group’s senior accounting staff, had to make an impromptu return to the Inland Revenue, estimating the tax that he believed should have been paid over recent months but had not.
Beneath the blazing rows that Branson and Powell had over these difficulties, there was an underlying issue of far greater importance. Nik Powell’s influence in the group had been waning over the past five years. The retail businesses in which he took greatest interest had proven to be indifferently managed and barely profitable; the record label, with which he had little to do, was the engine of Virgin’s growth. Richard Branson had begun to confide more in Simon Draper and in Ken Berry than he did in Nik Powell. Branson had come to believe that for all Powell’s talents, there was no longer an important job for him to do at Virgin.
The recession of 1980 made matters far worse. For while the triumvirate at the top of the music businesses still felt that he was not pulling his creative weight, Powell’s ability to block decisions he disagreed with suddenly became much greater. No longer was Virgin expanding so rapidly that his concerns could be dismissed; instead, Powell himself was the butcher who was making the cuts, and Virgin was shrinking. As a 40 per cent shareholder in the Virgin holding company, Powell could stop Richard Branson from taking steps he did not approve of. And Branson, who had resisted all attempts to control him – at school, at home, and in his marriage to Kristen – did not like being subjected to this veto.
Branson would later say that it had taken him two years to summon up the courage to write the letter. Nik Powell, after all, was his childhood friend; the man who had dropped out of university to join him in Albion Street; the junior partner in the relationship that they both referred to as a ‘marriage’. But in the end there was no choice. Branson wrote to Powell, telling him that he thought the two should separate.
The weakness in Powell’s position was that although he had a 40 per cent shareholding, his contract with Branson was far from powerful. The key point in the agreement was the calculation that would be used to work out how much Powell’s shares were worth if he decided to sell them back to Branson. Branson would later recall that the calculation was based on the company’s net assets. With the help of his South African brother, Draper had been far more canny; he had insisted on a valuation based on a multiple of pre-tax earnings over earlier years. But the price of Powell’s shareholding was based on Virgin’s net assets as recorded in the company balance sheet. This may have included buildings and cars, tables and chairs. But it excluded the intangible asset that was a decade later to allow Branson to sell the Virgin music businesses for £56001: the Virgin catalogue. The contracts that Branson had signed with the artists – specifying the number of records that each one would have to deliver to Virgin in the future, and the length of time for which Virgin would be able to collect copyright fees on the work that the artist had already done – were the real jewel in the Virgin crown. Yet they were not reflected in the company’s balance sheet; nor, therefore, were they reflected in the sum of money that Powell received when he and Branson parted company.
Neither Branson nor Powell would discuss the settlement in detail publicly. But Powell probably received £1m in cash, plus three assets he wanted to take with him: the Scala cinema, the video editing facilities that Virgin had invested in – and Steve Woolley, a man who knew backwards the film industry in which Powell thought he saw his future.
One million pounds must have seemed a fantastic sum to Powell in 1981. But he could not escape the fact that he had sold out to Branson when Virgin’s fortunes, and hence its value, were at a nadir. Within a couple of years, the new acts that the record label had already taken on, such as Phil Collins and the Human League, would make the group highly profitable once again. Within five years, the 40 per cent that he had sold back to Branson would be worth £96m. Although Powell publicly pronounced himself quite satisfied with the deal, he would have been forgiven for having regrets.
Powell’s friends admired his equanimity: he had become a Buddhist, and managed to curtail his frustration at the increasing friction with Branson during the dying months of their partnership by chanting regularly. But they were convinced that he had lost out all the same. ‘It seemed to me to be an unrealistically small settlement for 40 per cent of such a vast, thriving company,’ wrote Sandie Shaw, a chart-topping singer who later became his wife, ‘but Nik, who considered Virgin to be his “baby”, was highly emotionally charged about leaving it, and was not capable of making rational decisions.’
‘After Nik’s departure,’ Shaw continued in her autobiography, ‘his existence and role within Virgin was systematically written out of its history. The impression given, if any, was that Nik had been some kind of managerial employee.’
Branson defended himself furiously against the allegation that he had treated his boyhood friend unfairly. ‘I can see how it could be said that I eased Nik out at a time when the business was down, so it was easier to make him look bad and [to set a] lower price to buy him out … It was obviously very difficult because of our friendship … The money he received fairly reflected the input he had made. It was difficult for him to find a role to contribute. With Simon and Kenny and others there was really no role for him. He had no particular skills to contribute to the company as it was at that stage.’
Branson also claimed that the subsequent rise in the value of the record company was hard to predict. He pointed out that a few years later, Virgin bought Charisma Records, an independent label that had a fat catalogue including work by Genesis, Peter Gabriel and Monty Python, for only a few million pounds: ‘The contract that I gave Nik originally gave him his shares for nothing but stipulated that when they were sold they were to reflect a minority stake in a private company … he was not selling control. Therefore I believe the price paid at the time was a fair one. I had also agreed to leave him with a small profit share for the future which he decided not to take and to swap for something else.’
After a decade in which the two men spent hours of every day in each other’s company, the separation was very sudden. Nik Powell went off to found Palace Pictures with Steve Woolley, and was responsible for a number of successful films during the 1980s, including Company of Wolves, Mona Lisa, and latterly The Crying Game. Almost exactly ten years after his departure, however, Palace ran into financial difficulties and Powell came back to Branson, cap in hand. Virgin invested some money in the company, allowing it to continue in business for a few crucial months. When Powell returned a second time, however, Branson turned him down in the friendliest possible way: he asked him to go and see Robert Devereux, his brother-in-law, who was by then responsible for Virgin’s film and other media interests. Devereux took a hard look at the Palace books and decided not to invest. Branson consoled himself with the thought that Polygram, the large European record company, were about to take a substantial stake in Palace. But Polygram were interested only in the company’s production arm. By May 1992, Palace had gone into administration, and Powell was forced to start again for the second time in his career. ‘I don’t think we realized how close he was [to going under] at the last minute,’ said Richard Branson afterwards.
‘I gather,’ said the headmaster sternly, looking down his nose through his spectacles at the school’s morning assembly, ‘that some of you are not entirely happy with the musical selections that we’ve been playing. So today we have a slight change in the usual programme. Instead of classical music, I have decided to offer you something a little different.’
The headmaster stepped to one side. A powerful spotlight picked out a circle in the centre of the curtains behind him. The curtains opened. And eight hundred primary school pupils, aged from five to twelve, jumped out of their seats in astonishment and began to scream. Not in their wildest dreams had they expected Boy George himself to perform a number-one hit song, at their school assembly.
Behind the scenes, Steve Lewis gave a smile of quiet satisfaction. He had been at the school since seven o’clock in the morning, helping to supervise as the roadies and technicians assembled the loudspeaker system, and watching as curious teachers peeked into the classroom where George, his make-up already
