Sir Richard Branson Case Study

With a knighthood (for services to “entrepreneur-ship”, an entry in the Guinness Book of World Records  (as the first man to cross the Atlantic in a hot air balloon) and a reported personal wealth of £3.8 billion pounds sterling from his 150 business ventures), Richard Branson is perceived as a typical entrepreneur. Certainly he demonstrates many of the personality characteristics and patterns of behaviour traditionally associated with the entrepreneur and propounded in the various theories of entrepreneurship

Born in 1950, he had a somewhat unusual but privileged upbringing and although he is reputed to have been frustrated by the rigidity of the formal education system and did not excel at school, he developed an interest in journalism and the possibility of publishing a magazine for sixth-formers. The concept was quite simple. It would be focused on students and would carry features written by well-known personalities, including rock stars, movie stars, intellectuals and leading politicians.  It would sell advertising to major corporations, so, he began writing to celebrities requesting interviews. Somewhat surprisingly, he received replies, many of them positive.  At the age of 16, therefore, with six O-levels, he persuaded his barrister father to let him leave school to start a publishing business, with his school friend “Johnny Gems”. On the eve of Branson’s departure from Stowe, his head-teacher is reputed to have predicted that Richard would either become a millionaire or go to prison.

With a reported £4 pounds sterling donation from Richard’s mother to help cover postage and telephone expenses, the business (Connaught publications) was launched from his office on the top floor of a house his parents had leased in the Bayswater area of London. Branson persuaded a respected magazine designer to work for no fee and his friends to work for the magazine for 12 pounds per week. At the same time, he negotiated a printing contract for 50,000 copies. The first edition of “Student” was published in January 1968, carrying a picture of a student drawn by the designer of the Sergeant Pepper album cover. While others only talked about the idea Branson‘s energetic self-confidence could make “Student” a reality (Bower.2001:12).

However, the venture was not a success. Like so many start- up businesses it had cash flow problems. So, in April 1970, together with two colleagues, John Varnon and Tony Mellor, Branson established his second business – “Virgin Records” selling records by mail order. Since the British government had abolished retail price maintenance on records, it was possible to sell them at discount prices, undercutting the main retail outlet. An advertisement in what was to be the last edition of “Student” produced an encouraging trickle of orders with payment in advance of delivery. Subsequent full-page advertisements in “Melody Maker” turned trickle into a flood and Branson again exercised his persuasive skills to convince first the staff of “Student” to work for him and  the owner of shoe store to let them use the upper floor of the outlet, free of charge. The venture was highly successful.  Shortly after it was started, with orders flooding in form overseas, Branson drove a van to Dover intending to export a consignment of records to the Continent. This was a particularly lucrative initiative as records sold overseas did not attract the 33 per cent purchase tax levied on goods sold within the UK. On arrival   at Dover, he obtained a PT999 form, confirming that the records had left the country and boarded the ferry. Because of a strike in France, however, the sailing was cancelled and he returned to London with his records officially cleared of purchase tax. He was not slow to realize that he could sell them, via his mail order company, to British customers and save the tax.

Having discovered how easy it was, it is claimed that he set out deliberately and systematically to defraud Customs & Excise. The extent of the fraud is not clear, but Bower (2001) suggests that the van was driven regularly to Dover, and reports that not only were records supposedly exported in batches of at least 10,000 to every country in western Europe and to the United States, but that, on two occasions Branson supposedly exported 30,000 records in a Land   Rover! Once the official stamp had been secured on the tax exemption form, the van then returned to London. On occasions, Bower claims, Branson did not even bother to send a van to the port. To save the money, he is said to have bought a cheap away day ticket, caught a train to Dover, and presented a certificate for 10,000 records and gone home.

When Branson was eventually caught, he spent a night in jail. Initially he claimed he was innocent, and then apparently with the support of his parents, but particularly his mother, he persuaded the authorities to settle out of court. The scale of the crime is reputed to have been in the order of £40,000 pounds sterling  in unpaid taxes (the equivalent of £370,000 pounds sterling at 2000 prices) and Branson appears to have agreed to pay this plus a fine of £20,000 pounds (£185,000 pounds). Following negotiations ,it would appear that Customs & Excise agreed to him paying £15,000 up front and the rest over a 15-month period.

In 1986, he apparently told the “Sun” newspaper that he escaped imprisonment by convincing the court that he did not know it was illegal. However, in his own 1998 autobiography, he claims that he did it deliberately to cover debts amounting to £35,000 pounds sterling. According to Bower (2001:11) all those variations were a smoke screen. He had simply played the game and, unforgivably, he had lost. Branson himself is reputed to have pro-claimed I have always thought rules were there to be broken.

From these humble and somewhat dubious beginnings, the current Virgin group of companies has evolved and by  2006 Branson was able to buy an island  in the British Virgin Islands and has been living there since ten. While he claims to be doing so  for health reasons, he pays no UK income tax and is perceived by the media as a tax exile. Although he has been feted and lauded in the media as something of a hero, in 2020  he was heavily criticised in Parliament and the media when he told his  8,571 Virgin Airlines staff to take 8 weeks unpaid leave,  which would cost the British taxpayer something in the order of £6.4 million. Though what he did was not illegal, according to  David Dawkins in the 19th March 2020 edition of Forbes, Branson was attacked in Parliament by the Conservative MP for North East Bedfordshire, Richard Fuller, who argued that with a net worth of £3.8 billion the entrepreneur could afford to pay the salaries of his staff. As a result, Dawkins claims, “Sir Richard Branson has emerged as one of the real villains of Britain’s corona virus –  in the court of public opinion”.  According to  George Turner, Director of Taxwatch UK, “The public had already had enough of tax avoidance by the time the Coronavirus hit Europe in February. But the prospect of billionaire tax exiles asking the British taxpayer for cash has provoked fresh outrage” (Turner, 2020). In Branson’s defence, the prestigious Adam Smith Institute has observed that while the entrepreneur  is a tax exile, what  he is doing is not  illegal and the  “Virgin Group, the conglomerate that owns the various Virgin enterprises, does pay millions of pounds in UK tax, as do many of its subsidiaries”(Yusupoff, 2016). Even so, his rule-bending evasive  behaviour is not being perceived as legitimate by either the media or the general  public and in April 2020 some 13,000 people signed a petition claiming he was a “disgrace to his country” and calling for him to be  stripped of his knighthood.

References

Bower, T., (2001), Branson. London: FourthEstate.

Turner, G. (2020). If we want tax exiles to contribute to the recovery, then we need to tax them.  Retrieved February 17, 2021, from https://www.newstatesman.com/politics/economy/2020/05/if-we-want-tax-exiles-contribute-recovery-then-we-need-tax-them 

Yusupoff, E. (2016). In defence of Richard Branson’s honour, London: Adam Smith Institute

  • Do you believe Branson’s behaviour is ethical?
  • Would you be more or less inclined to use one of his businesses in the future or would his behaviour make no difference to you?
  • Would you be more or less inclined to join one of his businesses  as an employee or would his behaviour make no difference to your decision?

RETURN to the ETHICS SESSION

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