The MT Interview: Charles Dunstone of the Carphone Warehouse

He's survived some PR disasters; now the affable Charles Dunstone has new tricks up his sleeve.

by Andrew Davidson
Last Updated: 09 Oct 2013

Times may be tough, but Charles Dunstone remains as affable as ever. He sits in a blue Prada suit beneath a vast photo of a smart New York office that hangs on a bare concrete wall in the new, Brutalist block housing his TalkTalk landline and broadband operation on the edge of trendy Notting Hill, west London. And he gently mocks it all.

'It's industrial chic,' he says with a wink, gesturing around. Outside his glass-walled booth, rows of workers sit at desks in a bleak, brushed-concrete space that looks, frankly, unfinished.

Or like an art gallery. He smiles. 'Our network people came down from Manchester and they know I am obsessive about every detail, and they looked around and said: "Charles, you must be furious they haven't finished it yet," and I said: "No, no, it is finished," and they said: "You are taking the piss, surely?"' He shakes his head and giggles. 'Then they said they were going back to Manchester to take their ceiling tiles down ...'

Dunstone, 45, is a master of self-deprecation, upbeat, modest and, at 5ft 7in, a short bundle of vulnerable charm. It's why people like him. Right now, he looks unusually dapper - his face is round as a bun but his expensive suit trims him, his placketless shirt is austerely chic. He has been married a few months and it seems that a sleeker, smarter man is emerging, rather at odds with the chubby, scruffy enthusiast who built his first fortune a decade ago.

Back then, he surprised many by making a success of his Carphone Warehouse shop chain, selling mobiles to the masses. Now his business is a retail and broadband giant worth £1.7bn. He still owns a third of it and, for one more month, heads it as chief executive.

In truth, Dunstone started getting sleeker and smarter some years back and, by many ratings, could be rather grand now: chairman of the Prince's Trust charity and a captain of industry, well-connected enough to have Sir Stuart Rose, outgoing chairman of Marks & Spencer, as an usher at his wedding, with a host of business stars in attendance. His wife, Celia Gordon Shute, works for Chime Communications, the PR firm headed by Margaret Thatcher's former adviser Lord Bell, and Dunstone's politics could be changing, too, from Labour to Conservative - though maybe there's not much between them, these days. But already I've gone too far ...

'I had all my old mates there too,' he objects cheerfully, when I mention that wedding guest-list. As for politics, he has been careful to speak to everyone. And why can't M&S's Rose be his friend? Pin-neat, super-smooth and equally affable, Rose was born to be the world's best wedding usher.

Dunstone laughs. It could have been so different. The firm nearly capsized three years ago when his launch into broadband - offering it free to landline subscribers - produced more demand than his TalkTalk arm could cope with. Systems collapsed, consumers were furious, the publicity awful. Says Dunstone soberly: 'It was my worst business moment, a real coming of age.'

Then 14 months ago, his friend and business partner David Ross was revealed to have secretly pledged his 19% stake in Carphone Warehouse to JP Morgan, the investment bank, in return for loans. Ross had co-founded Carphone Warehouse and sat on the board, yet never told Dunstone, let alone the company's shareholders, about the loans. Had JP Morgan been forced into a rapid sale of the shares, it could have torpedoed the firm's share-price, just as the worst of the downturn bit. And Dunstone might not be looking quite as chipper as he does now.

Yet he toughed it out. TalkTalk, having swallowed rival Tiscali last year, is now the second-biggest supplier of broadband in Britain after BT, and Carphone Warehouse is emerging strongly from the recession, boosted by the surge in sales of smartphones. And this year, Dunstone is chancing his arm again, as he pulls TalkTalk out of Carphone Warehouse and splits the firm into two listed businesses on 28 March. Shareholders in Carphone Warehouse will get stock in the new TalkTalk plc, and the shares will be revalued. Dunstone moves up to sit as chairman of both, overseeing two chief executives.

The deal is further complicated by Carphone Warehouse's close relationship with US electricals giant Best Buy, to whom it sold 50% of its retail arm two years ago. The first fruits of that partnership - four giant Best Buy superstores - open soon in Britain. Best Buy, it is speculated, may eventually buy up the rest of Carphone Warehouse, leaving Dunstone to pursue his ambitions in broadband - hence his decision to strip out TalkTalk.

Dunstone shakes his head. 'Splitting the business was just inevitable from the moment we launched broadband. It got increasingly uncomfortable for Carphone Warehouse, in that some mobile companies such as Orange and O2 have broadband offerings, so their suspicion was: is Carphone their customer or their competitor? And Carphone had broadened its range to do all sorts of connected products as well as mobile, so people like BT and Sky were suspicious they weren't going to get fair treatment.

'Then when Best Buy got involved, we had to put an arm's-length relationship in place so we were not cross-subsidising. And shareholders started to say: "Why have you put these two together? You wouldn't if you started fresh ..."'

So why go into broadband if it was going to cause these conflicts? Because events just pushed him that way. 'We could see broadband growing, and we either had to sell our voice business or go into broadband, otherwise the broadband people would steal our business. And as we're more go-forward people than go-back,' he grins, 'our instincts were to go forward.'

It summed up the old Dunstone style: care- ful planning, bold moves, staying customer- focused. And then came the trauma of TalkTalk's broadband launch, when careful planning clearly went overboard. What he learnt then, he says simply, is that everything changes as your business gets bigger.

'Because in the past if we'd done things that were bold and didn't work, we could work for a week at night or something and fix it. But this thing got out of our hands, there were so many customers signing up we couldn't cope. We'd been naive when we repriced the market, we underestimated the power of "free".'

What he should have done, he says now, is devise some way of limiting initial demand. 'A bit like Spotify does now, you know? You have to get an invite to join. I don't know why I didn't think of that.' But if you screw up, he says, the important thing is not to hide, but to devise a way to get out of it. That involved an admission of mea culpa on Dunstone's part.

'I ended up writing an e-mail to the whole company: "The idiot who thought of free broadband." It had become my own version of the Iraq war - I don't know how we got into it or how we get out. But the time comes when you have to fight your way out, and that's what we did: we ground it out. You couldn't abandon it, you had to make it work. You had customers, you'd promised to fix it.'

It cost him, financially and reputationally. 'But look, we remember and we are ashamed.' And from that moment, everything changed, he says. 'I think we realised ...' He pauses. 'We learnt we were playing on a much bigger platform now. We had to be more mature in the decisions we made. In the past, you could fix things, it was just small. One Christmas, when the system to send stock to the stores stopped working, we all just went there and packed it ourselves and sent it out - you could do that. If it happened now, it would be chaos. Large companies are so much less functional than small ones.'

As for Ross's share pledge, that blindsided everyone, says Dunstone. He insists he knew nothing about it. Has he forgiven Ross?

Dunstone's boyish face seems suddenly expressionless. 'Obviously, I wasn't happy, not for him or for us. It was terrible. Genuinely, we didn't know about it. He just came to the board and told us. But in the end it turns out that the FSA is saying it is not sure if he should have told us or not ...

so the rules are not very clear. It would have been damaging for shareholders if all that stock had gone on the market. But that's life, isn't it? Just a complete surprise.'

He won't reveal a word of what was said between them. The mate he calls 'Rosso' was in the news again in January, questioned by police about the alleged assault of an escort girl (she has since withdrawn the allegation). Tory party donor Ross stepped down from the board a year ago and sold 24 million Carphone Warehouse shares in June, cutting his stake closer to 16%. It still seems odd to hold so much of a business and not have a say. Might Ross rejoin the board?

Dunstone says no. 'I think we all feel that was a moment, and time has moved on, whatever he wants to do in his life ... Being a director is restrictive to him in what he does with his shares.'

It must be sad, though, watching all the old team from the early 1990s drift away? 'Nah,' says Dunstone, lightening up. 'There's still some - Steve, who runs the installation business, Andy, who runs retail ...'

Dunstone loves teams - it's why he adores sailing, and keeps two big yachts, one in Britain, another in the Mediterranean, to occupy his holidays. Trying to recover the buzz of a tight crew working towards a single goal might be another reason why he is splitting his business. But, given that he is also famously hands-on and detail-obsessed, how will he ever adapt to being chairman, twice over? When we meet, he is happily holding down the managing director's role at TalkTalk, waiting for a new boss, MT '35 Women under 35' alumna Dido Harding, to arrive from her present job at Sainsbury's. The division's previous managing director, Wendy Becker, had just jumped to Vodafone. Dunstone doesn't look too put out at getting in deep again.

'Yeah, it's easy for me to do. I am the leader of the business, whatever my job title,' he shrugs.

Maybe that's why Becker left - because he never lets go? He frowns. 'No, she always promised me it wasn't that. I gave her lots of space.'

Yet it's also clear that there are elements of the past that he misses. 'The perfect company has six people in it,' he muses at one point. 'Everyone has perfect knowledge, everyone knows everything that's going on. The minute you start having some people knowing stuff and some not, you have inefficiencies, decisions being made on the wrong understanding, and you have to have meetings to share info ...

There must be an algorithm: for every new person you employ, the percentage reduction of every single person's productivity. It makes me passionate to celebrate the can-do culture, and celebrate people who do things, and not get overrun by HR.'

That can-do culture is something he liked at Carphone Warhouse's new partner Best Buy. The introduction was made by an Accenture consultant who had worked for both firms. Best Buy's then chief executive Brad Anderson dropped in for coffee with Dunstone at Carphone Warehouse's shabby offices in Acton, west London, and the two just hit it off. 'Brad is fantastic, no pomp, wonderfully humble,' says Dunstone. The companies agreed to work together first in the US, setting up mobile concessions in Best Buy stores, then in Europe.

The assumption that Best Buy will buy out Carphone Warehouse is just speculation, says Dunstone. Nothing is pre-ordained. First, they have to prove the partnership works. Best Buy's 'big box' superstores are already nine months late here, but should open soon. The Carphone/Best Buy team have been sniffing round sites occupied by defunct furniture chains.

But aren't there enough electrical retailers in Britain already? Dunstone is ready for that one. 'OK. Typically these will be much bigger than your usual out-of-town electricals store. The average (for those) is 10,000 sq ft; these are 30,000-40,000 sq ft - much better range, better display, better-trained sales associates. Our view is that in the world now where you have internet and so many other alternatives, you have to make your shop own all the categories it's in, so it's worthwhile (for the customer) making the journey. If you go to a small shop and find a small selection, you might as well go online.'

And at the heart of each store, he says, will be an advice-and-installation team that will guide consumers through the complexities of current technology. 'They're called the Geek Squad, they're here to talk to you and help you understand how it works, and install it for you and support you.'

At premium prices? No, he says. 'If you put Best Buy above your door, I'm advised it's hard to charge a premium. It will be competitive.'

I think he's being sardonic, but it's hard to tell. Beneath the banter, there is a steelier core. Dunstone started as a salesman, and you get the sense that he works a conversation subtly. As Ross once said, Dunstone is 'so personable' he is always plausible, and that, combined with his eye for detail and down-to-earth approach, gives him a rare power as a manager.

But then Dunstone always was unusual: not hewn from classic, disadvantaged entrepreneurial stock, but educated at posh Uppingham School and nurtured in a business-rich background, with a dad who worked for BP. Such roots mean you don't normally risk everything to start from scratch. You take safe jobs guaranteed by class and education, and dutifully pay mortgages and school fees. Dunstone didn't. He built a business by himself, the hard way.

In his early days, he'd happily admit he learnt everything about business from boarding school. 'It teaches you to get on with people. You learn about human behaviour, but especially it breeds a Colditz spirit that is fantastically strong. When someone puts an obstruction in front of you, you think: no, I am going to find a way around.'

That hasn't changed, nor has his sense that he likes to be the upstart challenging the established giants, a stance that clearly helps in motivating his legion of varied retail staff. But what happens when you become a giant yourself? Maybe you have to find other ways of achieving your goals, or maybe you compromise. That could be one reason why Dunstone has taken on the chairmanship of the Prince's Trust charity, replacing Sir Fred Goodwin, no less. To some, it seems an odd establishment role for a retail entrepeneur who has long operated as an outsider. But perhaps Dunstone is changing into something else.

He shrugs when I put it to him. He says he's taken it on simply because the charity does good work - helping disadvantaged youth get into employment - and he has seen it at close quarters for six years and reckons he can help it grow.

He also thinks it's needed. 'I worry that, in the past 15 years, there has been a polarisation in society; a lot of people have been left behind, and, you know, I regard myself as quite lucky. If I'd grown up in the environment of some of the people we help, I would have got myself into the same problems they do. I had some breaks in my life, and what the Prince's Trust does is give a chance to people who never get a chance.'

It's also a formal confirmation of a role Dunstone has long played, quietly mentoring other entrepreneurs. Richard Reed, co-founder of smoothies firm Innocent, says the Carphone Warehouse boss has always been generous with his time for others. He and his partners first approached Dunstone three years ago.

'He gave us two bits of advice that have stuck with me,' says Reed. 'First, you get more done by being nice than being nasty. Second, that there is no right way of doing anything, only the way that is right for you. He was just incredibly helpful. And you know what? He's about as grass-roots entrepreneurial as you can get, so of all the people to head the Prince's Trust, he's the best you could choose.'

So will Dunstone make the Prince's Trust more entrepreneurial? He shakes his head. He wants to be more pragmatic.

'No, actually, we've stepped back a bit from that. Now if someone wants to start a business, we put them on a four-day course where they learn about business and bookkeeping, and at the end of that, we'll conclude that some are not suited to doing it, and help them find training for another job, help them get direction.

'And the amazing thing about helping people in business is how it gives them self-confidence and belief in themselves. Very often, the people who are worst behaved are that way because they have no self-belief and no confidence. We help bring them back, and it is amazingly effective.'

Does British business do enough to help the disadvantaged? He pauses. 'Um, I think we are slightly schizophrenic in this country. In America, government has a light touch looking after the deprived, and business feels a responsibility to get involved. In France, government makes it its job to look after the disadvantaged, so business doesn't get so involved. We're somewhere in-between. We don't spend as much as France, but our politicians keep telling us they are taking care of things, and charging us more tax. We get a lot of support at the Prince's Trust from British companies, but I'd like them to give more.'

And how will he find the time to oversee the Prince's Trust? He laughs. The Trust will not eat up that much of his time, he says, as it often involves sessions in the evening, and anyway, it's a worthwhile thing to do. Better to do something than nothing. He'll see what the year brings.

Investors may have other ideas, but little seems to dent Dunstone's confidence. He slips out from behind his desk and pats down his suit jacket to show me the cut. 'I'm hoping it makes me look slimmer,' he says, suddenly seeming rather thoughtful.

Maybe this is just step one of his transition away from the retail world. He inherited a TV arm with Tiscali, and he is still working out what to do with it. 'Yeah, getting TV right is incred-ibly important and everyone wants an answer immediately, but it's a moving environment,' he says, confirming nothing. Then he steps onto the office balcony to have his photo taken, happy to leave the speculation hanging. We will have to wait and see.


1. Showing that a hands-on entrepreneur can step up to chairman and change his management style - twice over

2. Proving to investors that splitting his broadband business out of Carphone Warehouse will boost value, not destroy it

3. Sorting out the long-term future of Carphone Warehouse and its relationship with Best Buy, the giant American retailer

1964: Born 21 November in Cambridge. Educated at Uppingham School
1983: Salesperson, Torch Computers
1986: Moves to NEC as a sales manager
1989: Leaves NEC and starts selling mobile phones out of his London flat
1990: Opens first branch of Carphone Warehouse in London's Marylebone
1999: Buys 271 Tandy stores for £10m
2000: Lists Carphone Warehouse on LSE
2003: Launches TalkTalk landline company
2006: Launches TalkTalk broadband
2008: Starts joint venture with Best Buy
2009: Becomes chairman of the Prince's Trust, and acquires Tiscali
2010: Splits Carphone Warehouse and TalkTalk, steps up to chairman of
both. His joint-venture Best Buy Europe opens first superstores in UK

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