship with Blair had been witnessed at a reception for the travel industry in Downing Street on 5 April 2000, when Cherie Blair was overheard saying to him, ‘I’ve been
talking to Tony, and we agree that we must do something for you.’ Soon after, the businessman had received a knighthood, and even Schwarzenegger was impressed when he saw ‘Sir Richard Branson’ on the guest list. Following his re-election, the governor noted, Branson’s interests would deserve support. For the moment, though, the stilted conversation inside the marquee served his purpose. The media’s descriptions of Schwarzenegger’s ‘Big Tent’ – including Branson – helped propel AB32 through the legislature and would see Schwarzenegger achieve a 20 per cent lead in the run-up to the election. ‘We’re going to a baseball match,’ Schwarzenegger told Blair at the end of the reception. Both politicians bid Branson a warm farewell.

Now inside the tent, Branson wanted his reward. His competitors and the Californian trade unions were still arguing that Virgin, as a foreign corporation, should be barred from launching Virgin America, despite owning only a minority stake. The solution, he was advised, was to show commitment to America. The combination of Clinton, Schwarzenegger and ‘green’ was helpful but, to grab attention, he had been told by a leading environmentalist, ‘we need grand statements’.

The appropriate forum was the Clinton Global Initiative, a brash annual event held in New York where only those prepared to commit huge sums towards Clinton’s favourite causes were invited. Branson had agreed to join Vinod Khosla and Ron Burkle on 21 September 2006 at the celebrity networking party, which would boost the value of their investment in ethanol. Senator Hillary Clinton would also be attending, exciting gossip about her sponsorship of subsidies to an industry favoured by her husband and his friends. By then, Khosla’s ambitions for corn ethanol were frequently articulated. ‘Twenty per cent of America’s farmland’, he told Terry Tamminen, ‘can produce 100 per cent of America’s energy.’ Khosla’s imagination encouraged Branson in his search for a public-relations coup. To win
support in America, he needed not only to be known but loved by the public. He needed a publicity spike to boost the country’s perception of a British tycoon.

Rising oil prices were a constant worry for Branson. Over one-third of all airlines’ costs were fuel charges, but his airline’s financial fate was particularly precarious. Renewable energy was his solution to the problem. Any doubts about his investment had been swept away by the British government’s recent publication of a widely praised report about the economics of climate change written by Nicholas Stern, a senior civil servant. One premise of Stern’s report excited Branson. The official confidently predicted an irreversible reduction in the world’s oil supplies after production hit its peak in 2012. Thereafter, asserted Stern, fuel prices would increase relentlessly. Branson was hooked. The combination of self-interest and his membership of Ted Turner’s Energy Future Coalition stimulated his orchestration of a unique gesture at Clinton’s blockbuster.

As so often, Branson came up with the idea at the last moment. On this occasion, the wheeze occurred while he was being driven to the hotel in Manhattan. Later, to conceal the spontaneity around his announcement, he would say, ‘Some time after meeting Al Gore I was lying in the bath and I thought, “We make a lot of money out of the airline business and the train business. Let’s just tie all that money for the next ten years into trying to develop fuels that don’t damage the environment.”’  Whether the idea came to him in the bath or the car was irrelevant to those greeting Branson as he entered the hall dressed in a jersey and jeans. Standing casually among journalists waiting for Clinton to make his opening speech, he mentioned his intention to donate $3 billion over ten years to the Initiative. The news reached Clinton. Instead of making the announcement himself, he pulled Branson on to the stage. This was, Clinton and Branson knew, the largest individual commitment
of money to combat climate change – three times more than Ted Turner’s contribution. Branson had bought himself prime-time attention. He was given the appropriate words to say by an associate: ‘We must not be the generation responsible for irreversibly damaging the environment. We must hand it over to our children in as near pristine condition as we were lent it from our parents.’ The $3 billion, he explained, would be sourced from all the profits of his transport corporations. The money would be used to develop biofuels, especially from algae and sugar. ‘The world is awash with sugar,’ he said, ‘and sugar is bad for you, so let’s put it in planes.’ Below the podium, his staff were shedding joyful tears.

There was, Branson ought to have realised, little chance of Virgin’s trains and planes generating $3 billion worth of profits over the next ten years. Their combined proceeds might be at best $1 billion. However, he was obliged to share those profits with his partners – half of Virgin Trains belonged to Stagecoach, and half of Virgin Atlantic was owned by Singapore Airlines. Neither partner would agree to contribute to Branson’s plan. Beyond that, the potential profits were further reduced by the earlier announcement that both the airline and train companies were to be sold to the public. Contradictions and inconsistencies had never troubled Branson. In his bid to win recognition in America, he gave the impression he was making extravagant assertions in the hope that they would become true in the future. Amid the thrill of Branson’s breathtaking commitment, those complications were irrelevant to Clinton.

As he stepped down from the podium, Branson was surrounded by journalists. $3 billion, he knew, would play big in the media for twenty-four hours. Previous American media profiles of Branson described him as the promoter of the Sex Pistols, the first man to cross the Atlantic in a hot-air balloon and the first provider of manicures on transatlantic jets. This
time, to quash the cynics, the Virgin publicity machine pushed their employer as a seriously rich player.

Inevitably, after his announcement Branson was asked by a few sceptical journalists in the audience to reconcile his pledge with Virgin’s income. Branson was unfazed. If his transport companies failed to produce $3 billion in profits, he replied, ‘I will most likely make up the difference with the profits from other parts of Virgin.’ He mentioned Virgin Mobile, the Virgin health clubs and other businesses as contributors. Those doubts were irrelevant pinpricks.

The sympathetic editors at the
New
York
Times
and
Washing
ton
Post
instantly agreed to publish lengthy profiles of Branson that included the accolades he sought. Although failures like Virgin Cola were mentioned, the
Times
highlighted his successes, including Virgin Mobile, which had already earned Branson over £700 million in cash and stock. ‘Sir Richard usually owns a big chunk of most of these new companies,’ reported the
New
York
Times.
Only the
Wall
Street
Journal
reported that Branson refused to reveal the profits from his transport businesses. Will Whitehorn was allowed to predict that the Virgin companies’ projected revenues in 2006 would be $14.6 billion, of which $8 billion would come from transport, but that failed to address the actual profit. Branson was untroubled when asked whether he could fulfil his promise: ‘They’ll be more than welcome to see my books,’ he assured inquirers. More important than any audit, he continued, was his reputation: ‘If you’re hoping to stand up on stage with Clinton and Gore and pledge something, you have got to do it.’ Those who still doubted whether Branson could produce $3 billion were assured that the ‘commitment’ team attached to the Clinton Global Initiative regularly met donors to review the progress of their pledges. Americans were unaware that Branson’s finances had been shrouded in offshore mystery since 1973, with only a handful of highly paid advisers allowed
to manage his secret accounts for over forty years. Although the public could read what Virgin’s corporations did disclose, the limitations of that information prevented any outsider from fully understanding the nature of Branson’s and Virgin’s finances.

The commitments made that day totalled $5.7 billion, but Branson was the star. The
Wall
Street
Journal
concluded after hearing about his earlier pledge to invest $400 million over the following three years in Virgin Fuels, ‘At least he puts his money where his mouth is … Now that Sir Richard has put his brand on it, everyone says it’s cool. Well, fine. We wish him well, er, good.’ His earlier pledge of committing $1 billion, as reported by the BBC, appeared to have been forgotten.

Branson enjoyed embellishing the circumstances leading up to his headline-catching $3 billion donation. Speaking three weeks later at a celebrity dinner at the Ritz-Carlton in New York, he joked, ‘It was actually quite painful when it got down to adding those last few zeros.’ To reflect America’s expectation that billionaires were philanthropists, Branson would later explain, ‘With extreme wealth comes extreme responsibility.’

Intent on capitalising on his new popularity, he sought another headline-grabbing initiative. During a conversation with Gore, they came up with the Virgin Earth Challenge. Branson would offer $25 million to the inventor of a commercially viable process to remove greenhouse gases from the atmosphere. To win, the ‘design’ would need to remove at least a billion tons of carbon from the atmosphere per year and would be tested over ten years. The winner, said Branson, would receive $5 million immediately and the remaining $20 million at the end of the decade.

Al Gore shared the platform in Kensington, London, in February 2007 to announce the competition and endorse Branson’s boast that ‘This is the largest ever science and technology prize to be offered in history.’ The reason for his initiative, explained Branson, was the threat of the world being
overwhelmed by an unprecedented crisis if his Challenge did not deliver the answer: ‘We will lose half of all species on Earth, 100 million people will be displaced, farmlands will become deserts and rainforests will become wasteland.’ Branson’s championing of climate geo-engineering was shared by other billionaires, including Bill Gates. A fortune would be earned by the entrepreneur who backed the best scientists and produced a solution that ‘offset’ carbon emissions.