Onto the street to get the Minx’s Sunday reading and then back to my own…
11.28 It seems that the focus of my professional life has returned to Rough Music. The years of Endless Grief may have prepared me to some extent for OMG – it’s UMG!
A 20-year nether-world tour from EG to UMG.
Rough Music (With The Left Foot).The ritual use of cacophonous sound in the punishment of moral offenders… designed simultaneously to expose, rebuke and humiliate those who had seriously offended…
Christopher Marsh: Music And Society In Early Modern England. (Cambridge 2010).
I have been looking at the EG digital archive, and it continues to amaze me. In both EG and UMG cases, there were/are several areas of concern. But, in very simple terms, in only one of the examples of clear infraction, both EG and UMG failed to account.
There are, it seems, so many ways to prevaricate, obfuscate, delay, provide irrelevant details to distract focus from core issue/s and evade this one central point – non-accounting – that I wonder whether the Main Men responsible for determining the company cultures received Jesuitical training during the first seven years of their drawing-breath. In EG’s case, non-accounting to me took the form of four consecutive royalty periods during 1989-91. In UMG’s case, no statements have been presented over a period of 19 years Summers & Frip
p CD releasing.
The reasonable person might ask: why not own up to mistakes, errors and omissions, and rectify them?
then continue: Responsibility is one of the four pillars of the ethical company.
One quick answer in response: Owning up to mistakes, errors and omissions acknowledges liability to the offended parties.
So, if the companies are concerned not to meet their liabilities, for whatever reasons, the primary course of action is to deny their mistakes, errors and omissions as far as they possibly may without being caught-out by demonstrable untruths/lies; and the secondary course, to prevaricate and obfuscate in the instances where malfeasance is clear and inescapable.
In SG Alder Esq.’s case, owning up
would have opened up a range of accompanying issues, including breach of trust and duty of care, conflict of interest, and violation of professional standards of conduct as a chartered accountant. All these carried negative effects upon the Main Men’s hopes of a successful return to the music industry, with new licensing deals to Virgin and BMG Publishing in place (1991); and perhaps more important in the long term, to Mr. Alder’s reputation as Good Guy and Uprising Worker of Good Works.
In UMG’s case, owning up
would attract attention to the fragility and unreliability of their management and control systems in two areas:
1. Their takeover of other companies (we have had problems with the UMG takeovers of Island, Sony-BMG, Sanctuary and A&M).
2. The Music Industry’s Bright New Future of digital downloads, the only area Mr. UMG UK PP No. 2 addressed resolutely. Resolutely, that is, after 18 months of blocking by Mr. Second Tier Lawyer (who also gave me grief when he was at Virgin).
Where to begin, to present a consistent account of Endless Grief, from the mass of material? Let’s hear it for digitalization and easy reproducibility! Perhaps a core document, even the primary document in this archive, is a letter from Mr. Andrew Stanger, the Director of Business Affairs at EG, who wrote on EG headed notepaper from the EG Music Group Office at Blenheim House, 180, Kings Road to Coles Miller Solicitors in Wimborne, on 5 March 1991.
Coles Miller represented Michael Giles, founder member of KC and drummer in KC69. Michael was wondering why EG had not been paying his royalties on In The Court Of The Crimson King. Michael was not managed by Messrs. Alder and Fenwick, so had outside counsel and advice, unlike myself. Coles Miller, acting on Michael’s instructions, addressed this reasonable question – where’s my money? – to the Managing Director of EG, who passed it to Mr. Stanger. An artist is perhaps easily ignored, but a solicitor less so. Mr. Stanger
is noted by clients for being highly focused and amenable
and who highlight his impressive turnaround time even on issues that were technically challenging and applaud his willingness to pick up the phone and clarify any issue we want.
Others note that a particular strength is his ability to explain things in eloquent and concise layman’s language.
Just the kinda Go-To Guy needed to sort out the problem of where’s my money?
Mr. Stanger’s reply…Unfortunately we are not at present in a position to be able to pay publishing royalties to your client…
In my book, that explains things in eloquent and concise layman’s language
. On 21 March 1991 Mr. Stanger wrote to Coles Miller enclosing a cheque signed by Messrs. (Mark) Fenwick and Stanger, dated December 31st. 1990, for the royalty period ending 30 September 1990.
In reply, on 24 April 1991, Coles Miller demanded interest on the late payment and the future-establishment of a client account for Michael Giles. You have, in effect, confessed to using our client’s money for your own purposes.
Litigation is threatened unless a full response is not made by EG within seven days.
Mr. Stanger did not reply until 3 June. I’m not sure this quite counts as an impressive turnaround time even on issues that were technically challenging.
Key points from Mr. Stanger’s reply:
1. The delay in royalty payments was due to an unexpected delay in the completion of the sale of E.G. Records Ltd. to Virgin (now Virgin EG Records Ltd).
2. I do not accept your claim for interest.
3. I am also not in a position to agree that royalty payments received will be credited to a designated account. As you can see there is no provision for such a course of action in the assignment agreements.
In point 1, critically, the formal EG position on the reason for non-payment of artist royalties now moved from the frank and straightforward admission of EG’s Director of Business Affairs that we are not at present in a position to be able to pay publishing royalties to your client
to…… an unexpected delay in the completion of the sale of E.G. Records Ltd. to Virgin.
Problematically, Mr. Stanger’s statement of 5 March 1991 acknowledged that EG were unable to pay: therefore, the liability for non-payment was directly EG’s. The subsequent EG position, articulated on 3 June 1991 - an unexpected delay in the completion of the sale of E.G. Records Ltd. to Virgin
- is a frequently-recurring element in my own Endless Grief correspondence, and avoids EG being trapped in an untruth The unexpected delay
does not explicitly deny that EG were not… in a position to be able to pay publishing royalties
but implies that the responsibility for non-payment was no longer EG’s: therefore, EG had no liability for late payment. We would have paid you if the sale to Virgin happened sooner!
As an explanation in/of royalty accounting, this is nonsensical.
EG received royalties from its licensees within the six-month period prior to paying royalties to its artists (there are fine details, but the overall picture is sound). In the industry, this is sometimes referred to as The Six-Month Problem. If licensors use/divert client income-received before the due accounting date, instead of putting it in protected client accounts, and are unable to re-fill The Pot before payments are due, then they may have to send out letters saying unfortunately we are not at present in a position to be able to pay publishing royalties to your client. Or, as in the case with some EG-managed artists, not even send out letters.
One might also ask: what relevance does the delayed sale of EG Records
have on royalty payments by EG publishing?
Clearly, Mr. Stanger’s letter of 3 June 1991 shows that income flows and licensing receipts to the two EG companies (EG Records and EG Music) were not kept distinct; and went into (what was known in the early 1970s as) The EG Pot.
Nor is there mention in the 3 June 1991 letter of the series of draw-downs from Virgin Records in anticipation of the completion of the sale of E.G. Records Ltd. to Virgin (now Virgin EG Records Ltd)
. My own conversations at the time, with MA Fenwick Esq. (SG Alder’s partner) and very highly-placed persons at Virgin, suggests that by the completion of the sale, a significant part of the sale price (c. £2.5 million) had already been paid over by Virgin. What had happened to that?
So, a fuller explanation by Mr. Stanger in his 5 March 1991 letter might have been:
1. We don’t have the money.
2. EG Music publishing income went the same way as EG Records’ income.
3. We have received a large proportion of the EG Records sale from Virgin.
4. You’re not having any of it.
5. It’s not our fault.
Nevertheless, the unexpected delay
serves to give a spurious justification to avoid acknowledging what had taken place at EG (cf Coles Miller): using clients’ money for its own purposes.
So, what happened to the money that came into EG and didn’t go out to artists in prompt payment of their royalties?
Most likely the key time-period, perhaps the beginning of The Drive To Endless Grief
, is August 1988. This coincides with two UK events with particular impact on the partners:
1. The unstoppable inflationary surge in the British property market suddenly stopped, as if overnight.
2. The first warnings of major problems for Lloyds’ Names.
A third factor, the slowing of the music industry, was an additional problem, but not itself catastrophic to the interests of the EG Main Men, Messrs. Alder and Fenwick.
Cash-flow problems at EG in 1989 became in 1990-91 a crisis.
1. The EG Music Group’s loss for the financial year 1990 was £942,000 on a turnover of £3,735,000.
The EG Music Group was owed in excess of £4,000,000 by a company under the common control of Messrs. Alder and Fenwick, presumed to be Old Chelsea, the partners’ property development arm. Auditors Hughes Allen reported they were unable to form an opinion as to the recoverability of this debt (Old Chelsea went into liquidation in August 1992, settling the question of recoverability).
2. In The Athol Trust, the pension scheme for the benefit of the EG Music Group’s controlling directors, the Chairman of the Trust’s remuneration was £30,000 (the same as 1989); the highest paid director received £93,500 (£85,000 in 1989). No premiums were paid in 1990 (cf the trustees were paid £100,000 in 1989).
The EG Music Group’s outlay of funds to The Athol Trust in 1990 was £123,500 (i.e. 13.11% of its financial loss for the year).
3. The EG Music Group Ltd. paid £292,000 (£269,000 in 1989) for the consultancy services of Athol & Co. Ltd. (Messrs. Alder and Mr. Fenwick each received £180,000 from Athol & Co. in the financial year 1989 but the accounts for 1990 were not filed as of March 1993).
4. EG Music Group loss £942,000
EG Music Group paid to Athol Trust £123,500
EG Music Group paid to Athol & Co. £292,000
EG Music Group payments to Athol & Co. + The Athol Trust
(1989 - £484,000)
i.e. payments to the two Athols = 44.06% of EG Music Group’s financial loss for 1990.
5. By December 31st. EG Music Group was unable to meet its royalty payments to artists.
6. EG Management Ltd. (incorporated August 1988) had a profit for the year of £11,000 on a turnover of £185,000, and carried forwards an accumulated loss of £19,000.
7. Old Chelsea Property Corporation had a loss for 1990 of £2,320,432 on a turnover of £1,750,196 and carried forward an accumulated loss of £2,712,198 to 1991 (and went into liquidation on August 12th. 1992).
OCPC’s tangible assets fell by over £1,000,000 in the year from just over £5,000,000 to approx. £4,000,000. The write-off was in respect of the value of investment properties which were valued by the Directors (i.e. Messrs. Alder and Fenwick) who concluded that the values ascribed to investment properties (mostly freehold) were reasonable.
Auditors Hughes Allen concluded (the company accounts are dated February 1992) that the going-concern basis of the Old Chelsea Property Corporation was only justified if its bankers and creditors continued to support it for the forseeable future. (It appears this ceased in August 1992 when, it is likely that of the creditors, Coutts & Co. pulled the plug).
Three reasonable questions:
1. Why were Messrs. Alder and Fenwick of the EG Music Group unable to pay both first- and second- period royalty statements on publishing and records in 1990, to artists managed by Messrs. Alder and Fenwick of EG Management; in the same year that Messrs. Alder and Fenwick of the EG Music Group were able to increase the pay of Messrs. Alder and Fenwick of Athol & Co. to £292,000 (from £269,000 in 1989) for continuing to consult to themselves at the EG Music Group?
2. How were Messrs. Alder and Fenwick of the EG Music Group able to pay Messrs. Alder and Fenwick of Athol & Co. £292,000 in 1990 for Messrs. Alder and Fenwick’s consulting services to the EG Music Group; given that these consulting services increased the financial loss of the EG Music Group for 1990 to £942,000?
3. Where did the lotsa-money payments to Messrs. Alder and Fenwick, from whichever of the companies under their common control, actually go? That is, if not (at least partly) in royalty payments to EG artists?
12.25 No doubt, the left foot will return. But now, off to the Wickham Festival with the Minx.
15.54 Wickham Festival, Hampshire.
Leaving c. 12.35 for this wonderful rural festival I…
Today is a Toyah Band gig. Guitarist Chris the Wongmeister is also one of The Humans
with upcoming US and UK dates
Toyah is a Go-To Autography-Photography Opportunity…
… which, as nearly everyone now knows, requires personal security of the most vicious kind…
Vicious Bob has his third gig in eight days. Fearsome.
19.45 Leaving for Bredonborough.
Three superb performance days for the Minx, two superb days for Vicious Bob Security Services.
WillyFred is waiting for love.