Virgin King (Text Only). Tim Jackson

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.

      Steve Lewis was less hard-nosed about the matter. His 20 per cent stake was in a management company, whose job was to represent musicians, extracting the best possible terms from record companies and music publishing companies, in return for a commission on the musicians’ earnings. Elsewhere in the music business, the relationship between managers and record companies was seen as inevitably hostile – for although a good manager could provide good ideas to promote a musician, and could smooth the dealings between the two sides, the unalterable fact was that it was in the manager’s interest to extract for his client as attractive terms as possible from the record company, and in the record company’s interest to resist.

      At Virgin, however, Steve Lewis was expected to represent musicians who were signed to the record label and the publishing company, while simultaneously answering to an employer who owned the record company. The financial arrangements were also unusual. Most managers demand an advance for their client from the record company, and use it to pay wages to the band after extracting their own commission (usually 20 per cent). At Virgin, however, the management company that Lewis ran borrowed money from the record company, using that money to pay salaries to the musicians it represented. Matters were not helped by the fact that the management side was less successful than the record business itself. But the unusual relationship between the management company and the rest of the empire helped to make sure that the management company of which Steve Lewis owned 20 per cent never made any money. Four years after he had been given his shareholding, Lewis realized that it was not worth anything. The firm was later closed down.

      Tom Newman’s 20 per cent was in the studio business, which started at the Manor but soon encompassed a mobile studio and another site in London. He had never asked for a shareholding; Richard Branson had written him a letter, unprompted, offering him a stake in the studio business as a reward for the work he had done over the previous two years. Newman, who thought of himself as a songwriter, singer and guitarist rather than as a businessman, was delighted. He had put huge efforts into installing the studio at the Manor and into helping Mike Oldfield make his bestselling album. Here, it seemed, was recognition from a grateful employer.

      It was not until more than four years later, when he was sitting in a pub with another Virgin employee, that Newman heard a story that made his blood run cold. His drinking partner, who had been asked by Nik Powell to carry out one of the periodic reorganizations of the Virgin empire, reported to Newman that he had noticed that Newman’s shareholding was not in the main operating company that ran the studios, but in another company that was not trading at all.

      The following day, Newman stormed into Branson’s office at South Wharf Road, and confronted him.

      ‘You bastard!’ he yelled. ‘The company’s worthless!’

      Branson was taken aback. He began to mumble some answer, but Newman merely became more angry. After abusing his employer further, Newman walked out of the office and slammed the door. He left Virgin the same day, and resolved never to speak to Branson again. Newman’s hot temper gave Branson no chance to defend himself; more significantly, Branson claimed afterwards that Newman had never explained his grievance to him.

      The irony was that Newman was quite mistaken in believing he had been betrayed over his shares. Had he toubled to check the accounts at Companies House, he would have discovered that Caroline Studios, the company of which he had owned 20 per cent, was still in operation as the trading company for the studios business. After the reason for his abrupt departure had become clear, Branson and Powell might easily have explained the situation and brought him back. But they saw Newman more as a musician than a business type; and they were beginning to realize the risks involved in giving employees subsidiary stakes in the companies.

      ‘My stupidity was such that instead of going straight to a lawyer, I was full of hurt pride. I thought Richard and I were partners; I was enjoying the situation,’ Newman recalled.

      The gap in the management structure was filled promptly. Soon after Newman left, Branson appointed Phil Newell, who had formerly worked as the Manor’s maintenance engineer, to replace him.

      Newman’s sense of outrage was compounded when he looked at the royalty statements he received from Virgin for Fine Old Tom, an album that he had made himself at the Manor. The record had taken three weeks to make, and Newman had arranged to do it at times when the studios were not needed by other artists. Yet his statement from Virgin after the record was released showed a deduction of £11,000 for the cost of studio time – a figure reflecting Simon Draper’s determination that studio time should be allocated to artists at its full price. But the album’s recording costs altogether were so high for this modest piece of work that it would inevitably take years for the royalties earned by his record to cover that deduction. ‘I’m not even sure that I came out positive in the end,’ Newman recalled.

      It was only after Tom Newman had left Virgin that his friend Mike Oldfield began to look again at the contract he had signed with Richard Branson. Talking to other artists, Oldfield discovered that the five per cent royalty, standard though it had been at the time of signature, was by now hardly fitting to his enhanced status. Double that figure would have been more commensurate with how commercially important an artist he had become; and some artists in the same position might even have had the gall to demand a royalty of 17 or 20 per cent. Even the modest five per cent he was receiving, however, was not what it seemed, for Branson was deducting a fifth of it as commission for his services as Oldfield’s manager.

      Oldfield telephoned Tom Newman one day, miserably depressed, and asked the former studio manager to come around to his house. When Newman arrived, he heard the whole story; and, to compound the dilemma, Oldfield also told him that he felt in a weak moral position to complain, since Branson had taken on Tubular Bells when almost every other record company in the country had turned it down. Newman reminded Oldfield abruptly that it was not only Branson who had shown faith in him. He had done the same himself; so had Simon Draper. Oldfield should not therefore consider the debt to Branson so great that it ruled out any change in their business dealings. In any case, his contract with Virgin was now up for negotiation. ‘If you don’t do it now,’ he said, ‘it’ll never happen.’

      A few weeks later, Oldfield bit the bullet. He hired a new lawyer to renegotiate the terms of his contract with Virgin, and came out at a royalty rate of almost 12 per cent. As a gesture of thanks to the friend who had helped him summon up the courage to face Richard Branson across the table, Oldfield gave Tom Newman from that day onwards a share of his royalties equivalent to one percentage