Maxwell, The Outsider

by Tom Bower

  On 8 January 1967, in an atmosphere of intentional melodrama, Maxwell called a press conference to announce that he was about to set off on a 50,000-mile world tour to promote the sales of the new edition of Chambers. After stating that he had already sold 3,500 sets in Britain, he explained that exports were his dream. 'There is a tremendous thirst for knowledge all over the world,' he told the assembled journalists, 'and we have the right people and product to cash in.' In every respect, it was a highly unusual event. First, most businessmen would never speak publicly before embarking on a speculative tour but would wait for the results. Secondly, it would be unusual even for a Conservative MP to summon the press to promote his business interests but it was rare for a socialist to do so. Yet Maxwell was abundantly confident of proving to Britain how he could win exports. It never occurred to him that what generated interest was the incongruity of a socialist peddling a disparaged product.

  The first stop on the world tour was India, where he was greeted by Jawaharlal Nehru, the Prime Minister, an honour which set the pattern for the whole tour. In each country which he was to visit - Thailand, Japan, Hong Kong, Indonesia, Malaysia, Australia, New Zealand, Mexico, the USA and Canada - he had arranged to meet either the Prime Minister or the President, who would be given, in the presence of a photographer, a specially bound set of the encyclopaedias. In each of those countries he had also arranged to meet leading book-dealers to conclude sales contracts and had set up an unlimited number of 'media opportunities' for interviews.

  As he toured the world, Maxwell reported back daily to his headquarters in England a succession of record sales. Philip Harris, the vice-chairman of Buckingham Press, the Pergamon subsidiary which had bought Newnes, followed his success with amazement. Without consulting Maxwell, he took the initiative and began to plan a new print of the encyclopaedias, reasoning that even the available stocks of 13,000 sets were grossly insufficient to satisfy the huge upsurge of demand which the tour was generating.

  For Philip Okill, who was travelling with Maxwell, a different picture was emerging. Okill had just been promoted to head Newnes's international sales force when Pergamon had bought the company. Okill had taken a different route around the world from Maxwell's, but they had arranged that they would meet in predetermined capitals to compare results.

  As a quiet-spoken, slightly built, methodical man who enjoys stroking cats, Okill would be the first to admit that he had little in common with his new employer. The first six months of operating under Pergamon had passed uneventfully, but the changes which Maxwell introduced immediately afterwards were, Okill believed, drastic and dangerous: 'I was expected to jump or dance when the maestro called the tunes, the maestro of course being Mr Maxwell. And Mr Maxwell's ideas of running a subscription-book division were quite different from anything I had experienced in twenty-odd years.'

  Okill was a cautious salesman with limited horizons. When Maxwell told him that his objective was to make Buckingham Press 'the largest bookselling operators in the world' he was startled because he believed that his employer did not understand how to manage the operation: 'He seemed to be fired with ambition but he had no experience.' Okill's fears were confirmed during the tour. His task was to follow Maxwell and to complete the legal formalities for the sales which Maxwell had won. Yet in Calcutta where Maxwell had claimed sales of five hundred sets, Okill heard from a Mr Pripittia: 'No, we haven't placed an order. Mr Maxwell offered us some sets of Chambers encyclopaedia and told us we didn't have to worry about paying for them. That could be dealt with at a later date.' Okill left without an order and discovered that India would never place an order because the encyclopaedia's map showed the disputed territory of Kashmir as belonging to Pakistan.

  Maxwell returned to Britain on 23 February, before Okill. Promptly, he called another press conference at the Dorchester Hotel to announce the sale of seven thousand sets of Chambers worth £1 million. It was, he told the summoned journalists, a momentous achievement which was 'a lesson for the rest of the British business community'. His 5 per cent target, he declared, was 'easily achievable'. The headlines were fulsome and amusingly included his own quip that Maxwell, 'when broken down into Chinese, means Mr Ma, a man of great thoughts'. Another of his philosophical comments, that he had realised the secret of the Japanese economic miracle when he had seen a newspaper delivery boy running, rebounded upon him. Cynical wags wondered whether the wretched fellow had not simply got out of bed late. But gratifyingly to Maxwell, the numerous newspaper accounts contained the impressive statistics he had compiled: ‘In seven weeks I travelled 70,000 miles, I visited 11 countries, 22 cities, held some 400 meetings and was interviewed on radio, television and by newspapers about 140 times. I obtained £1 million worth of orders for British books with some £3 million worth to follow and on my return received a telegram of congratulations from the President of the Board of Trade.'

  He then went back to his office and summoned Harris, who expected some praise for his percipient planning for a reprint. The contrary, according to Harris, occurred. He was told by Maxwell to cancel all plans because his claim of seven thousand sales was just for publicity. Okill was stunned when Harris relayed the news. Soon after, he was sitting with Maxwell in Fitzroy Square when Maxwell said, 'Okill, you don't seem to like me, you don't seem to trust me. Why don't you?' Okill replied, 'Because, Mr Maxwell, you're the sincerest liar I've ever met.' According to Okill, Maxwell laughed, 'because, I genuinely think, he took that as one of the nicest compliments I could have paid him'. Okill claims that the world tour resulted in no sales other than to a Pergamon subsidiary in New York. Maxwell denied the allegation and insisted that, with the exception of the Calcutta order, the sales which he announced were all genuine and were delivered. Okill's version was later supported by the government's investigation into Pergamon's affairs.

  Maxwell was unconcerned by their disagreements since he was impatient to increase sales of Chambers and challenge his competitor, Caxton. Over previous years, Caxton had successfully established a strong sales team and was earning enticingly high profits in South Africa which contributed a quarter of the company's total income. Maxwell immediately began to search for ways to capture that money for himself. What followed was certainly controversial but definitely not illegal. On 13 November 1966, Maxwell recruited L. C. Schilling, who for the previous six years had been Caxton's secretary, to be the credit controller of Buckingham Press. Events then moved very swiftly. Just before Maxwell had left for his world tour, the head of Caxton's South African sales team had flown to London and had likewise agreed to work for Maxwell. Two months later, in February 1967, days after Maxwell returned to London, Maxwell sent Philip Harris to South Africa to recruit a new sales team. Harris returned to Britain forty-eight hours later, having accomplished his mission. The major casualty of Harris's spectacular success was Caxton, whose complete sales team had deserted their old employer. Harris was quite candid about the instructions Maxwell had given him on the eve of his departure. He was to 'knock off the Caxton sales force'. But Harris went even further and also alleged that Maxwell's true ulterior motive was to 'bankrupt Caxton so that he would buy it cheaply'. Maxwell strongly denies that claim.

  By the time Harris came to make his allegations in 1970, he had become a disenchanted critic of Maxwell, but there is no doubt that Caxton was terminally crippled by the collapse of its sales in South Africa. The following month, in March, Maxwell made his first approach to Caxton's chairman, Hedley Le Bas, with an offer to buy his family's business. Not surprisingly, Le Bas was furious to find himself so quickly outclassed by his new competitor, and sought help from his partners, the British Printing Corporation (BPC).

  BPC was Caxton's natural saviour for three reasons: Caxton's encyclopaedia was printed by Hazell, Watson and Viney, a BPC subsidiary; BPC sold part-issues of Caxton encyclopaedias; and Caxton owed BPC a substantial sum of money. Yet at that precise moment, BPC, which would feature so massively throughout Maxwell's career, was jolting thro
ugh a major management crisis.

  BPC's turmoil had started the previous year. The company was an unhappy marriage created in 1964 of two printing conglomerates, Purnell & Sons and Hazell Sun. Just months after Purnell's chairman Wilfred Harvey, a swashbuckling individualist, had become chairman of the new company, he was overthrown in a public and very bloody board-room coup after the discovery that he had illegally profited from earlier mergers and that he had arranged to pay himself the astronomical salary of £270,000 per year plus £600,000 in commissions. In 1966 BPC's management were still reeling, and they left Le Bas in no doubt that they could not offer him any help.

  Consequently, in April 1967, Le Bas began negotiating with Maxwell. On 3 May 1967, Bruce Ormrod, the joint managing director of Henry Ansbacher, announced that Maxwell had bought Caxton Holdings for £1.1 million. In a jubilant public statement, Maxwell estimated that there was a £200 million world market for encyclopaedias of which he aimed to capture 5 per cent. Considering the enormous sales he claimed to have won during his recent world tour, his optimistic prediction was accepted as forecast.

  Eight days after the merger announcement, Maxwell formally approached Sir Charles Hardie, the chairman of BPC, and Victor Bishop, the managing director, and suggested that BPC should join forces with the new Pergamon/Caxton company to sell encyclopaedias together. The negotiations and the agreement which followed were crucial to the dramatic and very public collapse of Pergamon's own merger with the American company Leasco two years later.

  BPC was keen to stay in the encyclopaedia business since the company printed both the Chambers and Caxton encyclopaedias, and Maxwell succeeded in persuading the BPC directors to unite and fight. On 17 August 1967, they signed a memorandum of intent which anticipated that the two companies would merge their interests into a new company called International Learning Systems Corporation Limited, a very grand name for an encyclopaedia-selling operation. Their agreement contained one very important proviso: Pergamon guaranteed BPC that the new company's combined pre-tax profits would not be less than £500,000. Maxwell agreed that if the profits fell below that amount at the end of the first year, Pergamon would make up the shortfall in cash. Similarly, BPC guaranteed that the profits of its subsidiary Purnell until 30 June 1968 would be at least £98,000. The board of management reflected the merger. Hedley Le Bas was appointed ILSC's managing director, Maxwell was to be the chairman and chief executive and three BPC men were also appointed to the new board - Michael Pickard and Victor Bishop, who were both deputy chairmen of BPC, and Ralph Pollock, who was a BPC director.

  From the outset, ILSC inherited from its three procreators the major problem which was endemic to the encyclopaedia business: the head office was always uncertain whether the sales reported by its freelance teams were accurate and whether the customers would honour their contracts and make regular monthly payments. To compound the uncertainty of the new company's financial position, the salesmen were paid their full commission promptly on receipt by ILSC of the signed contract and they bore no responsibility if their quickly forgotten clients defaulted in their monthly payments. Since some salesmen earned as much as 40 per cent commission on a contract which would be paid over three years, ILSC's potential bad debts were ominously large. Okill claims that at Newnes the cancellation rate was on average 9 per cent, yet at Caxton under Le Bas it amounted to 40 per cent. The marriage of the two companies was beset from the outset by a clash of personalities and practices.

  ILSC's board met for the first time on 19 September 1967. Le Bas gave an assurance that on balance the new company's forecast profits would be 'very nearly met'. Even on the basis of the information then available, Le Bas's assertion was inaccurate because the ILSC's accounts and book-keeping were in a 'deplorable state', their overseas branches having failed to keep proper records. Maxwell endorsed those accounts, although it was only one year later that he was officially informed by ILSC's auditors about the true state of affairs. But by then he had publicly exploited Le Bas's assurances of ILSC's future profitability.

  During the summer of 1967, Maxwell was planning his next acquisition. With Pergamon earning huge profits from its scientific journals and assured a big dividend if the forecast profits of ILSC materialised, Maxwell could afford to finance his next bid by offering Pergamon shares instead of cash. It was a much cheaper way to fund take-overs but depended upon the price of Pergamon shares remaining at their high level, which in turn was determined by Pergamon's high profits.

  On 11 October 1967, Pergamon announced a bid for Butterworths, the venerable publishers with whom Springer had twenty years earlier unsuccessfully attempted to begin a joint venture. Since that failure, Butterworths had steadily expanded its own prestigious scientific, medical and legal publications, but its profits had, on its own admission, increased only 'marginally'. Over the previous five years under a new chairman, Richard Millett, diverse attempts had been made to restructure and galvanise the old-fashioned publisher, but with only limited success. Millett was particularly anxious to avoid the clutches of unwelcome American predators able to recognise the real value of Butterworths' assets. To protect the company, Millett repeatedly but unsuccessfully sought possible mergers with other British publishers until on 10 October 1967 a letter was delivered by hand from Bruce Ormrod of Ansbachers announcing Maxwell's bid. Ormrod's letter did not come as a complete surprise. Commercially, the merger had positive merits since Pergamon's and Butterworths' publishing activities had much in common, and over the previous three years Maxwell had made repeated gestures towards Millett, suggesting friendly negotiations.

  Millett was appalled. He harboured a deep suspicion of Maxwell which was on the verge of obsessional and stemmed from the days of Simpkin Marshall. After reading Ansbachers' letter, he spontaneously wrote to Maxwell telling him, according to Butterworths' official history, 'to get lost'. To The Times Millett said, ‘I would want to know a lot more about Pergamon before any merger and would be very reluctant to accept Pergamon paper under any circumstances.' For the first time in Maxwell's career, a take-over battle became ferociously personal. Millett hired private detectives to scour the world for any details about Pergamon's activities, which Maxwell answered by a High Court writ. But within one month it was all over. Millett had also launched a frantic and wide-flung search for an alternative bidder and Cecil King offered substantially more for Butterworths than Maxwell, who reluctantly conceded defeat. Ormrod recalls that Maxwell accepted he had been beaten by a bigger fish but felt that at bottom it had been determined by prejudice: 'He couldn't sit at the top table, as Macmillan would say.' Maxwell had suffered a loss of face which would soon have been forgotten if the offer document issued by Pergamon for Butterworths had not contained statements about ILSC's finances which later proved to be seriously inaccurate.

  The problem of consolidating ILSC into a coherent company was a difficult one. Unifying the production and printing of three organisations made commercial sense but arranging the financial operation required time and skilled management. At the outset, none of ILSC's directors knew much about the financial health of their company. Four weeks after Maxwell had made the bid for Butterworths, Cooper Brothers, the management consultancy firm, wrote personally to Maxwell pointing out the absence of reliable information about ILSC's finances. Both Pickara and Bishop, BPC's deputy chairmen who were ILSC directors, later admitted that the information they received about ILSC's finances, especially its bad debts, was until spring 1969 both 'irregular and insufficient'. Yet the formal offer presented by Ansbachers on Maxwell's behalf for the Butterworths bid contained a very reassuring statement about ILSC's finances. After explaining Pergamon's guarantee that ILSC's combined pre-tax profits for the first year would be 'at least £500,000', the offer document stated that the target would be met: 'The Board of ILSC has informed Pergamon that sales and profits for the first three months of operations are running at the level forecast when the arrangements were negotiated.' This statement was crucial to fixing an esti
mate of Pergamon's profits and therefore to establishing the value of the shares it offered in exchange for Butterworths.

  Bruce Ormrod, the Ansbachers banker handling the bid, admits that he never saw the relevant letter from the ILSC board to Pergamon containing that important assurance. 'I was entirely at fault in not getting that as a copy for my own records,' he later admitted. In the rush to make the bid, Ormrod said, he had relied entirely on Maxwell's promise that the letter did exist: 'I was informed by Maxwell that he had obtained it.' The BPC directors later claimed that they had not signed such a letter nor had they ever seen or approved the assurance which Maxwell gave Ormrod. In contradiction, Maxwell insisted that all three BPC directors had visited him at Fitzroy Square and had approved the whole document including the forecast about the profits. Whatever the truth, the profits forecast was wrong. It was a reflection of the style of operations at ILSC.

  In December 1967, in response to Cooper Brothers' warning to Maxwell that ILSC's accounting system was unsatisfactory, Harold Moppel was appointed the company's financial director. On arrival, Moppel received optimistic assurances from both Maxwell and Le Bas that ILSC was 'running at enormous profits' because of the high sales. Moppel however judged that ILSC was in a state of chaos and that in reality no one knew what profits would be earned. 'No accounts had been produced of any nature,' he said three years later.