Branson: Behind the Mask Read online

  The celebrities’ endorsement of ethanol aroused Branson’s curiosity. His interest was further bumped up by Governor Schwarzenegger’s decree that 20 per cent of all ethanol consumed in California should, by 2010, be produced in the state itself. Khosla was happy to oblige. Cilion, his new corporation, planned to build nine factories to produce ethanol from corn. The first three would be built in California. ‘I am confident’, said Khosla, ‘that Cilion will be able to produce all of the ethanol that the Governor has ordered for 2010.’ Aggrieved at having missed out on the internet billions, Branson was impressed by Khosla’s record. His success echoed that of Bill Gates, who had already invested $78 million in an ethanol company, albeit by buying preference shares, which minimised his risk. Persuaded by Khosla and by the same bankers who had profited from the dotcom era that ethanol was a safe bet, Branson’s reservations about risking his own money gradually receded. Mixing in the firmament of political superstars and billionaires such as Clinton, Schwarzenegger, Gore, Burkle and Khosla was hooking him. He trusted that Khosla’s record as a venture capitalist would help earn huge profits for Virgin from green technology, and relied on Clinton as the promoter.

  He was invited to join the Green Rush, financed by businesses known as ‘watermelons’ – green on the outside and red capitalist within. He could not join on the favourable terms he normally extracted – offering the Virgin brand instead of hard cash – but caught up in the philosophy of Khosla and others, he finally decided not to be left behind. Then, his publicists revealed that Branson and media mogul Ted Turner had discussed ethanol over dinner. Turner had signalled his interest in the environment by contributing $1 billion to the United Nations Foundation and creating the Energy Future Coalition. Once the tabloid newspapers heard that Branson and Turner had discussed rescuing the planet, biofuels were blessed by the media as potential saviours and Branson was hailed as a hero for being appointed by Turner to the Energy Future Coalition’s steering committee, of which Khosla was also a member. One of the committee’s priorities was to lobby the US government to grant bigger subsidies for developing renewable and alternative fuels from crops. The ‘ethanolites’ wanted their profits to be guaranteed.

  In early 2006, Branson announced that Virgin Fuels would invest $60 million in Cilion. For him, that was an unusually large commitment in a project over which he lacked even limited influence. He was gripped, and in April increased Virgin’s commitment to invest in the ‘world’s biggest’ factories, which would produce 100 million gallons of bioethanol a year, to $230 million. The company by then held a majority stake in factories in Indiana and Tennessee.

  The following month, his enthusiasm appeared to be justified. Senator Hillary Clinton introduced a bill in Congress to create a $50 billion ‘strategic energy fund’ to expand the use of ethanol. Her support was a surprise. Previously, she had opposed subsidies for ethanol but, without explanation, she switched, and Khosla received approval for the Mascoma Corporation in Rochester, New York, to convert forest products into cellulosic ethanol. The Greater Rochester Enterprise group published their thanks to Mrs Clinton for her efforts in also obtaining permits for Cilion’s two ethanol plants. Those had been negotiated by Yucaipa, who in turn were advised by Bill Clinton. The project, Jerry Wilhelm of the Greater Rochester Enterprise group volunteered in a seventeen-page report, ‘would not have happened without the senator’. One month later, Khosla repeated his commitment to build nine bioethanol corn refineries in America, using government subsidies for the $160 million programme. The first three factories in California, he confirmed, would be operational by 2008. Branson appeared to have bet on a winner.

  Gripped by what he referred to as a ‘golden opportunity’ for the Virgin brand and his business, Branson stepped up his commitment. In June, he won approval from the British government to use a mixture of bioethanol and diesel on Virgin’s cross-country rail routes and was granted a tax reduction. A month later, he said that Virgin’s investment in renewable fuels would increase to $1 billion over the next four years.

  Shai Weiss, his adviser and representative on Cilion’s board, was a former banker with the gift of being able to talk a good story. With Weiss’s help, Branson intended to combine Virgin’s commercial investment with a political campaign to promote his environmental convictions. ‘We plan to move into this sector in a big way,’ said Branson. Calling his plan the Gaia Capitalism Project after a theory developed by his favourite scientist, James Lovelock, Branson mentioned that his future investments would include wind turbines and nuclear power. ‘In a few years it will be a major field for us,’ he said. ‘Nothing is off the agenda.’ To boost his cause, he began repeating the mantra, ‘The world is fast running out of oil and minerals.’

  Flying in his Falcon at 38,000 feet over the Andes or across Africa’s bush, he had clearly not understood that the mines below could produce sufficient copper, iron, sulphur and other minerals to sustain the world’s industries for hundreds of years. Similarly, he seemed unaware that peak oil was an illusion advocated by prejudiced lobby groups who dismissed the importance of the constant technological advancements which were spurring the extraction of additional oil. He appeared equally unaware of the political manipulation by many oil-producing nations to deny the major oil-exploration corporations access to their vast untapped reserves. To some, his ingenuity reflected his eye for another commercial opportunity. Others believed that for once he had failed to balance the financial risk against his customary self-promotion.

  The immediate consequence of the biofuel producers’ demand for corn was a dramatic increase in prices for the crop. The cost of grain for animals and poultry rose, and food prices in supermarkets followed. The IMF estimated that the increase in ethanol production in America raised the price of maize across the world by 60 per cent and threatened to cause starvation in the poorest countries. Paradoxically, producing more corn for ethanol generated additional greenhouse gases, undermining the environmentalists’ arguments. American motorists also complained: cars which drove sixteen miles on a gallon of petrol could cover only twelve on the ethanol mixture. The environmentalists’ enthusiasm was defied by another statistic: filling a car’s tank with bioethanol required 250 kilogrammes (550 lbs) of corn – the amount consumed by a single family in a year.

  Branson seemed oblivious to those ambiguities. He rarely read scientific briefs and appeared not to fully understand the science of producing ethanol from corn. His staff also disliked delivering bad news. Like his sidekick Weiss, he did not question why George Soros and Bill Gates were producing ethanol from sugar cane in Brazil rather than investing in Khosla’s factories in America.

  Branson had relied on Khosla’s assumption that producing ethanol would be uncomplicated. Khosla had purchased the equipment for his factories from India and hired experienced engineers formerly employed by BP. Among them was Lawrence Peck, an American chemical engineer. Peck soon realised that ‘Khosla was just throwing darts at the dartboard to see which would stick. His group seemed to have little idea how to produce ethanol. He wasn’t impressive.’ Branson discounted the problems. His millions of dollars had bought a ticket to the top table with Clinton and Gore, and proximity to Governor Schwarzenegger, who had assumed importance in his ambitions in the US, especially to launch his new airline.

  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 Lan
igan 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 furth
er 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 Washington 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.