He's the driving force behind Pearson's new-found sense of direction, a 'tough nut' who rather enjoys his 'brutally frank' reputation. By Andrew Davidson.
Just after 8.30 on a cold December morning Frank Barlow, managing director of Pearson, the £1.6 billion turnover media and entertainment group, is pouring the coffee from a silver pot in his 17th floor Thameside office. Barlow, 63, a blunt Cumbrian reputed to be the best newspaper manager of his generation, not only pours, adds the milk and passes the cup, he then leans over and, picking up the silver spoon, stirs it for me. I take it from this that he is someone who likes things to be done just so.
Barlow, a short, bespectacled man with a rather chilling Cheshire Cat smile, is widely perceived as the driving force behind Pearson's new-found sense of direction. For years the company was one of the City's most pukka plcs, operating like a family investment trust for its president, Viscount Cowdray, picking up nice little baubles such as Chateau Latour and Royal Doulton China along the way. Now it behaves like a group with a strategy: 'education, information and entertainment' is how Barlow describes it. The mix is still diverse - the Financial Times newspaper, Westminster Press, Penguin and Longman publishers, Thames TV, 17.5% of BSkyB, 50% of The Economist, leisure sites Madame Tussauds, Alton Towers and Chessington World Of Adventures, and, er, 50% of Lazards.
Lazards, the blue-chip investment bank? Well, as Barlow explains, it makes lots of money, requires little Pearson management time and even less capital investment. So why sell it? But Chateau Latour is long gone (sold in 1989), plans to demerge Royal Doulton and the conglomerate's oil services arm have been announced, and the age-old image of the company - founded by Samuel Pearson in 1844 - as a bunch of Old Etonians having a good time has been kicked into touch. Almost.
'There are two misconceptions about Pearson that I really hate,' Barlow starts off, when pressed. 'First, the impression that I am a good, strong manager and that my senior colleagues are not, and are only here because they are members of the Pearson family, or went to Eton or something.' He goes on to recount how able his chairman, Lord Blakenham (Viscount Cowdray's nephew), and colleagues are.
'And secondly, the idea that we cannot close deals.' Pearson, he acknowledges, has recently been the suitor that never makes the wedding, pipped at the post again last year by Rupert Murdoch in the rush to buy Star, the Asian satellite TV venture described as the most successful television start-up ever. Other deals have passed it by: Elsevier, the Dutch publisher with whom it hoped to merge; Outram, the Scottish newspaper group; Mirror Group Newspapers; and Rank's film arm. There is a good reason, says Barlow. 'It is simple to close deals. You just meet the terms of the seller. Maxwell closed deals - he paid what they wanted.' The 'class thing' - Barlow went to Barrow Grammar, trained as an accountant, and started work overseas - has doubtless irritated him for as long as he has been at Pearson. It crops up again and again from analysts and journalists, usually with references to Barlow as the Pearson NCO sorting out the officers' problems and suchlike, in a manner that few other executives have to cope with.
Yet for all his complaints there is a suspicion that he rather plays up to this one. He enjoys telling journalists he is 'nasty' and certainly revels in his reputation as the tough nut of Pearson. Some will testify that he is not afraid to act it out. When David Palmer, chief executive of the Financial Times, suddenly left his job last year, many presumed it was with a shove from Barlow, who had held the job himself in the '80s. Was it personal? No, says Barlow. 'It's invidious to talk about someone now you have decided to part company but I wasn't happy with the motivation of the FT, and it needed changing.' Motivation? But isn't the FT, by any estimate, one of the most successful newspapers in Britain, if not the world, and wasn't Palmer Barlow's appointment? Barlow, resting on the edge of his office settee, crosses his arms firmly. 'I don't want to be any more specific.' Barlow brought the same uncompromising attitude to union negotiations in the bad old days of the '60s and '70s. Then he travelled the world working for the Mirror's Cecil King, handling newspapers in Nigeria, Ghana, Barbados and Trinidad, before putting all that to good use first as general manager of the Mirror, and later at Pearson. The early experience was crucial. 'Because I had worked overseas in a non-union environment, I was able to see the industry through clearer eyes than some people who had just stayed in the UK,' he says carefully.
Others thought he was a man with a mission. Famously, when the National Union of Journalists' own newspaper described him as 'union-bashing', he sued, winning the libel action even though it was clear he rather enjoyed the description. 'Yes,' he says now, 'I did take it as a compliment but it suggested that was my only quality. It wasn't. I had a lot of experience and a long history of making good profits. That's how I built my reputation.' But it could hardly have endeared him to his employees, many of whom were journalists? He laughs. 'Well, I could never bankrupt the NUJ because it was permanently bankrupt.' Many believe the watershed in Barlow's career came with Rupert Murdoch's acquisition of a 17% stake in Pearson in 1987. The prospect of imminent take-over sharpened the focus of those running the group, and not only gave Barlow the final push to the top - he became managing director and chief operating officer of Pearson in 1990 - but also a freer hand to shape the sort of outfit he wanted. It is a nice theory, says Barlow, but rubbish.
'For a start I don't think Rupert would ever have taken us over. Everyone else may have thought so but then everyone else was misguided. He couldn't have persuaded enough people to sell.' And, he contends, it certainly did not give him the leg-up that everyone believes.
It is, however, intriguing how often Barlow and Murdoch's paths have crossed in the last 20 years. It is well known in the newspaper industry that Barlow is the manager Murdoch always wanted but never got - Barlow won't say why he turned down the offers to head News International's UK arm but friends insist he was horrified by how readily Murdoch would push aside the men already in the post. That, thought Barlow rationally, would probably be me in five years' time. It was Murdoch's loss. Barlow was the man who could have led Murdoch's operation to Wapping without all the fuss, so the gossip goes. But he wouldn't budge.
Since when Fate continually conspires to throw them together. When satellite start-up BSB - in which Pearson had a 23% stake - hit problems, Barlow was sent in to firefight. After two meetings he had decided that it had to merge with Murdoch's rival Sky outfit and that Murdoch's management had to run it. Most of the BSB staff were made redundant; BSB boss Anthony Simonds-Gooding was not even allowed to clear his desk - it was cleared for him. The manner of it all was typically ruthless but it worked, especially for Pearson. Even now Murdoch complains about the deal, claiming that if he had kept Sky going and not been persuaded by BSB's blandishments, he would have been left sole victor. Instead, he is locked into an uneasy joint venture which at least is now making a profit.
'Yes, I know Rupert says he should never have merged,' says Barlow, 'but the fact is we would both have gone out of business.' (Later he adds: 'I think Rupert would prefer not to have partners but I think we have been very good - both sides can veto anything. We saved Sky. We helped him in that, so we have been very good partners. I have never asked him if he is grateful for that, but he has done a very good job so our efforts have been repaid.') Then, after Pearson had clearly signalled to the City that it was about to announce a breakthrough deal last summer, who should steal Barlow's thunder - and Star, his acquisition - but Murdoch? It was terrible public relations for Pearson, which went ahead and announced the disposal of its china and oil subsidiaries, leaving the impression that it had raised the cash for nothing.
'Pearson left standing at the altar again' went the headlines. Barlow sighs when reminded. Star fell through, he explains, because its backer, Li Ka-Shing, the Hong Kong property developer, and its founder, Li's son Richard, just would not stay in the project. Pearson believed their involvement was crucial to a TV venture that broadcast to 38 countries from Turkey to Indonesia. To do business, and collect revenues, in so many countries, you needed connections, which Li had. But with China's takeover of Hong Kong approaching, and given the political sensitivities of running a media outfit, Li was looking for a hasty exit.
'We wanted Li to stay in with 30% for five years,' says Barlow. 'If I was prepared to relax the conditions I would have got the deal. But one of the reasons I wanted the family to stay in the deal was they was selling futures, and I wanted them to prove that they believed in the future.' The upshot, of course, looked bad for Pearson but Barlow is adamant he did the right thing. 'All this business of Rupert creeping up on us was nonsense. We knew what hotel his team were in, and if we hadn't known about them, Sky would have told us. I don't think he did a bad deal in the end, but I don't think he knew as much about the business when he signed as we did.
Rupert himself has said that it is high-risk, but he is a great risk-taker; he has bet the shop before and that isn't Pearson's style.' Which begs the question, what is? Barlow's chairman, Lord Blakenham, has talked airily of a 'Pearson philosophy' which has been interpreted as allowing businesses like Penguin, the FT and Tussauds to plough their own furrow. Hence if Penguin wants to publish Salman Rushdie, with all the likely ramifications for Pearson's overseas business, head office is not going to stop it. Likewise if the FT, owned by a company that regularly donates to the Tory party, wants to advocate voting Labour, as it did at the last election, that's fine. This, of course, might seem somewhat at odds with Barlow's reputation as a formidable hands-on manager and some believe the reins are being tightened all the time.
Barlow makes it clear in defining his own role that, whatever the subsidiaries may do, they do it within parameters and objectives set by him - 'strategies, budgets, plans and acquisitions', as he describes them. He likes to see everything on paper, and must be one of the few blue-chip bosses not to have a screen on his desk yet. ('I don't think the information systems are good enough yet,' he explains, a bit uneasily.) He defines his priorities as cash generation, margins, customers and markets. His strength as a manager, he says, is the ability to motivate, his weakness is intolerance. He is also good, he adds, at choosing the right people for the top Pearson jobs. 'All the appointments have been successful except one,' he says bluntly, presumably referring to Palmer's exit from the FT last year. But is Pearson as good at managing its investments? It has 14% of Yorkshire-Tyne Tees, the merged ITV contractor. There was a kerfuffle in the TV world last year when (YTTTV) admitted that, under pressure to pay for its winning ITV franchise bids, it had sold £15million worth of advertising space it hadn't got. The board, on which Pearson sits, apparently knew little of it, and Clive Leach, the YTTTV chairman and chief executive, was eventually forced to resign.
'Yorkshire made a lot of decisions which we didn't agree with, and we made that very clear at the time, but we didn't have control,' he says. Decisions like what? 'Like paying too much for the franchise, and merging with Tyne Tees. It was good for Tyne Tees' shareholders but it didn't do much for Yorkshire's. Nor did we think Leach should be chairman and chief executive, but you can only express opinion on a board, and if you are outvoted, you are outvoted.' In other words, it lost every major decision made by Yorkshire in the last three years. Pearson hung on in there, you suspect, because a stake in ITV was too important to lose. It already has Thames, the former ITV station, and now needs a greater chunk of the broadcasting market if it is to be taken seriously as a media giant. But it is hamstrung at the present time by the cross-media ownership restrictions - which limit newspaper owners to 20% of a broadcaster - and last year had to watch uneasily while ITV re-ordered itself after the Government's initial relaxation of ownership laws.
At the time of our meeting, Granada's attempt to take over London Weekend was still undecided, leaving Pearson in a difficult position as LWT attempted to strike a deal with YTTTV to defend itself. Barlow is not optimistic about the London station's chances. 'I don't know what to expect but I think the chance of LWT taking over Yorkshire is remote in the extreme,' he says. Barlow has a good relationship with LWT chief executive Greg Dyke. Two years ago he won dinner at the restaurant of his choice from the LWT boss, who is a former Labour GLC candidate, after correctly forecasting a Tory win in the General Election. 'I did mention Le Manoir Aux Quat'Saisons but in the end I was kind and let him choose a more modest establishment,' he remembers.
Barlow has lobbied hard for a change in the cross-media ownership laws and expects to see the benefits of that this year. If they are lifted - as it seems they will be, leaving ownership subject solely to scrutiny from the Monopolies and Mergers Commission - Pearson will be pitched into a television free-for-all with the likes of Associated, the Telegraph and the Guardian. Barlow does not, however, expect Murdoch to join in. 'I'd be surprised if he increased his newspaper or TV holdings,' he says.
At the same time, of course, there is nothing to say that a high-quality, newly focused group such as Pearson might not be a potential target itself for one of the modern moguls emerging from ITV. Carlton's Michael Green, for instance, who has set his sights on emulating Rupert Murdoch, is known to be interested in a newspaper or two.
Stranger things have happened. 'We're not bid-proof,' acknowledges Barlow, 'but then I wouldn't want to be. If a bid came in, in the best interests of the shareholders, then we should be taken over. But I hope we run the business in the best interest of the shareholders already.' Aside from Pearson's high rating - Barlow points out that, as we speak, it is the second highest rated stock in the highest rated sector in the City - the problem for any bidder, of course, would be gouging enough shares out of family hands (the Pearson family still owns at least 15%-20% of the stock) to make a run at the company worthwhile.
Meanwhile the City waits impatiently for Barlow and Blakenham to pull off the Big Deal that everyone has forecast for so long. Blakenham has already said that he wants Pearson revenues to be split equally between Europe, the Americas and Asia (in 1992 UK and Europe sales totalled nearly £960 million, North, Central and South America close to £720 million, and Asia, Australasia and Africa just over £175 million). The company has cash to spare and, after a slide in profits for three consecutive years, is expected to report a turnaround this April. Where will it strike? 'I think in terms of markets,' says Barlow cryptically. 'Whatever the market wants, we will supply it. Books, TV, newspapers, whatever.' At 63, he has passed the age when many managing directors retire but no-one expects him to work harder on his golf handicap - he is a member of the exclusive Gerrards Cross club - till Pearson's future is sorted out. Nor is he likely to change his style. He is not really nasty, he says, just blunt. The thing about northerners is that they are generally much more frank with each other, and the further north you go, the more pronounced it is.
'Friends will talk to each other in Cumbria in a way that down here would be seen as almost rude. It's very direct. As a result of that I am very direct,' he laughs. 'Brutally frank, in fact.' It is only later I get the joke: brutally Frank, of course. I think he enjoys that kind of thing more than he lets on.