1 00:00:15,410 --> 00:00:25,770 Speaker 1: Pushkin. As always, London's Heathrow Airport is heaving. Security queues 2 00:00:25,930 --> 00:00:30,770 Speaker 1: shuffle forward. Exasperated parents trundle suitcases to the terminal with 3 00:00:30,970 --> 00:00:35,090 Speaker 1: toddlers in tow. Excited friends gather in bars to toast 4 00:00:35,130 --> 00:00:38,450 Speaker 1: the trip they're about to take. To it all walks 5 00:00:38,450 --> 00:00:42,250 Speaker 1: a heavy set, balding man in his late fifties. He's 6 00:00:42,290 --> 00:00:46,090 Speaker 1: wearing a smart suit and open shirt. But this man 7 00:00:46,170 --> 00:00:50,130 Speaker 1: is not on a business trip. The people walking politely 8 00:00:50,210 --> 00:00:55,370 Speaker 1: alongside him are not colleagues. They're police officers. They guide 9 00:00:55,450 --> 00:00:59,210 Speaker 1: him through the corridors of Britain's busiest airport and deliver 10 00:00:59,330 --> 00:01:06,650 Speaker 1: him to their American counterparts. Here civility acts. The US 11 00:01:06,810 --> 00:01:10,770 Speaker 1: guards promptly cuff his wrists, wrap chains around his waist, 12 00:01:10,930 --> 00:01:14,130 Speaker 1: and march the man who's more accustomed to champagne and 13 00:01:14,170 --> 00:01:18,810 Speaker 1: private jet to the very back of the United Airlines player. 14 00:01:19,970 --> 00:01:23,570 Speaker 1: It's the eleventh of May twenty twenty three, and Britain's 15 00:01:23,690 --> 00:01:28,090 Speaker 1: answer to Bill Gates is about to be extradited to 16 00:01:28,170 --> 00:01:35,290 Speaker 1: the US on charges of fraud. Once the darling of 17 00:01:35,370 --> 00:01:39,050 Speaker 1: the UK tech world, a member of the BBC's executive 18 00:01:39,050 --> 00:01:44,610 Speaker 1: board and a government advisor, Mike Lynch settles in for 19 00:01:44,650 --> 00:01:50,730 Speaker 1: the eleven hour flight. As London disappears beneath him, he 20 00:01:50,810 --> 00:01:53,890 Speaker 1: knows it will be a very long time before he 21 00:01:53,930 --> 00:01:59,930 Speaker 1: sees Britain again. I'm Tim Harford and you're listening to 22 00:02:00,050 --> 00:02:29,490 Speaker 1: Cautionary Tales. Mike Lynch was the co founder and CEO 23 00:02:29,770 --> 00:02:34,570 Speaker 1: of the UK's biggest software company, Autonomy, which he sold 24 00:02:34,570 --> 00:02:39,530 Speaker 1: to the American hardware giant Hulet Packard for eleven billion 25 00:02:39,650 --> 00:02:44,490 Speaker 1: dollars in twenty eleven. But Hewlett Packard quickly began to 26 00:02:44,530 --> 00:02:50,010 Speaker 1: suspect something was awry at Autonomy. Soon, legal battles raged 27 00:02:50,090 --> 00:02:53,890 Speaker 1: on both sides at the Atlantic, revealing shocking truths and 28 00:02:54,050 --> 00:02:58,930 Speaker 1: incredible oversights. This story of a tech tycoon is a 29 00:02:59,090 --> 00:03:04,090 Speaker 1: rags to rich's tail, a business thriller, and ultimately a tragedy. 30 00:03:05,050 --> 00:03:07,730 Speaker 1: Here to tell us all about it is Katie Prescott. 31 00:03:08,130 --> 00:03:11,530 Speaker 1: She's Technology business editor at The Times and the author 32 00:03:11,570 --> 00:03:16,650 Speaker 1: of the book The Curious Case of Mike Lynch. Katie. 33 00:03:16,970 --> 00:03:18,210 Speaker 1: Welcome to Cautionary Tales. 34 00:03:18,450 --> 00:03:19,810 Speaker 2: Hello, good to talk to you. 35 00:03:20,450 --> 00:03:23,850 Speaker 1: So we should talk about Mike Lynch. His background. First, 36 00:03:24,690 --> 00:03:29,610 Speaker 1: fabulously wealthy at the time we pictured him walking through 37 00:03:29,690 --> 00:03:32,930 Speaker 1: heatho airport. But he didn't start wealthy. 38 00:03:33,050 --> 00:03:35,810 Speaker 2: No, quite the opposite. And actually, you know, in a 39 00:03:36,210 --> 00:03:42,570 Speaker 2: Britain which is still riven by class, Mike Lynch was 40 00:03:42,730 --> 00:03:47,410 Speaker 2: the outlier. So. Born to an Irish immigrant mother who 41 00:03:47,450 --> 00:03:50,930 Speaker 2: was a nurse and a father who was a fireman 42 00:03:51,130 --> 00:03:55,010 Speaker 2: but also a Irish parentage. They moved to Essex when 43 00:03:55,330 --> 00:03:58,450 Speaker 2: he was quite young, and very early on they spotted 44 00:03:58,970 --> 00:04:02,090 Speaker 2: that he was a super bright little boy, and his 45 00:04:02,130 --> 00:04:05,570 Speaker 2: mother put him forward for a scholarship at a private 46 00:04:05,570 --> 00:04:07,010 Speaker 2: school when he was eleven. 47 00:04:07,210 --> 00:04:10,730 Speaker 1: Yeah, so's he's studying with a bunch of rich, or 48 00:04:10,730 --> 00:04:15,170 Speaker 1: at least upper middle class kids whose parents are paying 49 00:04:15,730 --> 00:04:18,050 Speaker 1: large sums of money to send their kids to this school. 50 00:04:18,130 --> 00:04:21,850 Speaker 1: But he's in on merit because he is incredibly sharp 51 00:04:23,010 --> 00:04:27,770 Speaker 1: and academically. Where did his interest really shine? What was 52 00:04:27,770 --> 00:04:28,650 Speaker 1: he doing at school? 53 00:04:29,010 --> 00:04:32,450 Speaker 2: He loved computing and he loved engineering, and I think, 54 00:04:32,530 --> 00:04:36,770 Speaker 2: unusually for a tech entrepreneur, he wasn't a lonely geek 55 00:04:37,130 --> 00:04:40,490 Speaker 2: at all. Actually, far from it. He had lots and 56 00:04:40,530 --> 00:04:44,250 Speaker 2: lots of friends and he led societies. So he started 57 00:04:44,290 --> 00:04:47,850 Speaker 2: an electronics society for example. He also started a jazz band. 58 00:04:48,090 --> 00:04:51,330 Speaker 2: We like that because he loved playing the clarinet, and this. 59 00:04:51,250 --> 00:04:53,410 Speaker 1: Would have been with the late seventies early eighties that 60 00:04:53,450 --> 00:04:56,890 Speaker 1: he was starting these societies. So just as the personal 61 00:04:57,370 --> 00:05:02,170 Speaker 1: computer revolution is beginning and people are getting their z 62 00:05:02,490 --> 00:05:05,410 Speaker 1: X eighty one's or whatever, he's a teenager. 63 00:05:05,170 --> 00:05:07,650 Speaker 2: That's right. He said that there was a place local 64 00:05:07,730 --> 00:05:09,770 Speaker 2: to school that he used to go so he could 65 00:05:09,770 --> 00:05:14,730 Speaker 2: gaze at a commodore sixty four. It was an era 66 00:05:14,810 --> 00:05:18,730 Speaker 2: where the kind of computing revolution was taking off and 67 00:05:18,770 --> 00:05:22,090 Speaker 2: he was really enjoying that as a young boy. 68 00:05:22,250 --> 00:05:25,130 Speaker 1: Yes, there was this sort of sense that you computers 69 00:05:25,130 --> 00:05:28,130 Speaker 1: were things you could take apart and put back together again. 70 00:05:28,850 --> 00:05:30,690 Speaker 1: You could use them, for example, to play. 71 00:05:30,530 --> 00:05:34,050 Speaker 2: Music, and that was his early business actually with a 72 00:05:34,130 --> 00:05:37,890 Speaker 2: mate from school, making synthesizers, so you could kind of 73 00:05:38,370 --> 00:05:42,290 Speaker 2: muck about with music in a way that you couldn't before. 74 00:05:42,450 --> 00:05:45,770 Speaker 2: That's really how he got into the business of tech. 75 00:05:46,090 --> 00:05:49,730 Speaker 1: And then he goes to Cambridge, so this is presumably 76 00:05:50,450 --> 00:05:51,610 Speaker 1: nineteen eighty two, ninety. 77 00:05:51,370 --> 00:05:53,170 Speaker 2: Eighty three, nineteen eighty three. Yeah, that's right. 78 00:05:53,250 --> 00:05:57,650 Speaker 1: So tell us about Cambridge in the early nineteen eighties 79 00:05:58,410 --> 00:06:01,770 Speaker 1: and the connection to the tech industry, because I think 80 00:06:01,810 --> 00:06:07,450 Speaker 1: a lot of people will picture these amazing Gothic chapels 81 00:06:07,450 --> 00:06:11,210 Speaker 1: and these magnificent buildings, and this is where Isaac Newton 82 00:06:11,810 --> 00:06:14,850 Speaker 1: held court. But there was something else going on in 83 00:06:14,890 --> 00:06:16,530 Speaker 1: Cambridge by the time Mike Lynch showed up. 84 00:06:16,610 --> 00:06:18,770 Speaker 2: Yeah, it's an incredibly exciting time I think to be 85 00:06:18,810 --> 00:06:22,170 Speaker 2: in Cambridge if you loved computing and the bit to 86 00:06:22,170 --> 00:06:25,530 Speaker 2: you painted tradition is absolutely right. Mike Lynch went to 87 00:06:25,650 --> 00:06:31,450 Speaker 2: Christ's College, which is Charles Darwin's former establishment, and its 88 00:06:31,690 --> 00:06:36,090 Speaker 2: picture perfect with absolutely pristine lawns and that very famous 89 00:06:36,130 --> 00:06:42,650 Speaker 2: sandstone colored brickwork. But also there was the famous Cambridge 90 00:06:42,650 --> 00:06:49,090 Speaker 2: Computing Lab where people were putting together computers and experimenting 91 00:06:49,130 --> 00:06:51,050 Speaker 2: in this new age a bit like people are today 92 00:06:51,090 --> 00:06:54,970 Speaker 2: with AI. Actually I find the parallels really similar. And 93 00:06:55,050 --> 00:06:58,890 Speaker 2: Mike Lynch was really interested in something called signal processing, 94 00:06:58,930 --> 00:07:03,490 Speaker 2: so this is kind of audio video technology. And he 95 00:07:03,890 --> 00:07:06,610 Speaker 2: had a professor who really took him under his wing 96 00:07:07,730 --> 00:07:11,890 Speaker 2: and convinced him to stay on and do a PhD. 97 00:07:12,130 --> 00:07:16,250 Speaker 1: Yeah, and he was working on noise canceling headphones and yes. 98 00:07:16,210 --> 00:07:18,290 Speaker 2: Exactly all sorts of things like that. And they had 99 00:07:18,290 --> 00:07:22,090 Speaker 2: a project going on to digitize audio as well and 100 00:07:22,130 --> 00:07:24,450 Speaker 2: sort of try and smooth out some of the crackles 101 00:07:24,970 --> 00:07:26,770 Speaker 2: from old gramophone records. 102 00:07:27,330 --> 00:07:31,290 Speaker 1: He doesn't become an academic, he's more of a business person. 103 00:07:31,570 --> 00:07:32,290 Speaker 1: Tell us about that. 104 00:07:32,410 --> 00:07:35,890 Speaker 2: He then started a company called Cambridge Neurodynamics. 105 00:07:36,250 --> 00:07:38,210 Speaker 1: Must be clever because I've got no idea what that means. 106 00:07:38,290 --> 00:07:40,490 Speaker 2: Well, that's exactly why they picked the name. It sounded 107 00:07:40,530 --> 00:07:42,770 Speaker 2: clever and it sort of picked up on keywords at 108 00:07:42,770 --> 00:07:45,290 Speaker 2: the time that were hot in the tech world. 109 00:07:45,570 --> 00:07:50,410 Speaker 1: So this is the early nineties before Google. But one 110 00:07:50,450 --> 00:07:54,610 Speaker 1: of the products he works on for a while is 111 00:07:54,650 --> 00:07:56,970 Speaker 1: the sort of thing that Google turned into a trillion 112 00:07:57,010 --> 00:07:58,290 Speaker 1: dollar business. 113 00:07:58,530 --> 00:08:01,610 Speaker 2: People were trying to work out the best way of 114 00:08:01,690 --> 00:08:06,570 Speaker 2: sifting through vast amounts of digital information. Mike Lynch emerged 115 00:08:07,050 --> 00:08:12,810 Speaker 2: with a company called Auton, and the business sifted through 116 00:08:12,810 --> 00:08:17,130 Speaker 2: information rather than in a clunky keyword search kind of 117 00:08:17,170 --> 00:08:21,210 Speaker 2: way by as Mike Lynch described it, in marketing material, 118 00:08:21,370 --> 00:08:25,730 Speaker 2: looking for concepts. When you're talking about corporations, which is 119 00:08:25,770 --> 00:08:28,730 Speaker 2: where this software ended up being sold to, who've just 120 00:08:28,770 --> 00:08:32,330 Speaker 2: got huge amounts of information. It seemed like a real 121 00:08:32,690 --> 00:08:33,530 Speaker 2: magic bullet. 122 00:08:33,690 --> 00:08:35,810 Speaker 1: It was a huge thing. I mean, those of us 123 00:08:35,810 --> 00:08:38,170 Speaker 1: who are old enough to remember the world before Google, 124 00:08:38,330 --> 00:08:41,450 Speaker 1: but after the world wide web. So these few years 125 00:08:41,570 --> 00:08:45,010 Speaker 1: of there's a lot of stuff on any computer with 126 00:08:45,050 --> 00:08:48,290 Speaker 1: an Internet connection, but there's no way to find it, 127 00:08:48,850 --> 00:08:51,690 Speaker 1: and so we used to swap notes about well, how 128 00:08:51,770 --> 00:08:54,130 Speaker 1: do you search for a thing? And so oh well, 129 00:08:54,290 --> 00:08:57,130 Speaker 1: so one idea is, if there's something there's a particular 130 00:08:57,450 --> 00:09:01,610 Speaker 1: expert in the field, you might search for that expert's name, 131 00:09:01,890 --> 00:09:05,570 Speaker 1: and then web pages which have that expert's name, which 132 00:09:05,650 --> 00:09:08,610 Speaker 1: is going to be unusual, those web pages will probably 133 00:09:08,610 --> 00:09:12,490 Speaker 1: be relevant what you're looking for. That sort of kind 134 00:09:12,490 --> 00:09:15,930 Speaker 1: of hack, rather than just as we would do today, 135 00:09:16,250 --> 00:09:18,530 Speaker 1: to go to Google or to go to an AI 136 00:09:18,730 --> 00:09:20,330 Speaker 1: and just say, oh, I'm just looking for this sort 137 00:09:20,330 --> 00:09:21,770 Speaker 1: of stuff and it will just find you. We take 138 00:09:21,770 --> 00:09:25,450 Speaker 1: it for granted that this stuff will be found. But 139 00:09:25,650 --> 00:09:29,690 Speaker 1: it is an incredibly difficult problem, and a problem that 140 00:09:30,010 --> 00:09:33,970 Speaker 1: Google turned into a trillion dollar business. But Lynch was 141 00:09:34,010 --> 00:09:35,450 Speaker 1: on it before Google even existed. 142 00:09:35,730 --> 00:09:40,530 Speaker 2: It's very hard in today's age to understand quite how 143 00:09:40,610 --> 00:09:45,410 Speaker 2: novel this was. Lynch always said he regretted not selling 144 00:09:45,410 --> 00:09:48,970 Speaker 2: it to the consumer market and not turning it into Google, but. 145 00:09:49,010 --> 00:09:51,730 Speaker 1: Instead so autonomy. So it's not Google, it's not doing 146 00:09:52,090 --> 00:09:55,170 Speaker 1: consumer directed web search. So what sort of search and 147 00:09:55,210 --> 00:09:57,570 Speaker 1: what sort of information retrieval is it doing and who 148 00:09:57,650 --> 00:09:58,210 Speaker 1: is paying for it? 149 00:09:58,410 --> 00:10:01,970 Speaker 2: All sorts of enormous corporations in the end, as well 150 00:10:02,010 --> 00:10:06,690 Speaker 2: as organizations within governments around the world. So rather than 151 00:10:06,730 --> 00:10:11,930 Speaker 2: finding information in neat databases, look through your emails, voicemails, 152 00:10:12,370 --> 00:10:16,610 Speaker 2: things like word documents, this kind of enormous trove of 153 00:10:16,650 --> 00:10:22,090 Speaker 2: information that corporations create. And that's who he was selling 154 00:10:22,130 --> 00:10:24,570 Speaker 2: it to, which made sense as a market at the time, 155 00:10:24,570 --> 00:10:27,130 Speaker 2: because it seemed incredible They've got the money right, very 156 00:10:27,210 --> 00:10:30,490 Speaker 2: lucrative and a more obvious place to sell something to 157 00:10:31,170 --> 00:10:32,570 Speaker 2: than the consumer market. 158 00:10:32,730 --> 00:10:37,650 Speaker 1: So Autonomy, Mike Lynch's company in the late nineteen nineties 159 00:10:37,810 --> 00:10:41,170 Speaker 1: is jumping into this space where there's this opportunity because 160 00:10:42,010 --> 00:10:45,810 Speaker 1: corporations have started generating enormous amounts of digital information that 161 00:10:45,890 --> 00:10:48,530 Speaker 1: is unstructured, there's no way to make any sense of 162 00:10:48,530 --> 00:10:52,690 Speaker 1: the stuff, and Autonomy does that and it's a very 163 00:10:52,690 --> 00:10:56,210 Speaker 1: successful company. So what was it like to work at Autonomy? 164 00:10:59,170 --> 00:11:01,810 Speaker 2: I think what sums up the atmosphere was the Piranha 165 00:11:01,930 --> 00:11:06,690 Speaker 2: tank in reception, something not something you often see in 166 00:11:06,770 --> 00:11:10,690 Speaker 2: the roundel of the Autonomy logo, and Lynch used to 167 00:11:10,770 --> 00:11:13,890 Speaker 2: joke that that was the tank that he would throw 168 00:11:13,970 --> 00:11:15,370 Speaker 2: failing salespeople into. 169 00:11:15,730 --> 00:11:16,090 Speaker 1: Charming. 170 00:11:16,370 --> 00:11:18,970 Speaker 2: It was a very very difficult place to work. Mike 171 00:11:19,090 --> 00:11:23,450 Speaker 2: Lynch was a very hard taskmaster. He could be brutal, 172 00:11:23,770 --> 00:11:27,090 Speaker 2: he could be very aggressive, and I'm afraid I heard 173 00:11:27,490 --> 00:11:30,210 Speaker 2: very early on from researching the book some real horror 174 00:11:30,210 --> 00:11:33,690 Speaker 2: stories about how people were treated within Autonomy, and that, 175 00:11:34,250 --> 00:11:38,050 Speaker 2: I think, because the tech world in Britain is very small, 176 00:11:38,250 --> 00:11:41,050 Speaker 2: much much smaller at that time, leaked out very quickly 177 00:11:41,130 --> 00:11:42,930 Speaker 2: and it got Mike Lynch's certain reputation. 178 00:11:43,050 --> 00:11:44,970 Speaker 1: When you say a certain reputation, I mean that all 179 00:11:45,050 --> 00:11:47,170 Speaker 1: kinds of things go on in companies that we could 180 00:11:47,170 --> 00:11:51,090 Speaker 1: describe as horrible. But what was he actually doing. 181 00:11:51,530 --> 00:11:55,650 Speaker 2: There was one woman who worked in the marketing team 182 00:11:55,890 --> 00:12:00,490 Speaker 2: who he thought wasn't working hard enough, and he would 183 00:12:00,570 --> 00:12:04,170 Speaker 2: yell at her repeatedly, and after an incident when he 184 00:12:04,210 --> 00:12:08,050 Speaker 2: saw her and some colleagues mocking him for his James 185 00:12:08,130 --> 00:12:10,410 Speaker 2: Bond obsession, because I loved James Bond, and he named 186 00:12:10,410 --> 00:12:13,410 Speaker 2: all of the meeting rooms after James Bond villains. He 187 00:12:13,490 --> 00:12:16,410 Speaker 2: put her desk first inside his office and then just 188 00:12:16,490 --> 00:12:18,650 Speaker 2: outside so he could look over her shoulder. The whole 189 00:12:18,650 --> 00:12:20,930 Speaker 2: time and see what she was doing. There were tons 190 00:12:21,010 --> 00:12:23,450 Speaker 2: and tons of examples of people being fired at will. 191 00:12:24,130 --> 00:12:27,250 Speaker 2: People were very scared of him, so. 192 00:12:27,370 --> 00:12:31,250 Speaker 1: Very demanding, cool, mean, angry. 193 00:12:30,930 --> 00:12:34,050 Speaker 2: Bullying, and I think I'm afraid it was deliberate cruelty. 194 00:12:34,570 --> 00:12:38,250 Speaker 2: I think he enjoyed the power. He had a tiny 195 00:12:38,290 --> 00:12:42,530 Speaker 2: team around him, and I got the impression they were 196 00:12:42,610 --> 00:12:46,290 Speaker 2: like his henchmen. And that's how the company was run. 197 00:12:47,210 --> 00:12:50,010 Speaker 1: So how does it do financially? Because it grew very 198 00:12:50,050 --> 00:12:52,930 Speaker 1: fast and it was floated on the London stock Market 199 00:12:53,010 --> 00:12:55,530 Speaker 1: and became a foot Sea one hundred companies, So this 200 00:12:55,570 --> 00:12:59,810 Speaker 1: is one of the one hundred biggest companies listed on 201 00:12:59,810 --> 00:13:02,090 Speaker 1: the London Stock Exchange. So that sounds good. 202 00:13:02,490 --> 00:13:03,810 Speaker 2: It does, and I think we have to be very 203 00:13:03,810 --> 00:13:06,770 Speaker 2: careful here. It's certainly benefited from the dot com boom. 204 00:13:07,170 --> 00:13:11,170 Speaker 2: It actually had a very ino it software product. However, 205 00:13:12,050 --> 00:13:14,810 Speaker 2: at the time that it went into the Footsy one hundred, 206 00:13:15,090 --> 00:13:19,250 Speaker 2: that's because its valuation, so what shareholders vestors thought it 207 00:13:19,370 --> 00:13:22,290 Speaker 2: was worth was way above the money that it was 208 00:13:22,330 --> 00:13:23,090 Speaker 2: actually making. 209 00:13:23,210 --> 00:13:24,690 Speaker 1: People were very very excited. 210 00:13:24,730 --> 00:13:27,050 Speaker 2: I think it was making something like forty four million 211 00:13:27,170 --> 00:13:30,690 Speaker 2: pounds a year and it was valued at four billion 212 00:13:30,810 --> 00:13:34,210 Speaker 2: pounds because people were very excited about its future prospects. 213 00:13:34,890 --> 00:13:39,290 Speaker 2: And we're seeing that similar valuation difference in AI businesses today. 214 00:13:39,810 --> 00:13:43,850 Speaker 2: So yes, it was doing well for a startup, but 215 00:13:43,930 --> 00:13:46,530 Speaker 2: its revenue certainly didn't match up to its valuation, and 216 00:13:46,570 --> 00:13:48,850 Speaker 2: it very quickly actually fell out of the Footsy one 217 00:13:48,930 --> 00:13:50,770 Speaker 2: hundred when the dot com bust happened. 218 00:13:51,090 --> 00:13:54,170 Speaker 1: I would love to talk about the bust, but let 219 00:13:54,250 --> 00:14:05,250 Speaker 1: us do that after the break. We are back and 220 00:14:05,370 --> 00:14:08,730 Speaker 1: I am talking to Katie Prescott, the author of the 221 00:14:08,850 --> 00:14:13,330 Speaker 1: que Serious Case of Mike Lynch. Katie, we promised to 222 00:14:13,370 --> 00:14:17,770 Speaker 1: talk about the dot com boom and bust. Before we do, 223 00:14:17,890 --> 00:14:21,410 Speaker 1: we should probably introduce a new character, and that is 224 00:14:21,930 --> 00:14:26,930 Speaker 1: the Reverend Thomas Bays. Lynch was obsessed with him. So 225 00:14:27,010 --> 00:14:30,570 Speaker 1: what did he do and why was it relevant to 226 00:14:30,650 --> 00:14:31,330 Speaker 1: Mike Lynch. 227 00:14:31,490 --> 00:14:35,730 Speaker 2: He was an early academic in the field of probability. 228 00:14:36,250 --> 00:14:39,850 Speaker 2: He came up with this concept that sounds very simple, 229 00:14:40,050 --> 00:14:44,250 Speaker 2: that what has gone before informs the probability of something happening. 230 00:14:45,010 --> 00:14:49,210 Speaker 2: So if you walked into a room where people had COVID, 231 00:14:49,490 --> 00:14:51,450 Speaker 2: it is more likely that you would come out of 232 00:14:51,490 --> 00:14:57,730 Speaker 2: it with COVID, and Lynch like embrace this both as 233 00:14:57,770 --> 00:15:00,690 Speaker 2: part of his business, but he also, i would say, 234 00:15:00,730 --> 00:15:04,370 Speaker 2: mainly used it to inform his philosophy of life. Right, 235 00:15:04,490 --> 00:15:08,130 Speaker 2: So he was constantly weighing up the odds of things happening, 236 00:15:08,770 --> 00:15:12,330 Speaker 2: and his teams were very used to him saying I 237 00:15:12,410 --> 00:15:16,290 Speaker 2: put twenty percent on that, eighty percent on that. If 238 00:15:16,290 --> 00:15:19,050 Speaker 2: he was hiring someone, he'd say, Okay, who are they 239 00:15:19,490 --> 00:15:22,650 Speaker 2: like that? We know, yes, just trying to work out 240 00:15:22,730 --> 00:15:25,610 Speaker 2: the odds of things happening. And one of the things 241 00:15:25,650 --> 00:15:28,610 Speaker 2: that struck me in writing this book is that everything 242 00:15:28,650 --> 00:15:32,650 Speaker 2: about Lynch's life was completely improbable. And the working title 243 00:15:32,650 --> 00:15:35,970 Speaker 2: of the book was actually improbable Odds because it's so 244 00:15:36,090 --> 00:15:40,690 Speaker 2: unlikely that someone from his background would go to private school, 245 00:15:40,770 --> 00:15:44,290 Speaker 2: would go to Cambridge. He was born with no fingerprints. 246 00:15:44,650 --> 00:15:47,370 Speaker 2: Most startups fail, I don't know there are There are 247 00:15:47,450 --> 00:15:49,370 Speaker 2: so many improbable things. 248 00:15:49,370 --> 00:15:51,290 Speaker 1: He was born with no fingerprints. He slipped that one in. 249 00:15:51,850 --> 00:15:53,610 Speaker 2: He was born with no fingerprints. 250 00:15:53,690 --> 00:15:55,570 Speaker 1: Wow, he really is a Bond villain. 251 00:15:55,690 --> 00:15:58,690 Speaker 2: Okay, yeah, And that was part of the joke. He 252 00:15:58,770 --> 00:16:00,690 Speaker 2: used to say to analysts in the city. Look, I 253 00:16:00,690 --> 00:16:02,770 Speaker 2: have got no fingerprints. I'd make a brilliant criminal. 254 00:16:03,090 --> 00:16:07,570 Speaker 1: So he's this brilliant guy. He's a bully. He has 255 00:16:07,650 --> 00:16:11,290 Speaker 1: set up this business, he's launched it on the stock market. 256 00:16:11,610 --> 00:16:16,850 Speaker 1: So tell us then, about what happened when Autonomy ran 257 00:16:16,930 --> 00:16:18,490 Speaker 1: into the dot com bust. 258 00:16:18,730 --> 00:16:23,410 Speaker 2: Lynch was only thirty at this point, running a startup 259 00:16:23,530 --> 00:16:27,890 Speaker 2: out of a coworking space in Cambridge, and it went 260 00:16:28,170 --> 00:16:31,210 Speaker 2: from footsy one hundred company too, and you can see 261 00:16:31,210 --> 00:16:35,770 Speaker 2: the share price plummeting, and Lynch really wanted to work 262 00:16:35,890 --> 00:16:39,650 Speaker 2: to get that share price up again. Now, on one level, 263 00:16:40,050 --> 00:16:43,170 Speaker 2: it was still doing well and still making the sales 264 00:16:43,250 --> 00:16:46,530 Speaker 2: that it was and its technology was still valued. Just 265 00:16:46,570 --> 00:16:49,170 Speaker 2: because it had dropped out of the list of shares 266 00:16:49,250 --> 00:16:51,090 Speaker 2: hadn't changed what it was doing. 267 00:16:51,170 --> 00:16:53,130 Speaker 1: I mean, it's worth being clear. The reason it was 268 00:16:53,130 --> 00:16:55,770 Speaker 1: a footsy one hundred company was because it was valued 269 00:16:56,010 --> 00:16:58,610 Speaker 1: by investors very highly. And the reason it was valued 270 00:16:58,610 --> 00:17:01,290 Speaker 1: by investors very highly was not because it was making 271 00:17:01,450 --> 00:17:04,650 Speaker 1: enormous profits. It was because they were very optimistic about 272 00:17:04,650 --> 00:17:08,930 Speaker 1: its future prospects. So when they become less optimistic about 273 00:17:08,930 --> 00:17:11,130 Speaker 1: all these tech companies, it drops out of the foots 274 00:17:11,250 --> 00:17:11,690 Speaker 1: one hundred. 275 00:17:11,690 --> 00:17:14,490 Speaker 2: But it's not because it's doing anything wrong. 276 00:17:14,610 --> 00:17:15,850 Speaker 1: Yeah, it's not done anything wrong. 277 00:17:15,930 --> 00:17:19,290 Speaker 2: All the big tech companies did drop at that point 278 00:17:19,290 --> 00:17:22,570 Speaker 2: to me, even the likes of Microsoft. This is the 279 00:17:22,610 --> 00:17:27,650 Speaker 2: first time that Lynch faced the reality of running a 280 00:17:27,690 --> 00:17:30,010 Speaker 2: public business. You've got the glory of being in the 281 00:17:30,010 --> 00:17:32,370 Speaker 2: foot seat one hundred, of being, you know, the young 282 00:17:32,450 --> 00:17:36,370 Speaker 2: cool guy in Britain's tech scene during the dot com boom, 283 00:17:36,570 --> 00:17:39,130 Speaker 2: but then during the bust. Actually, you've got the pain 284 00:17:39,650 --> 00:17:43,090 Speaker 2: of trying to convince the press and trying to convince 285 00:17:43,410 --> 00:17:46,890 Speaker 2: people in the city who are scrutinizing your company and 286 00:17:46,930 --> 00:17:49,290 Speaker 2: telling investors whether they should put their money into it. 287 00:17:49,770 --> 00:17:53,170 Speaker 2: You've got the pain of really trying to get them 288 00:17:53,210 --> 00:17:57,010 Speaker 2: on board. And he really hated criticism, especially when it 289 00:17:57,090 --> 00:18:00,170 Speaker 2: came to Autonomy. He had very very thin skin. 290 00:18:00,770 --> 00:18:02,970 Speaker 1: He is subject to a level of scrutiny that he's 291 00:18:03,010 --> 00:18:05,810 Speaker 1: not used to. He doesn't like it, and he wants 292 00:18:05,850 --> 00:18:10,610 Speaker 1: to prove that Autonomy is for real. There's a certain 293 00:18:10,730 --> 00:18:14,930 Speaker 1: pressure to make the numbers do what Mike Lynch wants 294 00:18:14,970 --> 00:18:16,810 Speaker 1: them to do at this point, so. 295 00:18:17,170 --> 00:18:22,770 Speaker 2: Every quarter Autonomy would publish their results publicly. 296 00:18:22,890 --> 00:18:25,130 Speaker 1: This is what we sold, this is what it costs. 297 00:18:25,250 --> 00:18:27,330 Speaker 2: Exactly right, so how much money we made And kind 298 00:18:27,330 --> 00:18:30,970 Speaker 2: of unusual for a British company, because reporting every six 299 00:18:31,010 --> 00:18:34,490 Speaker 2: months here is more normal. But Autonomy had been listed 300 00:18:34,490 --> 00:18:38,130 Speaker 2: on the Nasdaq and Lynch always wanted to make parallels 301 00:18:38,210 --> 00:18:42,010 Speaker 2: with his company and the very successful tech businesses in 302 00:18:42,050 --> 00:18:46,050 Speaker 2: the US, so he was forced every three months, or 303 00:18:46,130 --> 00:18:48,770 Speaker 2: he had chosen every three months to publish. 304 00:18:48,850 --> 00:18:51,290 Speaker 1: Their results as a condition of Nasdaq listing. 305 00:18:51,610 --> 00:18:56,690 Speaker 2: So he had to not only keep up with the 306 00:18:56,810 --> 00:19:01,010 Speaker 2: forecast or the predictions that Autonomy made about their expectations 307 00:19:01,050 --> 00:19:04,570 Speaker 2: for their sales, but also the predictions that would be 308 00:19:04,650 --> 00:19:08,610 Speaker 2: made by city analysts in London who were making their 309 00:19:08,610 --> 00:19:13,890 Speaker 2: own predictions, and really that set a target every three 310 00:19:13,930 --> 00:19:17,570 Speaker 2: months to hit, and when Autonomy didn't hit that target, 311 00:19:17,730 --> 00:19:19,370 Speaker 2: its share price would fall. 312 00:19:20,250 --> 00:19:21,730 Speaker 1: He didn't want that to happen, and he. 313 00:19:21,730 --> 00:19:24,970 Speaker 2: Didn't want that to happen. If you fast forward towards 314 00:19:25,050 --> 00:19:29,010 Speaker 2: the financial crisis of two thousand and eight, companies stopped 315 00:19:29,010 --> 00:19:32,210 Speaker 2: buying software in the way they had done because budgets 316 00:19:32,250 --> 00:19:38,370 Speaker 2: were squeezed, understandably, But to continue hitting those targets, Autonomy, 317 00:19:38,410 --> 00:19:41,890 Speaker 2: which had always prided itself and boasted about being a 318 00:19:41,930 --> 00:19:47,090 Speaker 2: pure software company, started selling hardware and reselling other people's 319 00:19:47,090 --> 00:19:51,730 Speaker 2: hardware from companies like Dell, So things like keyboards and laptops, 320 00:19:51,850 --> 00:19:53,530 Speaker 2: very basic things mice. 321 00:19:53,730 --> 00:19:55,410 Speaker 1: That doesn't sound like a high margin business. 322 00:19:55,570 --> 00:19:57,810 Speaker 2: Well no, and that's the problem because analysts in the 323 00:19:57,810 --> 00:20:03,410 Speaker 2: city and investors liked Autonomy's pure software model because it 324 00:20:03,490 --> 00:20:08,170 Speaker 2: had an enormous margin because you're not paying to manufacture 325 00:20:08,250 --> 00:20:11,770 Speaker 2: something physical. When you're selling software, it's the dream. You 326 00:20:11,850 --> 00:20:14,650 Speaker 2: create some IP and then you can just ping it 327 00:20:14,690 --> 00:20:18,370 Speaker 2: around and so your margins are massive. But clearly when 328 00:20:18,410 --> 00:20:21,770 Speaker 2: you're reselling hardware that you've bought from somebody else, that's 329 00:20:21,890 --> 00:20:26,610 Speaker 2: very different. And Autonomy bundled all these sales into one 330 00:20:26,650 --> 00:20:31,970 Speaker 2: set of numbers and still told investors that they were 331 00:20:32,010 --> 00:20:35,570 Speaker 2: a pure software business, but actually a chunk of those 332 00:20:35,650 --> 00:20:40,210 Speaker 2: sales in one quarter, the biggest time that this happened, 333 00:20:40,250 --> 00:20:43,730 Speaker 2: twenty percent of those sales came from reselling hardware. 334 00:20:44,330 --> 00:20:46,410 Speaker 1: Just explain to me in a nutshell, what were Mike 335 00:20:46,490 --> 00:20:49,970 Speaker 1: Lynch and his team doing to make Autonomy's numbers look better. 336 00:20:50,450 --> 00:20:53,730 Speaker 2: So they were essentially wrapping the sales of more expensive 337 00:20:53,770 --> 00:20:57,890 Speaker 2: hardware into their software sales and putting expenses that came 338 00:20:57,930 --> 00:21:02,050 Speaker 2: from that in the marketing budget, moving numbers around around 339 00:21:02,050 --> 00:21:07,090 Speaker 2: the accounts. They were clocking sales on their books before 340 00:21:07,130 --> 00:21:11,490 Speaker 2: they'd actually happened by using resellers, which are very common 341 00:21:11,690 --> 00:21:15,010 Speaker 2: in the software industry, but they should really have had 342 00:21:15,050 --> 00:21:18,970 Speaker 2: a deal signed before they passed it on to the reseller, 343 00:21:19,050 --> 00:21:22,570 Speaker 2: and so that created holes in the accounts every quarter 344 00:21:23,130 --> 00:21:26,930 Speaker 2: that they struggled to fill. And then also they were 345 00:21:27,290 --> 00:21:32,530 Speaker 2: writing down sales as sales to original equipment manufacturers or OEMs. 346 00:21:33,050 --> 00:21:36,170 Speaker 2: So they'd say, we're putting Autonomy software in Dell, but 347 00:21:36,290 --> 00:21:40,050 Speaker 2: they were calling all sorts of companies OEMs, including Tottenham 348 00:21:40,050 --> 00:21:42,610 Speaker 2: Hotspur Football club. Linch. She used to describe it as 349 00:21:42,650 --> 00:21:45,210 Speaker 2: the Pinacolada model. He'd sell to an OEM and then 350 00:21:45,210 --> 00:21:47,730 Speaker 2: you could sit back on the beach with your cocktail 351 00:21:48,050 --> 00:21:49,330 Speaker 2: while someone else sold it for you. 352 00:21:49,690 --> 00:21:56,130 Speaker 1: And I'm curious. Autonomy had auditors, professional accountants, independent coming 353 00:21:56,210 --> 00:21:58,850 Speaker 1: and looking at their accounts. What were the auditors doing. 354 00:21:59,650 --> 00:22:03,210 Speaker 2: The auditors were signing off the accounts behind the scenes, 355 00:22:03,250 --> 00:22:06,530 Speaker 2: there were often questions about how things were being registered 356 00:22:06,570 --> 00:22:11,890 Speaker 2: as sales. The auditors, Deloitte were later fined over the 357 00:22:11,930 --> 00:22:16,530 Speaker 2: Autonomy accounts. There was an extraordinary investigation by the accounting 358 00:22:16,610 --> 00:22:21,370 Speaker 2: watchdog into how they handled them, which essentially found that 359 00:22:21,970 --> 00:22:25,530 Speaker 2: Deloitte Cambridge, which was a branch of the main Deloitte 360 00:22:25,570 --> 00:22:27,690 Speaker 2: office in London. Bear in mind they're one of the 361 00:22:27,690 --> 00:22:32,090 Speaker 2: top four accountants, wanted to keep its relationship with Autonomy. 362 00:22:32,090 --> 00:22:34,250 Speaker 2: It was its only footzy one hundred. 363 00:22:33,930 --> 00:22:35,850 Speaker 1: Customer keep the customer satisfied. 364 00:22:35,930 --> 00:22:38,730 Speaker 2: They wanted to keep the customer satisfied. And the relationship 365 00:22:38,930 --> 00:22:40,930 Speaker 2: was just too cozy with the company. 366 00:22:41,330 --> 00:22:43,970 Speaker 1: And so people looking at these numbers are just going 367 00:22:44,010 --> 00:22:48,530 Speaker 1: to fundamentally misunderstand what is actually going on inside the company. 368 00:22:48,770 --> 00:22:51,850 Speaker 2: Yes, and there was one particular analyst in the city, 369 00:22:51,970 --> 00:22:55,490 Speaker 2: a chap called Dowd Khan, who wrote a rather negative 370 00:22:55,570 --> 00:23:01,250 Speaker 2: note about Lynch, and this sparked a very bizarre reaction. 371 00:23:02,170 --> 00:23:07,370 Speaker 2: He ended up banning Dowd Khan from Autonomy's meetings. From 372 00:23:07,410 --> 00:23:09,770 Speaker 2: their results meetings, so normally they didn't oounce their results. 373 00:23:09,810 --> 00:23:12,170 Speaker 2: They invite everybody in an analyst would be able to 374 00:23:12,210 --> 00:23:15,490 Speaker 2: ask questions, and he said, you're you're not allowed to come. 375 00:23:15,650 --> 00:23:17,570 Speaker 1: This is the equivalent of the White House saying we 376 00:23:17,570 --> 00:23:20,170 Speaker 1: don't want a reporter showing up to the presidential briefings 377 00:23:20,170 --> 00:23:21,970 Speaker 1: because we don't like the way you write your news. 378 00:23:22,090 --> 00:23:24,530 Speaker 1: That a similar sort of energy yes. 379 00:23:24,330 --> 00:23:28,850 Speaker 2: It was. It was very strange, and a little group 380 00:23:29,010 --> 00:23:32,890 Speaker 2: formed of it was quite maverick analysts in the city 381 00:23:32,970 --> 00:23:37,330 Speaker 2: who started to question Autonomy's numbers and be quite vociferous 382 00:23:37,330 --> 00:23:37,850 Speaker 2: about it. 383 00:23:38,050 --> 00:23:41,930 Speaker 1: So they're cutting various corners in terms of their accounts. 384 00:23:42,290 --> 00:23:44,770 Speaker 1: Did they need to do this? Was it existential that 385 00:23:44,850 --> 00:23:46,570 Speaker 1: basically they were they were just going to run out 386 00:23:46,570 --> 00:23:49,250 Speaker 1: of money or run out of funding if they hadn't 387 00:23:49,850 --> 00:23:53,690 Speaker 1: stepped across the line occasionally, or was this entirely Mike 388 00:23:53,770 --> 00:23:54,570 Speaker 1: Lynch's vanity. 389 00:23:55,130 --> 00:23:57,610 Speaker 2: I think there were definitely problems with the technology. They 390 00:23:57,650 --> 00:24:00,930 Speaker 2: weren't investing enough in research and development, and there were 391 00:24:01,410 --> 00:24:05,810 Speaker 2: very serious competitors. Google had created a version of the 392 00:24:05,850 --> 00:24:09,410 Speaker 2: technology that was much much cheaper, but there was still 393 00:24:09,450 --> 00:24:13,130 Speaker 2: selling it. And actually there are some bar charts in 394 00:24:13,170 --> 00:24:19,170 Speaker 2: the book which show how much they inflated the revenue 395 00:24:19,410 --> 00:24:25,250 Speaker 2: each quarter, and you're not talking about enormous sums. They 396 00:24:25,330 --> 00:24:29,370 Speaker 2: probably could have kept going and actually probably pivoted to 397 00:24:29,450 --> 00:24:32,370 Speaker 2: other sorts of technology. So Lynch was very very early 398 00:24:32,450 --> 00:24:37,210 Speaker 2: to the cloud, but he was so very proud. 399 00:24:37,610 --> 00:24:40,370 Speaker 1: Well, he had a lot to be proud about. So 400 00:24:40,890 --> 00:24:45,730 Speaker 1: he'd created this very successful company. Is a pillar of Society. 401 00:24:45,810 --> 00:24:48,930 Speaker 1: He's being celebrated as a tech genius. He has an 402 00:24:49,010 --> 00:24:52,930 Speaker 1: obe kind of medal given to him by the Queen. 403 00:24:53,410 --> 00:24:56,010 Speaker 1: He's a fellow of the Royal Society of Engineering. He's 404 00:24:56,090 --> 00:24:59,170 Speaker 1: on the executive board of the BBC, he's an advisor 405 00:24:59,210 --> 00:25:03,690 Speaker 1: to the British government. All of these great things. Then 406 00:25:03,890 --> 00:25:07,930 Speaker 1: he is approached by Hewlett Packard, who want to buy 407 00:25:08,130 --> 00:25:11,250 Speaker 1: his company? Or what were they hoping to gain. 408 00:25:11,890 --> 00:25:14,370 Speaker 2: It's probably worth turning and having a look at the 409 00:25:14,410 --> 00:25:17,090 Speaker 2: state that Hewlett Packard was in at the time, which 410 00:25:17,170 --> 00:25:21,770 Speaker 2: was not brilliant. They'd cycled through a number of chief executives, 411 00:25:22,170 --> 00:25:25,850 Speaker 2: they'd made a number of acquisitions for many billions of 412 00:25:25,890 --> 00:25:27,770 Speaker 2: dollars which had failed. 413 00:25:27,930 --> 00:25:31,170 Speaker 1: And they're famous making hardware, so that most famously printers, 414 00:25:31,210 --> 00:25:33,210 Speaker 1: but you know, they make computers exactly. 415 00:25:33,450 --> 00:25:39,490 Speaker 2: And at a time when the new cohort of tech 416 00:25:39,530 --> 00:25:44,410 Speaker 2: companies were coming through, Hewlett Packard felt like a dinosaur 417 00:25:44,450 --> 00:25:47,730 Speaker 2: in Silicon Valley. And they got a new boss, a 418 00:25:47,770 --> 00:25:51,730 Speaker 2: guy called Leao Apottica from the software industry. So his 419 00:25:51,850 --> 00:25:54,850 Speaker 2: big vision was, Okay, we're going to find a really 420 00:25:54,930 --> 00:25:59,970 Speaker 2: interesting innovative software business to bolt on to. Hewlett Packard's 421 00:26:00,170 --> 00:26:04,370 Speaker 2: massive customer base and it'll be a winner. And then 422 00:26:04,490 --> 00:26:05,730 Speaker 2: came across autonomy. 423 00:26:06,250 --> 00:26:09,090 Speaker 1: Leo Apoteca is convinced that this is a brilliant idea. 424 00:26:09,770 --> 00:26:12,490 Speaker 1: Is he did everyone at Hulett Packard think that autonomy 425 00:26:12,530 --> 00:26:14,810 Speaker 1: is a steel or of eleven billion dollars? Whatever it was. 426 00:26:15,570 --> 00:26:20,690 Speaker 2: Certainly his advisors, the various banks and consultants that he 427 00:26:20,850 --> 00:26:25,210 Speaker 2: was talking to, were very positive. In fact, they encouraged him. 428 00:26:25,250 --> 00:26:28,850 Speaker 1: They're on a percentage, right, they're on commission if they 429 00:26:29,050 --> 00:26:30,210 Speaker 1: shepherd this deal through. 430 00:26:30,330 --> 00:26:34,050 Speaker 2: They encouraged him to do the deal quickly because someone 431 00:26:34,050 --> 00:26:36,890 Speaker 2: else might buy it. Because somebody else might buy it. Yeah, 432 00:26:36,930 --> 00:26:41,770 Speaker 2: that's right, and that ended up being a massive problem 433 00:26:42,010 --> 00:26:42,650 Speaker 2: for everyone. 434 00:26:42,970 --> 00:26:47,930 Speaker 1: Yes, you have a beautiful description of this in your book. 435 00:26:48,170 --> 00:26:52,490 Speaker 1: You describe Hewlett Packard's due diligence as more akin to 436 00:26:52,610 --> 00:26:56,330 Speaker 1: squeezing fruit at a market stall that a full on dissection. 437 00:26:56,810 --> 00:26:59,890 Speaker 1: I love this idea. With him just saying yeah, seems 438 00:26:59,890 --> 00:27:01,410 Speaker 1: about right felt. 439 00:27:01,090 --> 00:27:06,290 Speaker 2: Like the obvious analogy. Because they only spent eighteen days 440 00:27:07,010 --> 00:27:08,690 Speaker 2: on their due diligence. 441 00:27:08,570 --> 00:27:11,050 Speaker 1: And there's been eleven billion dollars. 442 00:27:11,450 --> 00:27:14,970 Speaker 2: You would spend far more time than that buying a 443 00:27:15,010 --> 00:27:19,130 Speaker 2: house or I don't know, probably buying lots of making 444 00:27:19,210 --> 00:27:21,130 Speaker 2: lots of major purchases. 445 00:27:22,570 --> 00:27:25,850 Speaker 1: Should Hewlett Packard have been a little bit more wary 446 00:27:26,530 --> 00:27:38,210 Speaker 1: We will find out after the break. We're back, and 447 00:27:38,250 --> 00:27:41,530 Speaker 1: I'm speaking to Katie Prescott, the author of the Curious 448 00:27:41,610 --> 00:27:47,410 Speaker 1: Case of Mike Lynch. So, Katie, the computer giant Hewlett 449 00:27:47,410 --> 00:27:53,050 Speaker 1: Packard has just agreed to buy Autonomy for eleven point 450 00:27:53,170 --> 00:27:56,770 Speaker 1: one billion dollars after giving it a quick squeeze and 451 00:27:56,850 --> 00:28:02,890 Speaker 1: saying it seems about right. That did not last very long. 452 00:28:03,090 --> 00:28:04,370 Speaker 1: The honeymoon was pretty brief. 453 00:28:05,330 --> 00:28:07,850 Speaker 2: It blew up so quickly, so the CEO who'd been 454 00:28:07,850 --> 00:28:11,530 Speaker 2: in charge of the acquisition was fired almost immediately after 455 00:28:11,570 --> 00:28:12,010 Speaker 2: it happened. 456 00:28:12,530 --> 00:28:15,770 Speaker 1: So Lynch is still working for Hulett Packard now. 457 00:28:15,770 --> 00:28:19,730 Speaker 2: Right exactly, So, he is working for Hewlett Packard along 458 00:28:20,090 --> 00:28:24,410 Speaker 2: with many of the Autonomy team, and his new boss 459 00:28:24,650 --> 00:28:27,330 Speaker 2: is a lady called Meg Whitman, the latest in a 460 00:28:27,370 --> 00:28:32,330 Speaker 2: long line of HP CEOs, and was presented with Autonomy 461 00:28:32,890 --> 00:28:37,050 Speaker 2: as one of various headaches to deal with. And I 462 00:28:37,090 --> 00:28:40,410 Speaker 2: don't think she'd been a massive supporter of the deal, 463 00:28:40,970 --> 00:28:43,770 Speaker 2: and various others also on the board got cold feet 464 00:28:43,810 --> 00:28:46,570 Speaker 2: almost as soon as it had happened, So it was 465 00:28:46,610 --> 00:28:49,810 Speaker 2: a difficult situation for Lynch to be in. But I 466 00:28:49,850 --> 00:28:51,970 Speaker 2: also think he was not a man who was used 467 00:28:52,010 --> 00:28:54,130 Speaker 2: to having a boss. He'd been his own boss from 468 00:28:54,170 --> 00:28:59,610 Speaker 2: the very start. He said that Autonomy was treated like 469 00:28:59,690 --> 00:29:04,850 Speaker 2: an unwanted stepchild within Hewlett Packard, that they weren't welcomed. 470 00:29:05,530 --> 00:29:08,890 Speaker 2: They were setting him up to fail, was his argument. 471 00:29:10,130 --> 00:29:14,930 Speaker 2: On the flip side, I think HP not only regretted 472 00:29:15,210 --> 00:29:19,530 Speaker 2: buying Autonomy after a series of previous failed acquisitions, but 473 00:29:19,650 --> 00:29:25,530 Speaker 2: also was starting to realize that the company had some 474 00:29:25,650 --> 00:29:29,050 Speaker 2: quite serious problems, and they became quite alarmed by some 475 00:29:29,090 --> 00:29:32,010 Speaker 2: of the stories that they heard about how it was run. 476 00:29:32,610 --> 00:29:38,050 Speaker 1: And are these stories about the accounting irregularities or are 477 00:29:38,090 --> 00:29:40,010 Speaker 1: these stories about Mike Linch the bully? 478 00:29:40,410 --> 00:29:43,970 Speaker 2: Started off about Mike Linch the bully, And then there 479 00:29:44,010 --> 00:29:47,810 Speaker 2: was a showdown between Meg Whitman and Mike Linch when 480 00:29:47,850 --> 00:29:52,610 Speaker 2: Autonomy failed spectacularly to meet its sales numbers and he 481 00:29:52,650 --> 00:29:55,810 Speaker 2: didn't tell her about in in advance, and Whitman said, 482 00:29:55,810 --> 00:29:59,490 Speaker 2: this is completely unacceptable. This isn't how you run a company. 483 00:29:59,290 --> 00:30:02,490 Speaker 1: So she said it's unacceptable and you need to shape 484 00:30:02,530 --> 00:30:03,970 Speaker 1: up or it's unacceptable and you're out. 485 00:30:04,250 --> 00:30:05,690 Speaker 2: You're out right. She fired him. 486 00:30:06,490 --> 00:30:09,650 Speaker 1: But that is not the end of the saga with 487 00:30:09,770 --> 00:30:11,930 Speaker 1: Hewlett Packard and Mike Lynch. 488 00:30:12,130 --> 00:30:15,890 Speaker 2: A whistleblower stepped forward from within Autonomy. So you've got 489 00:30:15,930 --> 00:30:19,210 Speaker 2: the Autonomy team that's been absorbed by HP, and one 490 00:30:19,250 --> 00:30:22,090 Speaker 2: of them, a chap called Joel Scott, went to speak 491 00:30:22,650 --> 00:30:27,450 Speaker 2: to Hewlett Packard's chief lawyer about the accounting, and that 492 00:30:27,650 --> 00:30:28,850 Speaker 2: sparked an investigation. 493 00:30:29,290 --> 00:30:31,090 Speaker 1: And then what As the. 494 00:30:31,090 --> 00:30:34,970 Speaker 2: Company becomes more deeply absorbed into HP, it became obvious 495 00:30:35,050 --> 00:30:40,290 Speaker 2: that things weren't right. But in November twenty twelve, Hewlett 496 00:30:40,290 --> 00:30:43,450 Speaker 2: Packard came out and said that they were writing down 497 00:30:43,570 --> 00:30:45,930 Speaker 2: their acquisition of Autonomy. So they were saying that a 498 00:30:45,970 --> 00:30:50,050 Speaker 2: whole chunk of money, eight billion dollars of an eleven 499 00:30:50,050 --> 00:30:52,210 Speaker 2: billion dollar acquisition, was worthless. 500 00:30:52,490 --> 00:30:55,770 Speaker 1: Essentially, basically, we bought this company for eleven billion, we 501 00:30:55,810 --> 00:30:56,890 Speaker 1: should have paid three billion. 502 00:30:57,610 --> 00:30:58,050 Speaker 2: Oops. 503 00:30:58,290 --> 00:30:59,170 Speaker 1: Yeah, oops. 504 00:30:59,410 --> 00:31:03,730 Speaker 2: And they then said that they were accusing Mike Lynch 505 00:31:03,770 --> 00:31:06,130 Speaker 2: and his team of fraud. It was such a big 506 00:31:06,170 --> 00:31:08,530 Speaker 2: deal at the time that they actually called Number ten. 507 00:31:08,570 --> 00:31:11,330 Speaker 2: They called the Minister's office in Britain before they told 508 00:31:11,370 --> 00:31:14,530 Speaker 2: Mike Lynch because they knew it would cause such a 509 00:31:14,570 --> 00:31:19,410 Speaker 2: spectacular Transatlantic shock to accuse one of Britain's biggest companies 510 00:31:19,930 --> 00:31:20,730 Speaker 2: of fraud. 511 00:31:21,170 --> 00:31:26,090 Speaker 1: So it was a shock. How did the fraud case proceed? 512 00:31:26,570 --> 00:31:30,290 Speaker 2: Mister Justice Hildeyard, the judge in the British case, who 513 00:31:30,330 --> 00:31:33,170 Speaker 2: I think has more extensively than anyone on this planet, 514 00:31:33,250 --> 00:31:37,090 Speaker 2: gone through Autonomy's accounts and what happened at Hewlett Packard 515 00:31:37,410 --> 00:31:40,690 Speaker 2: actually said that HP brought the claim almost before they 516 00:31:40,690 --> 00:31:44,650 Speaker 2: had all the information. They decided that there was frauded Autonomy. 517 00:31:45,010 --> 00:31:47,970 Speaker 2: They were hearing that from various quarters they'd found some 518 00:31:48,010 --> 00:31:51,090 Speaker 2: anomalies in the accounts, but they went hell for leather 519 00:31:51,890 --> 00:31:56,250 Speaker 2: after Lynch without any proper analysis to support it, which 520 00:31:56,290 --> 00:32:02,370 Speaker 2: is fascinating. But their shareholders actually sued Hewlett Packard over 521 00:32:02,410 --> 00:32:05,290 Speaker 2: the acquisition, and I suspect that was one impetus for 522 00:32:05,370 --> 00:32:11,090 Speaker 2: them to really go after Mike Lynch and as well 523 00:32:11,330 --> 00:32:15,490 Speaker 2: his CFO sushavn Hussein, who they accused of conning them 524 00:32:15,610 --> 00:32:18,690 Speaker 2: essentially that you made your numbers look brilliant, much better 525 00:32:18,690 --> 00:32:20,530 Speaker 2: than they were, to make yourself look more attractive, so 526 00:32:20,570 --> 00:32:21,210 Speaker 2: we would buy you. 527 00:32:21,650 --> 00:32:24,930 Speaker 1: We heard he gets extradited to the US is he 528 00:32:25,010 --> 00:32:26,370 Speaker 1: first facing file in the UK. 529 00:32:27,490 --> 00:32:30,570 Speaker 2: Yes, it's a real tangle of litigation here. So there 530 00:32:30,650 --> 00:32:35,210 Speaker 2: was an enormous, incredibly complex trial in the UK which 531 00:32:35,290 --> 00:32:39,050 Speaker 2: started properly in twenty fifteen. So that's when the civil 532 00:32:39,090 --> 00:32:42,370 Speaker 2: case was brought in London when HP sued Mike Lynch 533 00:32:42,450 --> 00:32:45,570 Speaker 2: and his CFO Sashavan Hussein. While that was going on, 534 00:32:46,170 --> 00:32:50,970 Speaker 2: sushavn Hussein faced trial in the US, accused of fraud 535 00:32:51,010 --> 00:32:53,570 Speaker 2: by the Department of Justice, so sitting in front of 536 00:32:53,570 --> 00:32:56,770 Speaker 2: a jury in California, and he was found guilty and 537 00:32:56,810 --> 00:33:00,210 Speaker 2: then he was sent to prison with a five year sentence. 538 00:33:00,970 --> 00:33:04,170 Speaker 2: So you've got these two massive, massive cases kind of 539 00:33:04,210 --> 00:33:05,610 Speaker 2: going on almost simultaneously. 540 00:33:05,930 --> 00:33:08,410 Speaker 1: At what point does Lynched art to be facing down 541 00:33:08,410 --> 00:33:09,210 Speaker 1: the risk of prison. 542 00:33:09,290 --> 00:33:13,330 Speaker 2: When Sushevan Hussein, who is his number two, was sent 543 00:33:13,370 --> 00:33:16,050 Speaker 2: to prison, he started to take the whole thing very 544 00:33:16,050 --> 00:33:20,130 Speaker 2: seriously and started to worry about his future. He resisted 545 00:33:20,170 --> 00:33:24,650 Speaker 2: extradition and there was a lot of anticipation about the 546 00:33:24,770 --> 00:33:29,210 Speaker 2: verdict in the civil case. Once that came and the 547 00:33:29,330 --> 00:33:33,610 Speaker 2: judge categorically found for Hewlett Packard. Pretty Patel, who was 548 00:33:33,650 --> 00:33:36,930 Speaker 2: the Home Secretary in the UK and responsible for the 549 00:33:36,970 --> 00:33:41,890 Speaker 2: extradition signed the warrant to say that he could be 550 00:33:41,930 --> 00:33:45,090 Speaker 2: sent to America to face trial there. 551 00:33:45,450 --> 00:33:48,010 Speaker 1: So you've had his number two sent to prison. He's 552 00:33:48,010 --> 00:33:50,610 Speaker 1: lost the civil case. And then we're at Heito Airport 553 00:33:50,890 --> 00:33:52,770 Speaker 1: and he's having cuffs put on him and a chain 554 00:33:52,810 --> 00:33:55,730 Speaker 1: wrapped around him, and he's flying at the back of 555 00:33:55,730 --> 00:33:57,770 Speaker 1: the plane, which is not where he's used to flying 556 00:33:57,890 --> 00:33:58,970 Speaker 1: to the States. 557 00:33:59,690 --> 00:34:04,370 Speaker 2: But then what he landed in San Francisco actually expecting 558 00:34:04,410 --> 00:34:06,890 Speaker 2: to spend most of the time preparing for his trial 559 00:34:06,930 --> 00:34:10,090 Speaker 2: in New York with his lawyers. The judge said, I 560 00:34:10,130 --> 00:34:12,410 Speaker 2: think you're a flight risk. You're not allowed to leave 561 00:34:12,410 --> 00:34:16,610 Speaker 2: San Francisco. So in a rush, his lawyers had to 562 00:34:16,650 --> 00:34:21,730 Speaker 2: find him somewhere to live and some armed security guards 563 00:34:21,850 --> 00:34:24,210 Speaker 2: who would be willing to shoot him if he ran away. 564 00:34:24,690 --> 00:34:28,130 Speaker 2: So the two were actually quite incompatible. It's quite hard 565 00:34:28,170 --> 00:34:30,250 Speaker 2: to find someone to rent you a house, as it 566 00:34:30,290 --> 00:34:32,610 Speaker 2: turns out, if we were happy to have men with 567 00:34:32,650 --> 00:34:33,210 Speaker 2: guns there. 568 00:34:33,050 --> 00:34:35,370 Speaker 1: As well, very in line in the Bond movie though. 569 00:34:36,210 --> 00:34:43,050 Speaker 2: Yes, absolutely. And then his trial eventually started in early 570 00:34:43,290 --> 00:34:48,370 Speaker 2: twenty twenty four, and it felt like the outcome was 571 00:34:48,490 --> 00:34:49,570 Speaker 2: very obvious. 572 00:34:49,570 --> 00:34:54,610 Speaker 1: Given everything that we'd heard. The Baysian in US would say, 573 00:34:54,770 --> 00:34:57,570 Speaker 1: he hasn't got a chance, so why did he walk free? 574 00:34:58,130 --> 00:35:01,610 Speaker 2: Well, it's another probability question. I think in a criminal 575 00:35:01,730 --> 00:35:05,170 Speaker 2: jury trial you need to find someone guilty beyond reasonable doubt, 576 00:35:05,850 --> 00:35:08,730 Speaker 2: whereas in a civil trial it's on the balance of probabilities. 577 00:35:08,850 --> 00:35:12,730 Speaker 1: Right, So implicitly he probably committed for but we are 578 00:35:12,730 --> 00:35:16,530 Speaker 1: not sufficiently confident to deprive him of his liberty. At 579 00:35:16,530 --> 00:35:21,370 Speaker 1: the same time that Lynch walked free, another senior Autonomy 580 00:35:21,370 --> 00:35:22,930 Speaker 1: executive was also exonerated. 581 00:35:23,370 --> 00:35:26,850 Speaker 2: Yes, so Stephen Chamberlain was vice president of accounting at 582 00:35:26,890 --> 00:35:31,730 Speaker 2: Autonomy and Cambridge. It was a very popular guy amongst 583 00:35:31,730 --> 00:35:35,650 Speaker 2: his team and in his local community. He'd also been 584 00:35:35,690 --> 00:35:37,930 Speaker 2: staying in San Francisco for the duration of the trial, 585 00:35:37,930 --> 00:35:42,010 Speaker 2: but unlike Lynch, who'd been under house arrest in an 586 00:35:42,210 --> 00:35:46,810 Speaker 2: enormous mansion, Chamberlain had rented a one bedroom Airbnb. 587 00:35:47,130 --> 00:35:49,330 Speaker 1: Can you hire the security guard on Airbnb as well? 588 00:35:50,210 --> 00:35:54,010 Speaker 2: He didn't need one because he didn't fight extradition, so 589 00:35:54,090 --> 00:35:55,970 Speaker 2: he was never seen as a flight risk. So the 590 00:35:56,010 --> 00:35:59,530 Speaker 2: two men were in extremely different positions and their lives 591 00:35:59,930 --> 00:36:01,410 Speaker 2: got tied together by this trial. 592 00:36:01,730 --> 00:36:07,170 Speaker 1: Yeah, and at this point, if this was a conventional 593 00:36:07,850 --> 00:36:11,930 Speaker 1: Hollywood movie, Lynch and Chamberlain would sail off into the 594 00:36:11,930 --> 00:36:14,970 Speaker 1: sunset to enjoy their freedom, but that is not what happened. 595 00:36:16,930 --> 00:36:21,330 Speaker 2: Mike Lynch took his family and Chrisma Villo actually his 596 00:36:21,450 --> 00:36:24,570 Speaker 2: lead lawyer, and Jonathan Bloomer, who'd been the chair of 597 00:36:24,610 --> 00:36:28,490 Speaker 2: his audit committee at Autonomy, on holiday, along with a 598 00:36:28,570 --> 00:36:31,530 Speaker 2: number of other lawyers to celebrate that acquittal, to celebrate 599 00:36:31,570 --> 00:36:35,210 Speaker 2: winning the case. And it was the last day of 600 00:36:35,210 --> 00:36:40,210 Speaker 2: their holiday when they heard that Stephen Chamberlain, his co defendant, 601 00:36:40,930 --> 00:36:43,410 Speaker 2: had been hit by a car while he was out 602 00:36:43,490 --> 00:36:47,050 Speaker 2: running in Cambridgeshire and was on a life support machine. 603 00:36:46,730 --> 00:36:49,130 Speaker 1: In hospital and he did not survive. 604 00:36:49,810 --> 00:36:55,530 Speaker 2: He didn't survive, and later that night Lynch's yacht, which 605 00:36:55,570 --> 00:36:59,610 Speaker 2: was called the Beaijan, was hit by a freak storm 606 00:37:00,050 --> 00:37:03,370 Speaker 2: and knocked over in fifteen seconds and Lynch and his 607 00:37:03,530 --> 00:37:09,370 Speaker 2: daughter Christmas alone and his wife, and Jonathan bloom and 608 00:37:09,450 --> 00:37:12,210 Speaker 2: Judy Bloomer and the chef on board as well Ricaldo 609 00:37:12,290 --> 00:37:14,090 Speaker 2: Thomas all drowned. 610 00:37:15,170 --> 00:37:20,890 Speaker 1: It's really incredible. Immediately after this dramatic victory, all of 611 00:37:20,930 --> 00:37:23,890 Speaker 1: these people are killed. The conspiracy theorists, of course, have 612 00:37:23,970 --> 00:37:24,610 Speaker 1: had a field day. 613 00:37:25,330 --> 00:37:27,810 Speaker 2: They have, and I'm sorry to say, I haven't found 614 00:37:27,850 --> 00:37:31,210 Speaker 2: anything that stands up any idea that the US Department 615 00:37:31,290 --> 00:37:34,810 Speaker 2: of Justice, or that Hewlett Packard or any of the 616 00:37:34,850 --> 00:37:38,450 Speaker 2: other big players in this story are responsible for this 617 00:37:38,530 --> 00:37:42,130 Speaker 2: at all. It seems these were both just tragic accidents. 618 00:37:42,770 --> 00:37:45,490 Speaker 2: It's extraordinary, and it's certainly not the ending of the 619 00:37:45,530 --> 00:37:47,570 Speaker 2: book that I thought I was going to write. 620 00:37:48,010 --> 00:37:53,450 Speaker 1: On cautioning tales, we try to learn lessons from what's happened, 621 00:37:54,730 --> 00:37:58,370 Speaker 1: and some of what you've told us, Katie, is so extraordinary, 622 00:37:59,370 --> 00:38:01,650 Speaker 1: so unique, that I think there are no lessons to 623 00:38:01,690 --> 00:38:07,330 Speaker 1: be learned. But some of it is strangely familiar. So 624 00:38:07,410 --> 00:38:10,370 Speaker 1: if you were drawing lessons, what lessons would you draw. 625 00:38:10,730 --> 00:38:12,850 Speaker 2: I'm glad you said that, because I agree with you. 626 00:38:12,890 --> 00:38:17,850 Speaker 2: I think it's very hard to generalize about this story 627 00:38:17,850 --> 00:38:21,770 Speaker 2: because it's so absolutely extraordinary. But the one that jumps 628 00:38:21,810 --> 00:38:26,330 Speaker 2: out for me overall is about pride, you know, the 629 00:38:26,450 --> 00:38:29,730 Speaker 2: judge in the civil case, and I think this goes 630 00:38:29,770 --> 00:38:34,130 Speaker 2: back to your point about why there was ever any 631 00:38:34,210 --> 00:38:39,530 Speaker 2: need to inflate the sales figures. The pride that caused 632 00:38:39,930 --> 00:38:44,850 Speaker 2: Mike Lynch, I think, to fight with people and to 633 00:38:44,970 --> 00:38:48,890 Speaker 2: trample over relationships which caused so many problems, so many 634 00:38:48,970 --> 00:38:53,970 Speaker 2: unnecessary problems, and especially in the era that we're in 635 00:38:54,090 --> 00:38:57,650 Speaker 2: now of AI hype, which reminds me so much of 636 00:38:57,690 --> 00:39:01,250 Speaker 2: the dot com boom and bust. I think there are 637 00:39:01,330 --> 00:39:07,930 Speaker 2: lessons for this new cohort of startup entrepreneurs coming through 638 00:39:08,250 --> 00:39:11,450 Speaker 2: about how to notate this wild world. 639 00:39:12,770 --> 00:39:15,530 Speaker 1: Katie, thank you so much for talking to Cautionary Tales. 640 00:39:16,050 --> 00:39:18,890 Speaker 1: You can get Katie's book, The Curious Case of Mike 641 00:39:18,970 --> 00:39:21,570 Speaker 1: Lynch wherever you buy books, and of course you can 642 00:39:21,610 --> 00:39:26,530 Speaker 1: also read Katie Prescott's work in The Times newspaper, where 643 00:39:26,610 --> 00:39:29,090 Speaker 1: she is the Technology business editor. 644 00:39:29,730 --> 00:39:31,370 Speaker 2: Thank you, Katie, thanks for having me. 645 00:39:35,890 --> 00:39:39,530 Speaker 1: Cautionary Tales is written by me Tim Harfin with Andrew Wright, 646 00:39:39,850 --> 00:39:44,090 Speaker 1: Alice Fines and Ryan Dilly. It's produced by Georgia Mills 647 00:39:44,090 --> 00:39:47,770 Speaker 1: and Marilyn Rust. The sound design and original music are 648 00:39:47,770 --> 00:39:52,290 Speaker 1: the work of Pascal Wise. Additional sound design by Carlos 649 00:39:52,290 --> 00:39:56,690 Speaker 1: San Juan at Brain Audio and Dan Jackson. Bend A 650 00:39:56,770 --> 00:40:00,690 Speaker 1: d af Haffrey edited the scripts. The show also wouldn't 651 00:40:00,690 --> 00:40:04,290 Speaker 1: have been possible without the work of Jacob Weisberg, Greta Cohne, 652 00:40:04,650 --> 00:40:12,290 Speaker 1: Eric Sandler, Carrie Brody, Christina Sullivan and Owen Miller. Cautionary 653 00:40:12,290 --> 00:40:15,770 Speaker 1: Tales is a production of Pushkin Industries. If you like 654 00:40:15,850 --> 00:40:20,090 Speaker 1: the show, please remember to share, rate, and review. It 655 00:40:20,130 --> 00:40:23,290 Speaker 1: really does make a difference to us. 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