get hold of them.
What was their problem?
They saw the Virgin Mobile deal as just another cost, because for every customer on Virgin Mobile, T-Mobile paid us a monthly marketing fee. This payment was a termination charge which T-Mobile collected from other networks to connect their callers to Virgin Mobile’s customers. Virgin Mobile was entitled to this termination fee, even though we didn’t own the network infrastructure. It was in black and white in the contract.
T-Mobile were saying that the terms of the contract were legally questionable. While we thought the agreement was crystal clear, going to court over this was frightening: T-Mobile was a substantial business and had pockets deep enough to fund an expensive litigation. Every day spent dealing with lawyers is not only costly, it’s hugely time-consuming for key executives. Our relationship soon became very sour indeed, and our cherished flotation looked increasingly remote.
The case ended in the High Court in London — and T-Mobile lost. The judge, it was reported, said that T- Mobile’s conduct was ‘deserving of moral condemnation’.
The head of T-Mobile in Germany handled the fallout well. He was good enough to invite me over to Germany so that he could apologise to me in person — a decent gesture, and one we appreciated. After many months, we managed to secure an out-of-court settlement with Harris Jones’s former bosses in Germany and with a new UK team led by his successor Brian McBride. Due to the court ruling they had to sell us their shares for ?1 (Brian framed the coin in a presentation case!), and they offered Virgin Mobile a new airtime contract that it still operates with today. Thanks in large part to him, we managed to steer our way towards a stock-market flotation.
The lesson of all this is that you need to get your basic business contracts properly sorted out.
These are the rules I live by. They ought not to contradict each other but many businesses wrongly assume that they do. Yet there is no denying the risk that mud sticks, and a damaged reputation in business can follow you around for years. You can deliver on every promise, keep your word, deal fairly, show forbearance — and the world can still throw you curveballs that mess up your reputation. And long after you have learned your lesson and moved on, others will still be harping on about this or that misfortune, this or that error. I’ve known plenty of talented and trustworthy business people who have carried the shadow of past errors around with them, and whose careers have suffered as a result.
There is no way to solve this problem, but there are ways to mitigate its effects. Certainly you should
I would say, first of all, that you should improve your communications. At Virgin, we take a great deal of care to keep the press up to date with what we’re doing. Aside from maintaining a high profile, this helps decent journalists put any old, bad news in context. Our culture of openness also prevents bad news from building up a head of steam before it reaches the public. The public is actually pretty forgiving of most business errors except hypocrisy, and stalling almost always backfires.
We also practise what we preach. We look for people with exciting, dynamic CVs, not spotless ones. We’re not pushovers, but we’re happy to take chances with people, to move them around, to see how they tick and where they fit in. We don’t pin the blame on people, or marginalise them when things go wrong. This culture pays dividends the longer we’re in business, because eventually people realise that we’re a company that knows how to deal with its problems, and is willing to take chances.
Over the years the Virgin brand has earned the reputation of being
An error-strewn reputation is more damaging as rumour than it is in face-to-face dealings. Satirical magazines like
Your friends are your allies in the battle to improve your reputation after a knock-back. They will not only advocate for you; they will front for you. Their reputations will help yours recover. Distinguished people aren’t stupid, and cultivating someone to take advantage of their reputation isn’t going to wash. But they are, to a fault, generous and understanding. (They’ve been through the mill; they know what life’s like.) So don’t be afraid to ask the senior figures in your circle for advice and help.
I know what I’m talking about here because in 2004, when we were considering options for the flotation of Virgin Mobile on the London Stock Exchange, one of the perceived risk factors was
Investors usually have short memories. But the elder members of the City of London pinstripe-and-braces brigade recalled that I had taken the Virgin Group on to the stock market with huge fanfare and expectation in November 1986, and then, after the great market crash of October 1987, I offered to take it back into private hands again. I could feel the thick, red letters stamped on my forehead: ‘Health Warning: This Man is Dangerous.’
The flotation of Virgin had attracted more applications from the public than any previous stock market debut, aside from the massive government privatisation of gas, electricity and telecoms. Nonetheless, my first experience of Virgin as a publicly listed company was one of the most miserable times of my business life. I became very disillusioned with the constant round of analysts’ meetings and investor roadshows. I hated being accountable to institutional shareholders who didn’t appear to understand our philosophy — and I know a lot of executives working in plcs have a certain sympathy for my viewpoint. But nobody was forced to ‘take a bath’ when we changed tack — and our investors got their original stake back plus a healthy dividend.
What happened was this. In 1985, our fledgling Virgin Atlantic airline found itself entrenched in a transatlantic price war, and our cash was being squeezed. My advisers at the time convinced me that we needed to expand the equity base of the group. Don Cruickshank took on the task of organising an initial public offering for Virgin’s music, retail, and vision businesses, which were combined into the Virgin Group plc, a public corporation with 35 per cent of its equity listed on the London and NASDAQ stock markets.
Looking back, it was a funny sort of offering. Virgin Atlantic was considered far too risky an investment and was excluded from the share offering. So were our nightclubs, Virgin Holidays and Virgin Cargo. Yet Virgin Atlantic became Britain’s second largest long-haul airline, Virgin Holidays the number-one long-haul holiday company, the clubs have made a fortune and Virgin Cargo grew to handle nearly 100,000 metric tonnes of cargo by 2000!
Early in 1986, Don and Trevor Abbott, who was brought in by Don as finance director, raised ?25 million in a private placing of convertible preference shares from Morgan Grenfell. There was no legal commitment to convert this to equity in the event of a flotation, but it all seemed remarkably easy. In the public sale, the financial institutions would convert their preference shares into 15 per cent of the listed business, and we would create new shares for other investors, raising a further ?30 million. This still gave me 55 per cent of the Virgin Group, while outside investors held 34 per cent. The business, which twelve months earlier Coutts Bank had nearly forced into insolvency, was valued at ?240 million. Some of the cash raised was moved into Voyager, the company set up to invest in Virgin Atlantic.
During early 1987, we used money from the flotation to plot the takeover of EMI Music from Thorn EMI, by building up our shares, and to open an American music subsidiary, Virgin Records America. Naturally, both projects soaked up our capital. Then the stock-market crash in October 1987 hit us — and I made a mistake. I continued to buy shares in EMI as they were plummeting. Don Cruickshank and our non-executive directors raged at me: ‘Richard, you cannot do this. You are throwing away good money after bad.’ It was just the sort of thing we should have been doing if we’d had deeper pockets, but we didn’t.
