Speaker 1: Pushkin. As always, London's Heathrow Airport is heaving. Security queues
Speaker 1: shuffle forward. Exasperated parents trundle suitcases to the terminal with
Speaker 1: toddlers in tow. Excited friends gather in bars to toast
Speaker 1: the trip they're about to take. To it all walks
Speaker 1: a heavy set, balding man in his late fifties. He's
Speaker 1: wearing a smart suit and open shirt. But this man
Speaker 1: is not on a business trip. The people walking politely
Speaker 1: alongside him are not colleagues. They're police officers. They guide
Speaker 1: him through the corridors of Britain's busiest airport and deliver
Speaker 1: him to their American counterparts. Here civility acts. The US
Speaker 1: guards promptly cuff his wrists, wrap chains around his waist,
Speaker 1: and march the man who's more accustomed to champagne and
Speaker 1: private jet to the very back of the United Airlines player.
Speaker 1: It's the eleventh of May twenty twenty three, and Britain's
Speaker 1: answer to Bill Gates is about to be extradited to
Speaker 1: the US on charges of fraud. Once the darling of
Speaker 1: the UK tech world, a member of the BBC's executive
Speaker 1: board and a government advisor, Mike Lynch settles in for
Speaker 1: the eleven hour flight. As London disappears beneath him, he
Speaker 1: knows it will be a very long time before he
Speaker 1: sees Britain again. I'm Tim Harford and you're listening to
Speaker 1: Cautionary Tales. Mike Lynch was the co founder and CEO
Speaker 1: of the UK's biggest software company, Autonomy, which he sold
Speaker 1: to the American hardware giant Hulet Packard for eleven billion
Speaker 1: dollars in twenty eleven. But Hewlett Packard quickly began to
Speaker 1: suspect something was awry at Autonomy. Soon, legal battles raged
Speaker 1: on both sides at the Atlantic, revealing shocking truths and
Speaker 1: incredible oversights. This story of a tech tycoon is a
Speaker 1: rags to rich's tail, a business thriller, and ultimately a tragedy.
Speaker 1: Here to tell us all about it is Katie Prescott.
Speaker 1: She's Technology business editor at The Times and the author
Speaker 1: of the book The Curious Case of Mike Lynch. Katie.
Speaker 1: Welcome to Cautionary Tales.
Speaker 2: Hello, good to talk to you.
Speaker 1: So we should talk about Mike Lynch. His background. First,
Speaker 1: fabulously wealthy at the time we pictured him walking through
Speaker 1: heatho airport. But he didn't start wealthy.
Speaker 2: No, quite the opposite. And actually, you know, in a
Speaker 2: Britain which is still riven by class, Mike Lynch was
Speaker 2: the outlier. So. Born to an Irish immigrant mother who
Speaker 2: was a nurse and a father who was a fireman
Speaker 2: but also a Irish parentage. They moved to Essex when
Speaker 2: he was quite young, and very early on they spotted
Speaker 2: that he was a super bright little boy, and his
Speaker 2: mother put him forward for a scholarship at a private
Speaker 2: school when he was eleven.
Speaker 1: Yeah, so's he's studying with a bunch of rich, or
Speaker 1: at least upper middle class kids whose parents are paying
Speaker 1: large sums of money to send their kids to this school.
Speaker 1: But he's in on merit because he is incredibly sharp
Speaker 1: and academically. Where did his interest really shine? What was
Speaker 1: he doing at school?
Speaker 2: He loved computing and he loved engineering, and I think,
Speaker 2: unusually for a tech entrepreneur, he wasn't a lonely geek
Speaker 2: at all. Actually, far from it. He had lots and
Speaker 2: lots of friends and he led societies. So he started
Speaker 2: an electronics society for example. He also started a jazz band.
Speaker 2: We like that because he loved playing the clarinet, and this.
Speaker 1: Would have been with the late seventies early eighties that
Speaker 1: he was starting these societies. So just as the personal
Speaker 1: computer revolution is beginning and people are getting their z
Speaker 1: X eighty one's or whatever, he's a teenager.
Speaker 2: That's right. He said that there was a place local
Speaker 2: to school that he used to go so he could
Speaker 2: gaze at a commodore sixty four. It was an era
Speaker 2: where the kind of computing revolution was taking off and
Speaker 2: he was really enjoying that as a young boy.
Speaker 1: Yes, there was this sort of sense that you computers
Speaker 1: were things you could take apart and put back together again.
Speaker 1: You could use them, for example, to play.
Speaker 2: Music, and that was his early business actually with a
Speaker 2: mate from school, making synthesizers, so you could kind of
Speaker 2: muck about with music in a way that you couldn't before.
Speaker 2: That's really how he got into the business of tech.
Speaker 1: And then he goes to Cambridge, so this is presumably
Speaker 1: nineteen eighty two, ninety.
Speaker 2: Eighty three, nineteen eighty three. Yeah, that's right.
Speaker 1: So tell us about Cambridge in the early nineteen eighties
Speaker 1: and the connection to the tech industry, because I think
Speaker 1: a lot of people will picture these amazing Gothic chapels
Speaker 1: and these magnificent buildings, and this is where Isaac Newton
Speaker 1: held court. But there was something else going on in
Speaker 1: Cambridge by the time Mike Lynch showed up.
Speaker 2: Yeah, it's an incredibly exciting time I think to be
Speaker 2: in Cambridge if you loved computing and the bit to
Speaker 2: you painted tradition is absolutely right. Mike Lynch went to
Speaker 2: Christ's College, which is Charles Darwin's former establishment, and its
Speaker 2: picture perfect with absolutely pristine lawns and that very famous
Speaker 2: sandstone colored brickwork. But also there was the famous Cambridge
Speaker 2: Computing Lab where people were putting together computers and experimenting
Speaker 2: in this new age a bit like people are today
Speaker 2: with AI. Actually I find the parallels really similar. And
Speaker 2: Mike Lynch was really interested in something called signal processing,
Speaker 2: so this is kind of audio video technology. And he
Speaker 2: had a professor who really took him under his wing
Speaker 2: and convinced him to stay on and do a PhD.
Speaker 1: Yeah, and he was working on noise canceling headphones and yes.
Speaker 2: Exactly all sorts of things like that. And they had
Speaker 2: a project going on to digitize audio as well and
Speaker 2: sort of try and smooth out some of the crackles
Speaker 2: from old gramophone records.
Speaker 1: He doesn't become an academic, he's more of a business person.
Speaker 1: Tell us about that.
Speaker 2: He then started a company called Cambridge Neurodynamics.
Speaker 1: Must be clever because I've got no idea what that means.
Speaker 2: Well, that's exactly why they picked the name. It sounded
Speaker 2: clever and it sort of picked up on keywords at
Speaker 2: the time that were hot in the tech world.
Speaker 1: So this is the early nineties before Google. But one
Speaker 1: of the products he works on for a while is
Speaker 1: the sort of thing that Google turned into a trillion
Speaker 1: dollar business.
Speaker 2: People were trying to work out the best way of
Speaker 2: sifting through vast amounts of digital information. Mike Lynch emerged
Speaker 2: with a company called Auton, and the business sifted through
Speaker 2: information rather than in a clunky keyword search kind of
Speaker 2: way by as Mike Lynch described it, in marketing material,
Speaker 2: looking for concepts. When you're talking about corporations, which is
Speaker 2: where this software ended up being sold to, who've just
Speaker 2: got huge amounts of information. It seemed like a real
Speaker 2: magic bullet.
Speaker 1: It was a huge thing. I mean, those of us
Speaker 1: who are old enough to remember the world before Google,
Speaker 1: but after the world wide web. So these few years
Speaker 1: of there's a lot of stuff on any computer with
Speaker 1: an Internet connection, but there's no way to find it,
Speaker 1: and so we used to swap notes about well, how
Speaker 1: do you search for a thing? And so oh well,
Speaker 1: so one idea is, if there's something there's a particular
Speaker 1: expert in the field, you might search for that expert's name,
Speaker 1: and then web pages which have that expert's name, which
Speaker 1: is going to be unusual, those web pages will probably
Speaker 1: be relevant what you're looking for. That sort of kind
Speaker 1: of hack, rather than just as we would do today,
Speaker 1: to go to Google or to go to an AI
Speaker 1: and just say, oh, I'm just looking for this sort
Speaker 1: of stuff and it will just find you. We take
Speaker 1: it for granted that this stuff will be found. But
Speaker 1: it is an incredibly difficult problem, and a problem that
Speaker 1: Google turned into a trillion dollar business. But Lynch was
Speaker 1: on it before Google even existed.
Speaker 2: It's very hard in today's age to understand quite how
Speaker 2: novel this was. Lynch always said he regretted not selling
Speaker 2: it to the consumer market and not turning it into Google, but.
Speaker 1: Instead so autonomy. So it's not Google, it's not doing
Speaker 1: consumer directed web search. So what sort of search and
Speaker 1: what sort of information retrieval is it doing and who
Speaker 1: is paying for it?
Speaker 2: All sorts of enormous corporations in the end, as well
Speaker 2: as organizations within governments around the world. So rather than
Speaker 2: finding information in neat databases, look through your emails, voicemails,
Speaker 2: things like word documents, this kind of enormous trove of
Speaker 2: information that corporations create. And that's who he was selling
Speaker 2: it to, which made sense as a market at the time,
Speaker 2: because it seemed incredible They've got the money right, very
Speaker 2: lucrative and a more obvious place to sell something to
Speaker 2: than the consumer market.
Speaker 1: So Autonomy, Mike Lynch's company in the late nineteen nineties
Speaker 1: is jumping into this space where there's this opportunity because
Speaker 1: corporations have started generating enormous amounts of digital information that
Speaker 1: is unstructured, there's no way to make any sense of
Speaker 1: the stuff, and Autonomy does that and it's a very
Speaker 1: successful company. So what was it like to work at Autonomy?
Speaker 2: I think what sums up the atmosphere was the Piranha
Speaker 2: tank in reception, something not something you often see in
Speaker 2: the roundel of the Autonomy logo, and Lynch used to
Speaker 2: joke that that was the tank that he would throw
Speaker 2: failing salespeople into.
Speaker 1: Charming.
Speaker 2: It was a very very difficult place to work. Mike
Speaker 2: Lynch was a very hard taskmaster. He could be brutal,
Speaker 2: he could be very aggressive, and I'm afraid I heard
Speaker 2: very early on from researching the book some real horror
Speaker 2: stories about how people were treated within Autonomy, and that,
Speaker 2: I think, because the tech world in Britain is very small,
Speaker 2: much much smaller at that time, leaked out very quickly
Speaker 2: and it got Mike Lynch's certain reputation.
Speaker 1: When you say a certain reputation, I mean that all
Speaker 1: kinds of things go on in companies that we could
Speaker 1: describe as horrible. But what was he actually doing.
Speaker 2: There was one woman who worked in the marketing team
Speaker 2: who he thought wasn't working hard enough, and he would
Speaker 2: yell at her repeatedly, and after an incident when he
Speaker 2: saw her and some colleagues mocking him for his James
Speaker 2: Bond obsession, because I loved James Bond, and he named
Speaker 2: all of the meeting rooms after James Bond villains. He
Speaker 2: put her desk first inside his office and then just
Speaker 2: outside so he could look over her shoulder. The whole
Speaker 2: time and see what she was doing. There were tons
Speaker 2: and tons of examples of people being fired at will.
Speaker 2: People were very scared of him, so.
Speaker 1: Very demanding, cool, mean, angry.
Speaker 2: Bullying, and I think I'm afraid it was deliberate cruelty.
Speaker 2: I think he enjoyed the power. He had a tiny
Speaker 2: team around him, and I got the impression they were
Speaker 2: like his henchmen. And that's how the company was run.
Speaker 1: So how does it do financially? Because it grew very
Speaker 1: fast and it was floated on the London stock Market
Speaker 1: and became a foot Sea one hundred companies, So this
Speaker 1: is one of the one hundred biggest companies listed on
Speaker 1: the London Stock Exchange. So that sounds good.
Speaker 2: It does, and I think we have to be very
Speaker 2: careful here. It's certainly benefited from the dot com boom.
Speaker 2: It actually had a very ino it software product. However,
Speaker 2: at the time that it went into the Footsy one hundred,
Speaker 2: that's because its valuation, so what shareholders vestors thought it
Speaker 2: was worth was way above the money that it was
Speaker 2: actually making.
Speaker 1: People were very very excited.
Speaker 2: I think it was making something like forty four million
Speaker 2: pounds a year and it was valued at four billion
Speaker 2: pounds because people were very excited about its future prospects.
Speaker 2: And we're seeing that similar valuation difference in AI businesses today.
Speaker 2: So yes, it was doing well for a startup, but
Speaker 2: its revenue certainly didn't match up to its valuation, and
Speaker 2: it very quickly actually fell out of the Footsy one
Speaker 2: hundred when the dot com bust happened.
Speaker 1: I would love to talk about the bust, but let
Speaker 1: us do that after the break. We are back and
Speaker 1: I am talking to Katie Prescott, the author of the
Speaker 1: que Serious Case of Mike Lynch. Katie, we promised to
Speaker 1: talk about the dot com boom and bust. Before we do,
Speaker 1: we should probably introduce a new character, and that is
Speaker 1: the Reverend Thomas Bays. Lynch was obsessed with him. So
Speaker 1: what did he do and why was it relevant to
Speaker 1: Mike Lynch.
Speaker 2: He was an early academic in the field of probability.
Speaker 2: He came up with this concept that sounds very simple,
Speaker 2: that what has gone before informs the probability of something happening.
Speaker 2: So if you walked into a room where people had COVID,
Speaker 2: it is more likely that you would come out of
Speaker 2: it with COVID, and Lynch like embrace this both as
Speaker 2: part of his business, but he also, i would say,
Speaker 2: mainly used it to inform his philosophy of life. Right,
Speaker 2: So he was constantly weighing up the odds of things happening,
Speaker 2: and his teams were very used to him saying I
Speaker 2: put twenty percent on that, eighty percent on that. If
Speaker 2: he was hiring someone, he'd say, Okay, who are they
Speaker 2: like that? We know, yes, just trying to work out
Speaker 2: the odds of things happening. And one of the things
Speaker 2: that struck me in writing this book is that everything
Speaker 2: about Lynch's life was completely improbable. And the working title
Speaker 2: of the book was actually improbable Odds because it's so
Speaker 2: unlikely that someone from his background would go to private school,
Speaker 2: would go to Cambridge. He was born with no fingerprints.
Speaker 2: Most startups fail, I don't know there are There are
Speaker 2: so many improbable things.
Speaker 1: He was born with no fingerprints. He slipped that one in.
Speaker 2: He was born with no fingerprints.
Speaker 1: Wow, he really is a Bond villain.
Speaker 2: Okay, yeah, And that was part of the joke. He
Speaker 2: used to say to analysts in the city. Look, I
Speaker 2: have got no fingerprints. I'd make a brilliant criminal.
Speaker 1: So he's this brilliant guy. He's a bully. He has
Speaker 1: set up this business, he's launched it on the stock market.
Speaker 1: So tell us then, about what happened when Autonomy ran
Speaker 1: into the dot com bust.
Speaker 2: Lynch was only thirty at this point, running a startup
Speaker 2: out of a coworking space in Cambridge, and it went
Speaker 2: from footsy one hundred company too, and you can see
Speaker 2: the share price plummeting, and Lynch really wanted to work
Speaker 2: to get that share price up again. Now, on one level,
Speaker 2: it was still doing well and still making the sales
Speaker 2: that it was and its technology was still valued. Just
Speaker 2: because it had dropped out of the list of shares
Speaker 2: hadn't changed what it was doing.
Speaker 1: I mean, it's worth being clear. The reason it was
Speaker 1: a footsy one hundred company was because it was valued
Speaker 1: by investors very highly. And the reason it was valued
Speaker 1: by investors very highly was not because it was making
Speaker 1: enormous profits. It was because they were very optimistic about
Speaker 1: its future prospects. So when they become less optimistic about
Speaker 1: all these tech companies, it drops out of the foots
Speaker 1: one hundred.
Speaker 2: But it's not because it's doing anything wrong.
Speaker 1: Yeah, it's not done anything wrong.
Speaker 2: All the big tech companies did drop at that point
Speaker 2: to me, even the likes of Microsoft. This is the
Speaker 2: first time that Lynch faced the reality of running a
Speaker 2: public business. You've got the glory of being in the
Speaker 2: foot seat one hundred, of being, you know, the young
Speaker 2: cool guy in Britain's tech scene during the dot com boom,
Speaker 2: but then during the bust. Actually, you've got the pain
Speaker 2: of trying to convince the press and trying to convince
Speaker 2: people in the city who are scrutinizing your company and
Speaker 2: telling investors whether they should put their money into it.
Speaker 2: You've got the pain of really trying to get them
Speaker 2: on board. And he really hated criticism, especially when it
Speaker 2: came to Autonomy. He had very very thin skin.
Speaker 1: He is subject to a level of scrutiny that he's
Speaker 1: not used to. He doesn't like it, and he wants
Speaker 1: to prove that Autonomy is for real. There's a certain
Speaker 1: pressure to make the numbers do what Mike Lynch wants
Speaker 1: them to do at this point, so.
Speaker 2: Every quarter Autonomy would publish their results publicly.
Speaker 1: This is what we sold, this is what it costs.
Speaker 2: Exactly right, so how much money we made And kind
Speaker 2: of unusual for a British company, because reporting every six
Speaker 2: months here is more normal. But Autonomy had been listed
Speaker 2: on the Nasdaq and Lynch always wanted to make parallels
Speaker 2: with his company and the very successful tech businesses in
Speaker 2: the US, so he was forced every three months, or
Speaker 2: he had chosen every three months to publish.
Speaker 1: Their results as a condition of Nasdaq listing.
Speaker 2: So he had to not only keep up with the
Speaker 2: forecast or the predictions that Autonomy made about their expectations
Speaker 2: for their sales, but also the predictions that would be
Speaker 2: made by city analysts in London who were making their
Speaker 2: own predictions, and really that set a target every three
Speaker 2: months to hit, and when Autonomy didn't hit that target,
Speaker 2: its share price would fall.
Speaker 1: He didn't want that to happen, and he.
Speaker 2: Didn't want that to happen. If you fast forward towards
Speaker 2: the financial crisis of two thousand and eight, companies stopped
Speaker 2: buying software in the way they had done because budgets
Speaker 2: were squeezed, understandably, But to continue hitting those targets, Autonomy,
Speaker 2: which had always prided itself and boasted about being a
Speaker 2: pure software company, started selling hardware and reselling other people's
Speaker 2: hardware from companies like Dell, So things like keyboards and laptops,
Speaker 2: very basic things mice.
Speaker 1: That doesn't sound like a high margin business.
Speaker 2: Well no, and that's the problem because analysts in the
Speaker 2: city and investors liked Autonomy's pure software model because it
Speaker 2: had an enormous margin because you're not paying to manufacture
Speaker 2: something physical. When you're selling software, it's the dream. You
Speaker 2: create some IP and then you can just ping it
Speaker 2: around and so your margins are massive. But clearly when
Speaker 2: you're reselling hardware that you've bought from somebody else, that's
Speaker 2: very different. And Autonomy bundled all these sales into one
Speaker 2: set of numbers and still told investors that they were
Speaker 2: a pure software business, but actually a chunk of those
Speaker 2: sales in one quarter, the biggest time that this happened,
Speaker 2: twenty percent of those sales came from reselling hardware.
Speaker 1: Just explain to me in a nutshell, what were Mike
Speaker 1: Lynch and his team doing to make Autonomy's numbers look better.
Speaker 2: So they were essentially wrapping the sales of more expensive
Speaker 2: hardware into their software sales and putting expenses that came
Speaker 2: from that in the marketing budget, moving numbers around around
Speaker 2: the accounts. They were clocking sales on their books before
Speaker 2: they'd actually happened by using resellers, which are very common
Speaker 2: in the software industry, but they should really have had
Speaker 2: a deal signed before they passed it on to the reseller,
Speaker 2: and so that created holes in the accounts every quarter
Speaker 2: that they struggled to fill. And then also they were
Speaker 2: writing down sales as sales to original equipment manufacturers or OEMs.
Speaker 2: So they'd say, we're putting Autonomy software in Dell, but
Speaker 2: they were calling all sorts of companies OEMs, including Tottenham
Speaker 2: Hotspur Football club. Linch. She used to describe it as
Speaker 2: the Pinacolada model. He'd sell to an OEM and then
Speaker 2: you could sit back on the beach with your cocktail
Speaker 2: while someone else sold it for you.
Speaker 1: And I'm curious. Autonomy had auditors, professional accountants, independent coming
Speaker 1: and looking at their accounts. What were the auditors doing.
Speaker 2: The auditors were signing off the accounts behind the scenes,
Speaker 2: there were often questions about how things were being registered
Speaker 2: as sales. The auditors, Deloitte were later fined over the
Speaker 2: Autonomy accounts. There was an extraordinary investigation by the accounting
Speaker 2: watchdog into how they handled them, which essentially found that
Speaker 2: Deloitte Cambridge, which was a branch of the main Deloitte
Speaker 2: office in London. Bear in mind they're one of the
Speaker 2: top four accountants, wanted to keep its relationship with Autonomy.
Speaker 2: It was its only footzy one hundred.
Speaker 1: Customer keep the customer satisfied.
Speaker 2: They wanted to keep the customer satisfied. And the relationship
Speaker 2: was just too cozy with the company.
Speaker 1: And so people looking at these numbers are just going
Speaker 1: to fundamentally misunderstand what is actually going on inside the company.
Speaker 2: Yes, and there was one particular analyst in the city,
Speaker 2: a chap called Dowd Khan, who wrote a rather negative
Speaker 2: note about Lynch, and this sparked a very bizarre reaction.
Speaker 2: He ended up banning Dowd Khan from Autonomy's meetings. From
Speaker 2: their results meetings, so normally they didn't oounce their results.
Speaker 2: They invite everybody in an analyst would be able to
Speaker 2: ask questions, and he said, you're you're not allowed to come.
Speaker 1: This is the equivalent of the White House saying we
Speaker 1: don't want a reporter showing up to the presidential briefings
Speaker 1: because we don't like the way you write your news.
Speaker 1: That a similar sort of energy yes.
Speaker 2: It was. It was very strange, and a little group
Speaker 2: formed of it was quite maverick analysts in the city
Speaker 2: who started to question Autonomy's numbers and be quite vociferous
Speaker 2: about it.
Speaker 1: So they're cutting various corners in terms of their accounts.
Speaker 1: Did they need to do this? Was it existential that
Speaker 1: basically they were they were just going to run out
Speaker 1: of money or run out of funding if they hadn't
Speaker 1: stepped across the line occasionally, or was this entirely Mike
Speaker 1: Lynch's vanity.
Speaker 2: I think there were definitely problems with the technology. They
Speaker 2: weren't investing enough in research and development, and there were
Speaker 2: very serious competitors. Google had created a version of the
Speaker 2: technology that was much much cheaper, but there was still
Speaker 2: selling it. And actually there are some bar charts in
Speaker 2: the book which show how much they inflated the revenue
Speaker 2: each quarter, and you're not talking about enormous sums. They
Speaker 2: probably could have kept going and actually probably pivoted to
Speaker 2: other sorts of technology. So Lynch was very very early
Speaker 2: to the cloud, but he was so very proud.
Speaker 1: Well, he had a lot to be proud about. So
Speaker 1: he'd created this very successful company. Is a pillar of Society.
Speaker 1: He's being celebrated as a tech genius. He has an
Speaker 1: obe kind of medal given to him by the Queen.
Speaker 1: He's a fellow of the Royal Society of Engineering. He's
Speaker 1: on the executive board of the BBC, he's an advisor
Speaker 1: to the British government. All of these great things. Then
Speaker 1: he is approached by Hewlett Packard, who want to buy
Speaker 1: his company? Or what were they hoping to gain.
Speaker 2: It's probably worth turning and having a look at the
Speaker 2: state that Hewlett Packard was in at the time, which
Speaker 2: was not brilliant. They'd cycled through a number of chief executives,
Speaker 2: they'd made a number of acquisitions for many billions of
Speaker 2: dollars which had failed.
Speaker 1: And they're famous making hardware, so that most famously printers,
Speaker 1: but you know, they make computers exactly.
Speaker 2: And at a time when the new cohort of tech
Speaker 2: companies were coming through, Hewlett Packard felt like a dinosaur
Speaker 2: in Silicon Valley. And they got a new boss, a
Speaker 2: guy called Leao Apottica from the software industry. So his
Speaker 2: big vision was, Okay, we're going to find a really
Speaker 2: interesting innovative software business to bolt on to. Hewlett Packard's
Speaker 2: massive customer base and it'll be a winner. And then
Speaker 2: came across autonomy.
Speaker 1: Leo Apoteca is convinced that this is a brilliant idea.
Speaker 1: Is he did everyone at Hulett Packard think that autonomy
Speaker 1: is a steel or of eleven billion dollars? Whatever it was.
Speaker 2: Certainly his advisors, the various banks and consultants that he
Speaker 2: was talking to, were very positive. In fact, they encouraged him.
Speaker 1: They're on a percentage, right, they're on commission if they
Speaker 1: shepherd this deal through.
Speaker 2: They encouraged him to do the deal quickly because someone
Speaker 2: else might buy it. Because somebody else might buy it. Yeah,
Speaker 2: that's right, and that ended up being a massive problem
Speaker 2: for everyone.
Speaker 1: Yes, you have a beautiful description of this in your book.
Speaker 1: You describe Hewlett Packard's due diligence as more akin to
Speaker 1: squeezing fruit at a market stall that a full on dissection.
Speaker 1: I love this idea. With him just saying yeah, seems
Speaker 1: about right felt.
Speaker 2: Like the obvious analogy. Because they only spent eighteen days
Speaker 2: on their due diligence.
Speaker 1: And there's been eleven billion dollars.
Speaker 2: You would spend far more time than that buying a
Speaker 2: house or I don't know, probably buying lots of making
Speaker 2: lots of major purchases.
Speaker 1: Should Hewlett Packard have been a little bit more wary
Speaker 1: We will find out after the break. We're back, and
Speaker 1: I'm speaking to Katie Prescott, the author of the Curious
Speaker 1: Case of Mike Lynch. So, Katie, the computer giant Hewlett
Speaker 1: Packard has just agreed to buy Autonomy for eleven point
Speaker 1: one billion dollars after giving it a quick squeeze and
Speaker 1: saying it seems about right. That did not last very long.
Speaker 1: The honeymoon was pretty brief.
Speaker 2: It blew up so quickly, so the CEO who'd been
Speaker 2: in charge of the acquisition was fired almost immediately after
Speaker 2: it happened.
Speaker 1: So Lynch is still working for Hulett Packard now.
Speaker 2: Right exactly, So, he is working for Hewlett Packard along
Speaker 2: with many of the Autonomy team, and his new boss
Speaker 2: is a lady called Meg Whitman, the latest in a
Speaker 2: long line of HP CEOs, and was presented with Autonomy
Speaker 2: as one of various headaches to deal with. And I
Speaker 2: don't think she'd been a massive supporter of the deal,
Speaker 2: and various others also on the board got cold feet
Speaker 2: almost as soon as it had happened, So it was
Speaker 2: a difficult situation for Lynch to be in. But I
Speaker 2: also think he was not a man who was used
Speaker 2: to having a boss. He'd been his own boss from
Speaker 2: the very start. He said that Autonomy was treated like
Speaker 2: an unwanted stepchild within Hewlett Packard, that they weren't welcomed.
Speaker 2: They were setting him up to fail, was his argument.
Speaker 2: On the flip side, I think HP not only regretted
Speaker 2: buying Autonomy after a series of previous failed acquisitions, but
Speaker 2: also was starting to realize that the company had some
Speaker 2: quite serious problems, and they became quite alarmed by some
Speaker 2: of the stories that they heard about how it was run.
Speaker 1: And are these stories about the accounting irregularities or are
Speaker 1: these stories about Mike Linch the bully?
Speaker 2: Started off about Mike Linch the bully, And then there
Speaker 2: was a showdown between Meg Whitman and Mike Linch when
Speaker 2: Autonomy failed spectacularly to meet its sales numbers and he
Speaker 2: didn't tell her about in in advance, and Whitman said,
Speaker 2: this is completely unacceptable. This isn't how you run a company.
Speaker 1: So she said it's unacceptable and you need to shape
Speaker 1: up or it's unacceptable and you're out.
Speaker 2: You're out right. She fired him.
Speaker 1: But that is not the end of the saga with
Speaker 1: Hewlett Packard and Mike Lynch.
Speaker 2: A whistleblower stepped forward from within Autonomy. So you've got
Speaker 2: the Autonomy team that's been absorbed by HP, and one
Speaker 2: of them, a chap called Joel Scott, went to speak
Speaker 2: to Hewlett Packard's chief lawyer about the accounting, and that
Speaker 2: sparked an investigation.
Speaker 1: And then what As the.
Speaker 2: Company becomes more deeply absorbed into HP, it became obvious
Speaker 2: that things weren't right. But in November twenty twelve, Hewlett
Speaker 2: Packard came out and said that they were writing down
Speaker 2: their acquisition of Autonomy. So they were saying that a
Speaker 2: whole chunk of money, eight billion dollars of an eleven
Speaker 2: billion dollar acquisition, was worthless.
Speaker 1: Essentially, basically, we bought this company for eleven billion, we
Speaker 1: should have paid three billion.
Speaker 2: Oops.
Speaker 1: Yeah, oops.
Speaker 2: And they then said that they were accusing Mike Lynch
Speaker 2: and his team of fraud. It was such a big
Speaker 2: deal at the time that they actually called Number ten.
Speaker 2: They called the Minister's office in Britain before they told
Speaker 2: Mike Lynch because they knew it would cause such a
Speaker 2: spectacular Transatlantic shock to accuse one of Britain's biggest companies
Speaker 2: of fraud.
Speaker 1: So it was a shock. How did the fraud case proceed?
Speaker 2: Mister Justice Hildeyard, the judge in the British case, who
Speaker 2: I think has more extensively than anyone on this planet,
Speaker 2: gone through Autonomy's accounts and what happened at Hewlett Packard
Speaker 2: actually said that HP brought the claim almost before they
Speaker 2: had all the information. They decided that there was frauded Autonomy.
Speaker 2: They were hearing that from various quarters they'd found some
Speaker 2: anomalies in the accounts, but they went hell for leather
Speaker 2: after Lynch without any proper analysis to support it, which
Speaker 2: is fascinating. But their shareholders actually sued Hewlett Packard over
Speaker 2: the acquisition, and I suspect that was one impetus for
Speaker 2: them to really go after Mike Lynch and as well
Speaker 2: his CFO sushavn Hussein, who they accused of conning them
Speaker 2: essentially that you made your numbers look brilliant, much better
Speaker 2: than they were, to make yourself look more attractive, so
Speaker 2: we would buy you.
Speaker 1: We heard he gets extradited to the US is he
Speaker 1: first facing file in the UK.
Speaker 2: Yes, it's a real tangle of litigation here. So there
Speaker 2: was an enormous, incredibly complex trial in the UK which
Speaker 2: started properly in twenty fifteen. So that's when the civil
Speaker 2: case was brought in London when HP sued Mike Lynch
Speaker 2: and his CFO Sashavan Hussein. While that was going on,
Speaker 2: sushavn Hussein faced trial in the US, accused of fraud
Speaker 2: by the Department of Justice, so sitting in front of
Speaker 2: a jury in California, and he was found guilty and
Speaker 2: then he was sent to prison with a five year sentence.
Speaker 2: So you've got these two massive, massive cases kind of
Speaker 2: going on almost simultaneously.
Speaker 1: At what point does Lynched art to be facing down
Speaker 1: the risk of prison.
Speaker 2: When Sushevan Hussein, who is his number two, was sent
Speaker 2: to prison, he started to take the whole thing very
Speaker 2: seriously and started to worry about his future. He resisted
Speaker 2: extradition and there was a lot of anticipation about the
Speaker 2: verdict in the civil case. Once that came and the
Speaker 2: judge categorically found for Hewlett Packard. Pretty Patel, who was
Speaker 2: the Home Secretary in the UK and responsible for the
Speaker 2: extradition signed the warrant to say that he could be
Speaker 2: sent to America to face trial there.
Speaker 1: So you've had his number two sent to prison. He's
Speaker 1: lost the civil case. And then we're at Heito Airport
Speaker 1: and he's having cuffs put on him and a chain
Speaker 1: wrapped around him, and he's flying at the back of
Speaker 1: the plane, which is not where he's used to flying
Speaker 1: to the States.
Speaker 2: But then what he landed in San Francisco actually expecting
Speaker 2: to spend most of the time preparing for his trial
Speaker 2: in New York with his lawyers. The judge said, I
Speaker 2: think you're a flight risk. You're not allowed to leave
Speaker 2: San Francisco. So in a rush, his lawyers had to
Speaker 2: find him somewhere to live and some armed security guards
Speaker 2: who would be willing to shoot him if he ran away.
Speaker 2: So the two were actually quite incompatible. It's quite hard
Speaker 2: to find someone to rent you a house, as it
Speaker 2: turns out, if we were happy to have men with
Speaker 2: guns there.
Speaker 1: As well, very in line in the Bond movie though.
Speaker 2: Yes, absolutely. And then his trial eventually started in early
Speaker 2: twenty twenty four, and it felt like the outcome was
Speaker 2: very obvious.
Speaker 1: Given everything that we'd heard. The Baysian in US would say,
Speaker 1: he hasn't got a chance, so why did he walk free?
Speaker 2: Well, it's another probability question. I think in a criminal
Speaker 2: jury trial you need to find someone guilty beyond reasonable doubt,
Speaker 2: whereas in a civil trial it's on the balance of probabilities.
Speaker 1: Right, So implicitly he probably committed for but we are
Speaker 1: not sufficiently confident to deprive him of his liberty. At
Speaker 1: the same time that Lynch walked free, another senior Autonomy
Speaker 1: executive was also exonerated.
Speaker 2: Yes, so Stephen Chamberlain was vice president of accounting at
Speaker 2: Autonomy and Cambridge. It was a very popular guy amongst
Speaker 2: his team and in his local community. He'd also been
Speaker 2: staying in San Francisco for the duration of the trial,
Speaker 2: but unlike Lynch, who'd been under house arrest in an
Speaker 2: enormous mansion, Chamberlain had rented a one bedroom Airbnb.
Speaker 1: Can you hire the security guard on Airbnb as well?
Speaker 2: He didn't need one because he didn't fight extradition, so
Speaker 2: he was never seen as a flight risk. So the
Speaker 2: two men were in extremely different positions and their lives
Speaker 2: got tied together by this trial.
Speaker 1: Yeah, and at this point, if this was a conventional
Speaker 1: Hollywood movie, Lynch and Chamberlain would sail off into the
Speaker 1: sunset to enjoy their freedom, but that is not what happened.
Speaker 2: Mike Lynch took his family and Chrisma Villo actually his
Speaker 2: lead lawyer, and Jonathan Bloomer, who'd been the chair of
Speaker 2: his audit committee at Autonomy, on holiday, along with a
Speaker 2: number of other lawyers to celebrate that acquittal, to celebrate
Speaker 2: winning the case. And it was the last day of
Speaker 2: their holiday when they heard that Stephen Chamberlain, his co defendant,
Speaker 2: had been hit by a car while he was out
Speaker 2: running in Cambridgeshire and was on a life support machine.
Speaker 1: In hospital and he did not survive.
Speaker 2: He didn't survive, and later that night Lynch's yacht, which
Speaker 2: was called the Beaijan, was hit by a freak storm
Speaker 2: and knocked over in fifteen seconds and Lynch and his
Speaker 2: daughter Christmas alone and his wife, and Jonathan bloom and
Speaker 2: Judy Bloomer and the chef on board as well Ricaldo
Speaker 2: Thomas all drowned.
Speaker 1: It's really incredible. Immediately after this dramatic victory, all of
Speaker 1: these people are killed. The conspiracy theorists, of course, have
Speaker 1: had a field day.
Speaker 2: They have, and I'm sorry to say, I haven't found
Speaker 2: anything that stands up any idea that the US Department
Speaker 2: of Justice, or that Hewlett Packard or any of the
Speaker 2: other big players in this story are responsible for this
Speaker 2: at all. It seems these were both just tragic accidents.
Speaker 2: It's extraordinary, and it's certainly not the ending of the
Speaker 2: book that I thought I was going to write.
Speaker 1: On cautioning tales, we try to learn lessons from what's happened,
Speaker 1: and some of what you've told us, Katie, is so extraordinary,
Speaker 1: so unique, that I think there are no lessons to
Speaker 1: be learned. But some of it is strangely familiar. So
Speaker 1: if you were drawing lessons, what lessons would you draw.
Speaker 2: I'm glad you said that, because I agree with you.
Speaker 2: I think it's very hard to generalize about this story
Speaker 2: because it's so absolutely extraordinary. But the one that jumps
Speaker 2: out for me overall is about pride, you know, the
Speaker 2: judge in the civil case, and I think this goes
Speaker 2: back to your point about why there was ever any
Speaker 2: need to inflate the sales figures. The pride that caused
Speaker 2: Mike Lynch, I think, to fight with people and to
Speaker 2: trample over relationships which caused so many problems, so many
Speaker 2: unnecessary problems, and especially in the era that we're in
Speaker 2: now of AI hype, which reminds me so much of
Speaker 2: the dot com boom and bust. I think there are
Speaker 2: lessons for this new cohort of startup entrepreneurs coming through
Speaker 2: about how to notate this wild world.
Speaker 1: Katie, thank you so much for talking to Cautionary Tales.
Speaker 1: You can get Katie's book, The Curious Case of Mike
Speaker 1: Lynch wherever you buy books, and of course you can
Speaker 1: also read Katie Prescott's work in The Times newspaper, where
Speaker 1: she is the Technology business editor.
Speaker 2: Thank you, Katie, thanks for having me.
Speaker 1: Cautionary Tales is written by me Tim Harfin with Andrew Wright,
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