Pearson's blot on the landscape

Frank Barlow turned a hotchpotch of assets into a media giant. Then he went one acquisition too far

Frank Barlow: 'Pearson is a company that has evolved, and is still evolving'

Photograph: Philip Meech

Frank Barlow must be wishing he had bowed out as chief executive of Pearson last year, when prospects were a good deal rosier and his reputation still sound. But it is too late for second-guessing, too late to leave with head held high. The knives are out and Barlow, 66, could be gone by Christmas, say some of his less charitable colleagues. In any event, he is now unlikely to depart in glory even if he makes it all the way to May 1997, when he is scheduled to step down.

What went wrong? The story of Barlow's fall from grace in the eyes of an increasing number of critics is a familiar one to followers of City fashion. It is perhaps less well known to those who work in the media, for whom Pearson has always been something of an anomaly.

Pearson was, famously, a rich man's collection of expensive baubles - blue-blooded (a large stake is owned by the founding Cowdray family) and gentlemanly in its management style, eclectic in its interests, averse to fashion. Before its makeover into a pounds 4bn media giant, the company was a hotchpotch of (admittedly stellar) assets: oil services, blue-chip investment banking, Royal Doulton china, top-flight wines, Madame Tussauds and, of course its now-core media and publishing operations, Penguin, Addison- Wesley, the Financial Times, the Economist (50 per cent) and regional newspapers.

It has been run for more than a century by a succession of family chairmen, most recently Viscount Blakenham, on behalf of an extended family of shareholders that now numbers in the hundreds. Barlow's appointment in 1990 to second Blakenham marked a radical departure: he was a definite outsider, what one Pearson confidante calls "a counter-intuitive choice." Next to Blakenham's Eton and Harvard and the now-departed finance director James Joll's Eton and Oxford, Barlow was from another planet: a Cumbrian born boy, educated at a grammar school, with a stint in Africa for the Daily Mirror under his belt. He had already paid his dues at Pearson, spending several years at Westminister Press, the regional newspaper group, before becoming chief executive of the FT.

Since Barlow's arrival at Pearson's head office more than five years ago, the obvious oddities (china, wine and oil services) have been sold off. They have been replaced by a raft of new media and information holdings, ranging from Thames Television and Grundy Worldwide (makers of Neighbours) to the ill-starred Mindscape and, most recently, a stake in the new Channel 5 terrestrial TV service. The men in charge say they are building nothing less than Britain's premier media company, big enough one day to challenge the Disneys and the Time Warners. But there is still the distinct odor of "conglomerate" about the company - at variance with the current fashion among the City's investors. Moreover, many still dispute whether there are any "synergies" to be had among the company's information, entertainment and publishing assets.

The voyage from rich man's investment club to modern, thrusting media conglomerate (not yet complete) was planned and executed by Blakenham and Barlow. Since last year, Greg Dyke, head of Pearson Television and the millionaire former chief executive of London Weekend Television, has emerged as another key architect of the company's push into media, overseeing the purchase of Grundy, the US production house ACI and, most recently, the production and library arms of Allan McKeown's SelecTV.

While Pearson may have overpaid for some of its TV purchases (Grundy at pounds 175m was hardly a steal), the television expansion has been generally well-received by investors. Eyebrows were raised, however, by one Pearson deal - the pounds 310m purchase of CD-Rom company Mindscape in 1994, which has been nothing but trouble.

It was the disaster at Mindscape that transformed odd rumblings to a roar of disapproval in the City. Far from making a profit, the hi-tech firm has been a drain, losing about pounds 7m last year and probably pounds 46m in 1996.

"Who is minding Mindscape?", asked one analyst last week. "Somebody has to take the blame."

Barlow and his chairman have been making the rounds of institutional investors in recent days, just as they do every year about this time. "They realise that a lot of our acquisitions have been very good ones," Barlow says. "Clearly, Mindscape has not been very good. But we are taking steps to improve its performance."

Pearson argues that it was hit by a downturn in two of Mindscape's key markets: game catridges (for video games) and so-called "original equipment manufacturing" for a range of producers. The company has moved to reduce the number of CD-Rom titles it will publish this year, and to increase the marketing spend per title.

It may be a question of too little, too late. Some institutional shareholders believe that a change at the top could mark the first step toward a radical reorganisation of Pearson: perhaps a demerger of its TV and entertainment interests, or maybe an across-the-board break-up of the company. At the very least, new management blood might shake up the current team, which is still viewed by many as slow and ponderous, even with the addition of younger men (the FT's David Bell and John Makinson, as well as Dyke, are now all on the main board, and could be in line to replace Barlow).

If something is not done, the argument runs, then another company may mount a bid to take Pearson over and sell off some of the pieces. There is clearly much of value here; but does it all work under a single corporate roof? Such talk has fueled a nice run in the share price, despite investors' concerns about under-management.

Barlow isn't buying it. "All this talk of demerger is pure speculation," he says. "Pearson is a company that has evolved, and is still evolving." He adds that the current mix of companies will be very profitable thanks to some obvious synergies. "We have enormous intellectual property rights, and we will see the fruits."

But many in the City say they have heard it all before. "Pearson hasn't done enough to drive the companies it owns," says one analyst. "there may be advantages owning theme parks, book publishing and television companies, but you wouldn't know it from looking at Pearson."

Comments such as these are damaging to Barlow, and he clearly doesn't like the criticism. Famously short tempered, even if genial enough in manner and speech, he refuses to discuss the recent speculation about his and Pearson's future.

But outside pressures are clearly feeding internal dissent among the operating companies, where equally strong-willed individuals are increasingly at odds with head office.

Barlow boosters say the tensions are quite normal - a logical reaction to the tighter management controls Pearson has started to impose.

Barlow himself insists he is a firm manager, who gets along well with his divisional heads. "Relations are very good. They develop business plans and I make sure they meet their objectives. If they don't ..." He pauses, nearly daring his interlocuter to remember how swiftly he dumped one hapless senior manager at the FT during his time as chief executive of the newspaper group.

But colleagues say there is indeed friction within Pearson. "Not everyone is comfortable with head office, and conditions have worsened," says one.

Adds another media executive who has had close dealing with Barlow: "He has stayed on far too long, and is far too erratic. He is a man of cast- iron whims."

Not everyone is so dismissive. Barlow earned a reputation as a scrappy manager at Westminister Press, where he tackled overmanning. He was respected at the FT, before rising to his current job. He pushed hard to develop the ill-fated British Satellite Broadcasting, which in the end succumbed to merger with Sky. But his critics have shorter memories, and are fixated on the mire of Mindscape.

They also remember some of his earlier failures. In 1993, after months of painstaking preparations, Pearson was about to buy a controlling stake in Star TV, the Asian satellite service. Rupert Murdoch pipped them at the post in the space of a few weeks. More recently, the company bailed out of two investments - in BSkyB and Yorkshire-Tyne Tees television - just before the shares raced even higher.

Barlow certainly helped to move Pearson toward its media future. The company is today nothing like its former self. But he has lost much ground in recent months, and his reputation has been tarnished. An endgame of sorts may have been irrevocably launched.