Maxwell, The Outsider

by Tom Bower

  6

  There was never any secret why Maxwell wanted to own a newspaper. The barons of Fleet Street were automatically granted influence and prestige, and Maxwell's bids for the left-wing Daily Herald and four years later for the right-wing News of the World indicated a consistency not of principle but of ambition. His disappointment at not winning office, contrasted with his enormous and accumulating wealth, laid the ground for a condition which the American politician Adlai Stevenson had aptly described five years earlier: 'Power corrupts, but the lack of power corrupts absolutely.'

  In 1968, Pergamon was booming. Trading profits had risen from £145,000 in 1962 to £1.3 million in 1966, and in 1967 they increased again by 35 per cent. Pergamon's assets had, in four years, tripled in value to £ 6.9 million and the price of its shares had doubled over two years. Regardless of the setbacks in Parliament, Maxwell appreciated that his new wealth unveiled golden horizons.

  The company's phenomenal expansion had not been effected without some difficulties. In France, Maxwell's second attempt to establish himself as a scientific publisher had just ended in acrimony and bankruptcy. The vehicle for his latest bid for imperial expansion had been the prestigious scientific publisher Gauthier Villars. The French publisher had been founded in 1864 and became a venerable institution entrusted with publishing the works of the ficole Polytechnique and many of France's most notable scientists. Fittingly, Gauthier Villars was housed in the ancient heart of the capital, in a huge and picturesque terrace built on the foundations of a fourteenth-century monastery overlooking the River Seine and Notre Dame. When, in 1959, Maxwell arrived by invitation for the first time at the Quai des Grands Augustins, he was inevitably enthralled by its history and tempted by the offer from its manager to become a major shareholder.

  Paulette Gauthier Villars had been the publisher's managing director since 1951 when the professional manager who had guided the firm since her father's death in 1918 had himself died. While she owned 25 per cent of the shares, the remainder were spread between five nephews and nieces who did not share her sentimental passion to preserve the family business for a fourth generation. Rather than allow such a renowned publisher to pass into alien ownership, Paulette assumed the managing directorship but maintained her profession as professor of anatomical pathology. Her daily routine was to teach in the morning, to arrive at the Quai in time for lunch and a nap, and then to devote three hours in the afternoon to publishing. By 1959 she recognised that her part-time and unpaid stewardship had been flawed. During those eight years of unparalleled scientific activity, Gauthier Villars had failed to attract any new authors, its stocks of old books had accumulated in a leaky warehouse and had become unsaleable, costs had soared, income had fallen and the overmanned printing presses had become outdated. Her family business was on the verge of bankruptcy and needed new cash. Its only assets were the building and its name but Paulette was determined to prevent any of her French competitors from taking a share of the family business. With those limitations, she directed Louis Varenne, the company's manager, whom many would blame for the company's parlous financial state, to search for a saviour.

  On 17 July 1959, Varenne introduced Paulette to Maxwell whom he had met during the previous three years at the annual Frankfurt Book Fair. There is little doubt that Paulette's prejudices, xenophobia and possibly anti-semitism, were dissolved by Maxwell's charm and good looks. Within four days she had written a long letter to the other family shareholders that she had found their benefactor, whom she described as 'Monsieur X', whose expertise and enthusiasm would revitalise Gauthier Villars. The principal advantage of selling a 44 per cent stake for Frs 500,000 to this mysterious publisher, wrote Paulette, was his British nationality since he could market translated versions of Gauthier Villars's books throughout the world providing a huge new market for their authors which was important, she stressed, in the new era of the Common Market. In addition, she wrote, 'youth would be injected into the company (I think that he is thirty-five years old) and significant financial expertise.'

  Paulette initially feared that the other four family shareholders would not give the unanimous approval which was necessary according to Gauthier Villars's articles of association. Her fears were unfounded. None were prepared to inject money into the business since they had never received a dividend and were relieved by the prospect of a genuine businessman taking control. Their enthusiasm seemed to be justified after their first formal meeting with Maxwell in November 1960 when the British publisher urged the board to agree to a massive increase in capacity which, he was convinced by his great experience, would treble the turnover within five years. Both Paulette and Varenne were overwhelmed by Maxwell's optimism that their debts and antediluvian attitudes could be overcome.

  Soon after the deal was finalised, Maxwell appointed Paddy O'Hanlon, an experienced editor, to work at Gauthier Villars. 'The initial reaction when I arrived,' she recalls, 'was "Oh God, we're being invaded by the Brits" and that hostility never disappeared. Other French publishers disliked Maxwell for the same reason.' In fact the disdain increased as Maxwell insisted that the worthless stock be thrown out, manuscripts be edited before publication and directed that they buy the magazine Sciences et Avenir which absorbed nearly his total investment. But he did little more. Considering the hostility towards the British, Maxwell, who in those days rarely mentioned his French wife or his love of France, was pleasing Paulette by his absence although their relationship was genuinely warm. To Paulette's satisfaction, Maxwell infrequently came to the building, even for the annual meetings, and gave little advice on reforming the company's finances except significantly when he remarked that the draft of the 1963 annual report was too 'detailed' and that they should remove negative words like 'difficulty' and 'regrettable'. The offending words were omitted so conveying the impression of success which the increased turnover suggested.

  Nineteen-sixty-four was Gauthier Villars's centenary and was marked by a special celebratory champagne party at the Sorbonne. At an early point during the festivities, Maxwell seized the opportunity to corner Gilles Gauthier Villars, then a student, and propose a deal. According to Gilles, Captain Maxwell, as he insisted on being called in France, 'insisted that I regard him as a surrogate father, wanted me to sell to the company my share of the valuable building at the Quai des Grands Augustins.' Unable to escape Maxwell's physical presence to reach the bar, Gilles became preoccupied signalling to his wife for a glass of champagne and a taste of the delicacies rather than listening to Maxwell's advice. Only twelve months later it became clear why Maxwell, who Gilles thought was supposed to improve the publishing business, was interested in the property.

  In May 1965, Paulette was told that the company was once again heading irretrievably towards bankruptcy. The Maxwell-inspired rush for expansion had only multiplied the debts and brought none of the benefits which he had promised. An attempt in 1964, agreed by Maxwell, to revalue the old stock and increase the company's apparent worth by the equivalent of Frs 2 million had been rejected by the auditors as 'creative accountancy'. The books were worthless and the ruse was condemned. For all the family and especially Gilles, the news came as 'a shock because I had believed that Maxwell was meant to save us and he had failed. But I didn't understand why.' Paulette asked the shareholders including Maxwell whether they were prepared to invest any money. In unison the family refused. Maxwell however agreed but on one condition - that he was given more shares and therefore outright control of the publisher. Reluctantly, the family envisaged no alternative.

  During the summer and autumn the Gauthier Villars became increasingly irritated by Maxwell. Gilles in particular was annoyed after noticing a large number of packages of back issues at the entrance to the building addressed to Pergamon in Britain.

  Varenne had explained that Maxwell was buying a large amount of stock for resale. ‘I thought that we were selling our flesh,' recalls Gilles, 'because if Maxwell could sell it for himself, why could he not sell it for us? I wa
s suspicious.' According to Varenne, it was a ploy by Maxwell to inject money into the ailing company but the money was never received.

  When therefore in early December, Gilles received a call from M. Pierre Bleton who asked whether he could call and outline a proposal for Gauthier's future, Gilles was receptive. Bleton, a journalist-cum-banker, explained that the Finacor bank wanted to form a new consortium of French scientific publishers and were prepared to pay the family Frs 220 per share on condition that each member of the family agreed and that no one told Maxwell. The temptation of Bleton's offer, according to Gilles, was overwhelming: 'We were all interested because Bleton was offering us money for our shares while Maxwell intended to get our company for nothing. Under his scheme our shares would have been worthless and he would have control.' Maxwell had failed to fulfil his grandiose promises and there was the added aggravation that, confident of success, he had already filed a request with the government for permission as a foreigner to own a French company.

  Bleton exploited those grievances and also the family's mutual hostility which inhibited its members consulting each other. Individually, Bleton collected their signatures for the sale of their shares and asked them not to reveal their intention, especially to Maxwell. They needed little persuasion. 'Bleton knew,' says Gilles, 'that we wouldn't ask Maxwell to make an offer for the shares because he could have bought one person's shares and cut the remainder out.' One technicality remained. The company rules needed to be amended to allow the sale of shares to a non-shareholder. Since unanimity was crucial, Maxwell's own approval had to be obtained. Accordingly, Maxwell was told by Paulette and Varenne, orally and not in writing, that the family approved of his proposed investment but that as a formality they needed to amend the rules. Maxwell readily agreed. The stage was set for an extraordinary general meeting which was much more unusual than so many of the others Maxwell had attended.

  Just before 11.30 on 31 December, Gauthier Villars's shareholders began gathering on the second floor at the Quai des Grands Augustins. Unlike Maxwell who travelled from the rue des Écoles, the other participants lived in apartments at the Quai itself and as they individually closed their doors and walked down the stairs they were united by a conspiracy to outwit Maxwell and finally profit from the family business.

  Everyone noticed that the unsuspecting Maxwell was exuberant as he arrived, insensitive to the stony silence. Paulette, chairing the meeting, was noticeably more efficient than usual, methodically working through the procedures and recording the votes. A mere fifteen minutes later, Paulette declared the meeting over. Maxwell was beaming, unconcerned that everyone filed expressionless and silently out of the room to return upstairs: 'We didn't say a word,' recalls Gilles, 'because we knew that to be legally binding everything needed first to be properly registered.'

  Precisely two weeks later, Maxwell discovered that he had been outwitted. At first Paulette denied the conspiracy but after persistent phone calls from London she conceded that Maxwell had been deceived. 'If this kind of trickery had been perpetuated by me on you, how would you feel about it?' protested Maxwell whose outrage stemmed alternately from being the artless victim of a perfidy to fury that he had been denied his prize. Simultaneously, Maxwell announced that he would be 'pleased to pay the family Frs 350 per share' and instructed his lawyers to sue Paulette for fraud. The family felt no pity for their accuser because according to one member, 'he was both a socialist and a shark. He wanted to use the asset because it existed but did not want to pay for it.'

  Inevitably Maxwell's interpretation was different, especially since his own investment was suddenly endangered. Unknown to the family, Finacor had been acting for Georges Dunod, Gauthier Villars's arch rival to whom Paulette had forsworn ever selling the business. Dunod took control without reckoning that Maxwell would exact his revenge; for the following four years he harassed and tried to sabotage Georges Dunod's attempts to save the company, investing more time and effort every month to his vendetta than he had expended in total on Gauthier Villars throughout the previous six years. Eventually after Paulette died (some would say that she was pushed to the grave also by Maxwell's vendetta in the courts) he conceded defeat and, complaining that as a foreigner he was too handicapped to operate in France, switched to solve his problems in America which was more important for his ambitions for building an empire.

  A five-year agreement with the Macmillan Company of New York for the exclusive distribution of Pergamon books had been terminated in August 1964 amid acrimony, two years before its expiry. Macmillan had bought £3.7 million worth of Pergamon books (which added enormously to Pergamon's profits) but had sold only 57 per cent of the stock. Macmillan claimed that 'the quality and saleability of the books which we were expected to buy fell below our expectations' and blamed Pergamon for selling its own translated versions of books earlier than previously agreed. Maxwell was naturally disappointed because Pergamon's success depended upon exports (40 per cent of its sales were in America) and blamed Macmillan's sales force.

  Maxwell's privately owned American company, Maxwell Scientific International Inc. (MSI Inc.), bought the outstanding stock of books from Macmillan for £1.6 million so that Pergamon suffered no losses. When Maxwell was questioned in January 1966 about this apparent setback by Oliver Marriott of the Sunday Times he dismissed any suggestion that Pergamon's sales might suffer and boasted about the 'quite abnormal profitability of Pergamon' which had been 130 per cent and 116 per cent pre-tax on the net capital employed over the previous two years. 'These are the sort of returns', wrote Marriott, 'which all industrialists dream about.' Despite Maxwell's assurances, Marriott queried whether Pergamon could continue to perform so brilliantly.

  Ebullient as ever, Maxwell dismissed the cautionary note and waved aside any doubts. He was set on a buying spree to build an empire, and to raise the money to finance his expansion 1.1 million Pergamon shares which were owned by his family trusts had been sold on the stock market after the flotation at a much higher price than that at which they had been issued, although some were immediately repurchased by nominee companies to ensure that Maxwell and his family retained absolute control of the company. His targets for purchasing were companies with printing and educational interests. The first was a venture into a field where he had absolutely no experience whatsoever.

  On 1 December 1965, Maxwell paid £1 million in cash for the subscription-books division of George Newnes, which published two well-known encyclopaedias, Chambers and Pictorial Knowledge. Encyclopaedias, as a by-product of the expanding educational revolution, were in vogue in the 1960s, especially among the aspiring working and lower-middle classes, who had been convinced that knowledge was the key to improving their children's prospects. Chambers encyclopaedias were well written, but the technique of marketing the fifteen volumes had aroused widespread controversy.

  Since the traditional method of selling through shops was unsuitable, encyclopaedia publishers had recruited freelance salesmen who, provided with lists of potential customers (usually parents of young children), arrived unannounced on the doorstep of the unsuspecting client. Doggedly and emotively, the salesmen sought to cross the threshold as the first step to persuade the client to sign a contract whose huge expense was partially concealed because the monthly repayments over three years promoted the illusion that the total investment was substantially less. Since the salesmen were paid purely on commission - no sale, no pay - the pressure exerted on the potential customer was sufficiently strong to provoke demands that Parliament should enact legislation to protect the weak and the gullible. By the time that Robert Maxwell, then a Labour Member of Parliament, made his first investment in the business, encyclopaedia salesmen enjoyed dubious reputations. Cecil King, IPC's chairman, who had sold Newnes to Maxwell, said subsequently that he did not think that selling encyclopaedias could be profitable unless methods were used which were not 'ethical'. Maxwell had a different view, although his own advisers cautioned him against the purchase on commercial grounds.


  Chalmers Impey, who were Pergamon's auditors, had advised that the business contained a 'higher speculative element' than Pergamon's traditional interests and pointed out that Newnes's profits over the past five years had substantially declined and it was making a loss. Their opposition was supported by Ansbachers, Pergamon's merchant bankers. Maxwell ignored them both because he believed it would be a very profitable venture.

  When Maxwell bought Newnes, the fourth edition of Chambers had already been printed but it took a further twelve months before sufficient volumes had been bound for Maxwell's newly recruited team to begin a concerted sales drive. Newnes's direct competitor was the New Caxton encyclopaedia, a twenty-volume work owned by Caxton Holdings who, under the management of Hedley Le Bas, had pioneered the foot-in-the-door selling technique which had earned the business such a notorious reputation. To maximise their profits, Caxton also sold the same encyclopaedia in parts to the British Printing Corporation (BPC), who marketed their version under the title Purnells New English encyclopaedia. Consequently, in 1966 Maxwell was in competition with both Caxton and BPC in completely alien territory. He had never handled a similar product and he had never been involved in direct selling.

  Whatever criticism might be voiced about Maxwell's commercial behaviour, it is indisputable that he never hesitates to mount a challenge in the market. More than most businessmen, he instinctively seeks to defeat his competitors. Chambers was such a venture. Maxwell felt that he had 'bought a bargain' and was optimistic that he could transform Chambers' recent losses into profits. 'The encyclopaedia business', he later explained, 'was 97 per cent in U.S. hands. British encyclopaedias were just as good but weren't being properly sold.' Accordingly, Maxwell reported in a circular to shareholders that his huge investment would show a 'satisfactory return' and set out to fulfil his promise by increasing his share of sales throughout the world, naturally at Caxton's expense.