Corporate Profile: DMGT
The uncertainty that greeted the accession of Jonathan Harmsworth (right) to the chair of The Daily Mail and General Trust has passed. It's very much business as usual at the media group, with share prices rising and now a place among the elite of the FTSE 100. But with its new-found status comes a nagging old question: can a multi-national company run along family lines remain intact in the global media village?
Wednesday 17 February 1999
For Jonathan Harmsworth, the young charmer who stepped into the hot seat last September after the untimely death of his father, Lord Rothermere, achieving the stock market valuation that qualifies him for the FTSE has a double edge.
With it should come a top-drawer City following, cheaper capital and renewed investor interest in the company. But alongside these benefits there are also disciplines. And many of these are about the last thing that this last great British newspaper dynasty wants, or feels that it needs.
It is a curious paradox that the group that owns the Daily Mail, that bastion of middle-England certainty, can itself appear to be a mass of contradictions. Ask senior journalists how they view Daily Mail and General Trust (DMGT) and the response will nearly always come laced with admiration, albeit often grudging. Here there is, they will say, a media owner with an uncanny knack of riding the Zeitgeist.
Its papers have editorial budgets that most others can only dream about, and operates under the assumption that it can have whatever or whoever it wants when it wants them. If there is a problem, money is thrown at it in a way that can seem profligate, or like the actions of a spoilt child. But it is a policy which, while at odds with most Fleet Street thinking, seems unerringly to deliver. The facts seem to speak for themselves.
Latest circulation figures show the usual modest but steady rises for both the Daily Mail and the Mail on Sunday. More significantly they demonstrate total domination of their respective markets. Whatever anyone may think of the products, together they are a great journalistic success story. Equally, few in the City would argue with this picture. Last week the company posted record results, with operating profits up 34 per cent to pounds 214m.
Yet ask any authority on corporate behaviour and the answer couldn't differ more. DMGT is well out of kilter with the modern age, they say, pointing to the group's archaic dual share structure which allows the founding Harmsworth family to use shareholders' cash without relinquishing any control.
With this comes a degree of shyness, or downright secrecy, about operations which would only normally be associated with a private company. Alone among the big media groups it has no press office, for example. Interested journalists are directed to its corporate affairs office, itself run by a member of the family clan - Vyvyan Harmsworth, a cousin of the chairman.
Most observers would agree, however, that in part this very closed family nature has been behind both the group's recent success, and previous vulnerability.
The dynasty has its origins in the launch of the Daily Mail in 1896 by the journalist and adventurer Alfred Harmsworth, later Lord Northcliffe. His great idea was to produce a newspaper for the then burgeoning middle classes, and it is one that has guided the group ever since.
While he provided the journalistic drive, his brother Harold, the first Lord Rothermere, provided the business acumen. Within 20 years the fledgling empire of Associated Newspapers owned the world's largest stable of magazines and more than half the titles on Fleet Street - including The Times and The Daily Mirror.
When Alfred died childless in 1922, the succession passed to the Rothermere line, and Harold in turn handed it on to his third son, Esmond, on his death in 1940. The elder two brothers had been killed in the First World War.
Always the reluctant press baron whose real ambitions lay in politics, Esmond presided over the apparently terminal decline of the group. A report commissioned in 1970 said that the Daily Mail could no longer compete with its arch rival the Daily Express. Losses on Associated's three titles at the time - the Mail, the Daily Sketch and the Evening News were heading for pounds 14m a year.
Esmond had begun to negotiate a merger with the Express, but when talks broke down he resigned and handed over to his son, Vere, the third Lord Rothermere. His re-launch of the Mail as a mid-market tabloid, increasingly aimed at the emerging market of younger women, laid the foundation for the group's current success.
The past 18 months, however, have not been easy. Late 1997 saw the unexpected death of Sir David English, the Mail's editor-in-chief. His working partnership with the third Lord Rothermere, which spanned three decades, has always been seen as the basis of the revival.
Then, last September, came the equally unexpected death of Rothermere himself. So the dynasty fell prematurely into the hands of his son, the then 30-year-old Jonathan.
Both deaths were followed by sharp drops in the DMGT share price. The last was fuelled by fears that the new Lord Rothermere, only three years into his schooling in the ways of the company, was far from ready for the top job.
However, under the steady hands of long-time chief executive, Charles Sinclair, the share price has, since last October, climbed back higher and higher. The message to the City is clear: it is business as usual.
Entry into the company top league, however, brings with it unwelcome City scrutiny, where DMGT's corporate structure finds few friends. There are 100 million DMGT shares issued, and the Harmsworth family owns 80 per cent of the five million that come with voting rights. The present Lord Rothermere alone controls more than 56 per cent of the Group's voting shares. The only other FTSE 100 company to retain such a dual share structure is the merchant bank Schroders. (Interestingly, Charles Sinclair is also a non-executive director of Schroders).
Such structures: "go against the principles of corporate governance and well established practice in all the developed world," says Chris Baldry, manager of the voting issues service for the National Association of Pension Funds. PIRC, the corporate governance consultancy, recently produced a report highly critical of DMGT. It states that though its directors believe the company fully complies with the Cadbury Committee's code of best practice, PIRC has a number of reservations.
On the dual share structure, Stuart Bell, PIRC research director, is uncompromising. "It's unsustainable that they should retain the position," he says. Yet retain it they will.
"I see no reason for change," says DMGT finance director Peter Williams. "A small number of institutional investors who will not buy our non-voting shares, but that's their prerogative. It's caveat emptor." He adds: "Media seems to be a business where you can take a long-term view and we can do that. We're not driven by the next set of results. If we need to invest in a product we will do that, even if it means hitting the earnings."
Friends of the new chairman say that fears about his preparedness for the task were themselves premature. They describe him as very well tutored in the group - right from having managed a paper mill in Canada - and keen to make his personal mark. Indeed they say he is more willing than his father to be seen as the power behind decisions, where the previous Lord Rothermere preferred to smile benignly in the background.
With Claudia, his bright Oxford graduate wife, behind him and with a son of his own, the dynasty seems secure for the next generation. That is what you call long term planning. Whether money will be spent on the newspapers with quite the same abandon could be interesting to watch. One friend described Jonathan as "slightly frugal" by nature. One story told is of how he turned up to a golf tournament without any balls to play with, on the assumption that someone else would be providing them.
Pressure to change, analysts agree, is unlikely to come unless the Group hits hard times - and for a long time things have gone rather well. It took 20 years for the Mail to overtake the Express after the 1971 re-launch, but its position now appears unassailable. Even journalists who disagree with its political position, and its owner's intolerance of in-house union activity, commend the paper for its sheer professionalism and the golden touch of its editors.
The third Lord Rothermere also launched the Mail on Sunday, now almost as impregnable as the daily. And the group succeeded in retaining its supremacy in London with the Evening Standard in the mid-Eighties by briefly resurrecting the long-dead Evening News in a devastatingly effective spoiling operation against Robert Maxwell's fledgling London Daily News.
Perhaps his greatest achievement, though, was in consolidating the Group, folding its national newspaper wing, Associated Newspapers, into DMGT, which had been, in essence, the personal investment portfolio of the Rothermeres.
Ridding DMGT of all its non-media stocks, the Group was transformed in the late Eighties into the coherent media company it is today.
As well as its national papers, DMGT today includes Northcliffe Newspapers, the UK's second biggest regional newspaper publisher; exhibitions, radio, Teletext, and electronic data businesses; a New Media division producing mass-market Internet sites and a majority shareholding in Euromoney Publications. The whole ship is run smoothly and without fanfare from its Kensington HQ.
Even if the new Lord Rothermere is still something of an unknown quantity, there is much City faith in Mr Sinclair and Mr Williams. One fund manager speaks of the need for pragmatism when dealing with DMGT, preferring instead to extol the "extraordinary success" of its recent past. You cannot fault the company's profits record, he says.
Laura Larghi, an analyst with Paribas, agrees that there can be few complaints about DMGT's performance now, but says the future is a different question.
"Euromoney is the best part of the company. It really is a jewel. But it's just one part of the company. DMGT should be a bit more aggressive. They have the money and can fund other sources of profitability. The newspapers can grow organically but not much more."
Another analyst backs her andsays acquisitions will be the key to the group retaining its top ranking.
One senior insider describes DMGT as traditionally "not entrepreneurial, just very, very staid", but says there are signs that the new chairman may want to change that.
He believes the group depends too much on one product (newspapers), and one market (the UK), and says DMGT must look to other countries and activities.
Electronic media, radio and exhibitions are among the areas the new Lord Rothermere is looking to for long-term growth.
Recent acquisitions include Why Publications and Radio Mercury. Peter Williams concedes that recent successes can be put down to the buoyant UK economy and the strength of advertising, and admits that the pace cannot continue. Hence the importance of diversification. But he stresses that newspapers will remain the heart of the company.
Next month's pounds 8m launch of Metro, a daily London free newspaper to be distributed at tube stations, seems to confirm that picture.
It will also be seen as the first real contribution of Jonathan to the groups fortunes - not least because he was one of the small group of five senior managers who decided to go with the project. With a sudden change in editors of the title last week, and News International working on a similar title, this is unlikely to prove easy terrain.
Still, there has only been one notable failure in recent years - that of the cable venture Channel One which folded late last year after failing to achieve sufficient subscriptions. Pressure from the City for DMGT to change its quiet, old fashioned ways may still, therefore, be some time in coming.
Founded: Roots go back to the 1896 launch of the Daily Mail by Alfred Harmsworth, later Lord Northcliffe (above). Incorporated 1922.
Divisions: Associated Newspapers, DMG New Media, Northcliffe Newspapers, Euromoney Publications, Harmsworth Media, DMG Information
Market capitalisation: pounds 1.6bn
Turnover: pounds 1.4bn (up 18% on 1997)
Operating profit: pounds 213.6m (up 34% on 1997)
Earnings per share: 135.1p
The Headline Makers
Jonathan Harmsworth, the fourth Lord Rothermere, chairman DMGT Educated at Gordonstoun; Kent School, Connecticut, USA; and Duke University, USA.
In 1993 Harmsworth joined Mirror Group where he gained valuable experience working in editorial, marketing and management. He was inducted into DMGT ways in the Group's regional newspaper arm, Northcliffe Newspapers, before becoming managing director of the Evening Standard in 1997. At 31, Harmsworth inherited his position five years before his father had planned. While he still has much to learn, he already wants to introduce a more dynamic approach into DMGT. Harmsworth keeps a low profile and has so far refused all interview requests. He owns more than half the voting shares in the Group. Married with two children, one of whom is named Vere.
Paul Dacre, executive director DMGT (above). Dacre joined the Daily Mail in 1980 and progressed steadily through the ranks, becoming Evening Standard editor in 1991. A year later he was made Daily Mail editor after The Times tried to poach him. Promoted to editor-in-chief of Associated Newspapers and elevated to the board in 1998, following the death of Sir David English. He is renowned as a demanding workaholic and is a devoted family man. More reserved than Sir David was, he nonetheless commands huge respect across Fleet Street for both his newspaper and strategic vision skills. Aged 50.
Charles Sinclair, chief executive DMGT. An accountant, Sinclair joined the group in 1975, the board in 1988 and was appointed chief executive in 1989. Described as relaxed and urbane and "not into power but into success". His is seen as an important guiding and steadying hand as the new Lord Rothermere finds his feet though another accountant, finance director Peter Williams, is the face DMGT presents to the City. Aged 50.
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