Yankee Expansionist Builds British Empire Pearson CEO Scardino bets the FT will sell in America. But will investors buy her brand of change for the media conglomerate?
By Laura Colby

(FORTUNE Magazine) – "I was so hurt," says Marjorie Scardino, recalling what should have been a triumphant return home to Texas. The onetime rodeo barrel racer from Texarkana was a local girl who made good: She had been named chief executive of media conglomerate Pearson PLC, one of the largest, staidest companies in Britain--the first woman ever to attain such a high post. So the people at Texas A&M had invited her to give a speech. "And you know what they said?" Scardino, 51, says in her soft vestigial drawl. "That I had an English accent!" She shakes her head, then looks worried. "I don't think I have an English accent, do you?"

Going native is probably one of the worst things that could happen to Scardino, who has made a career by artfully manipulating stereotypes that Americans and Britons hold about each other. Long before "branding" became a management mantra, Scardino was persuading American business people that what they needed to read was a smart-alecky, global-minded British magazine, the Economist. That scheme was so successful that she became the magazine's CEO and then, a little over a year ago, the chief executive of its half-owner, Pearson, a publicly traded company ten times the Economist's size. Now Scardino is trying to sell Americans on another British export, Pearson's venerable daily, the Financial Times. And in her toughest marketing mission yet, she's trying to sell skeptical Britons, particularly investors in the City, London's financial district, on an American export--Marjorie Scardino the manager.

So far, investors have given her the benefit of the doubt. Pearson is now rated a "buy" by the leading investment banks that follow it. Merrill Lynch forecasts a 19% rise in pretax profits, to $557.6 million this year, up from an estimated $469 million in 1997. Scardino has made some pronouncements about increasing shareholder value, the promise of which has boosted Pearson stock. But she has made no major asset sales--something awaited with impatience by the market--and her one big acquisition, a TV company, was negotiated by another executive who many believe overpaid. "I still haven't seen any coherent, cohesive strategy," says Nick Bertolotti, senior media analyst at J.P. Morgan.

In London the question is asked: Is she up to the job of managing a $3.6-billion-a-year company? Of course in Scardino's case the question is somewhat loaded. She is one of the rare--for any country--female executives who has risen to the top entirely on her own, not by marriage or inheritance. The British press has taken patronizing potshots, asking how a mother of three could also manage a big company and jeeringly portraying her spouse as a "househusband" (actually, he manages the Hollywood career of their 13-year-old son, Hal, who has starred in Marvin's Room and other movies).

Furthermore, Scardino has taken the helm of a company that to an unusual degree claims nationality as an integral part of its identity. Pearson's holdings include some of Britain's best-known names, from the wax museums of Madame Tussaud's to the Financial Times to the august Penguin Books. Until just over a year ago its chairmen were always British lords who, as one longtime employee puts it, "often seemed to be more interested in ornithology than in watching the bottom line." The company had tried to get more focus and modernity by naming a bare-knuckled former newspaperman, Frank Barlow, as its managing director in 1990. Barlow sold off some of Pearson's major nonmedia assets--the Royal Doulton line of china and the Ch?teau Latour vineyards, for instance--but he also made serious bloopers like the wildly inflated $465 million acquisition in 1994 of the California computer-game company now called Mindscape. Mindscape had an operating loss of $74.6 million in 1996 and was still in the red last year.

Today, Scardino, who has never before run a public company, faces the daunting task of turning this loose confederation into a tightly focused media empire. If she succeeds, she could catapult Pearson from an also-ran among European media companies--one whose return on equity was 16% over the past three years, compared with 24% for British media stocks in general--into a star performer. If she fails, the 150-year-old company will be vulnerable to takeover, or worse, a breakup. Market sharks have frequently pointed out that the company's breakup value per share, estimated at between 900 and 1,000 pence by London analysts, exceeds the company's share price by an enticing margin. And its largest shareholders are the founding Cowdray family, whose stake today has dwindled to about 6%, hardly enough to block a hostile bid.

Scardino knows she is a potent symbol of change, and she is making the most of it. She shows up for business meetings wearing a baseball cap and faces down skeptical financial analysts by cracking jokes. She writes E-mail to her employees explaining major corporate decisions (albeit using American prose--with phrases like "muscle in" and "mooch"--that makes some of them wince). Her first act on taking over was to write a memo to the staff, addressed to "Dear Everyone," introducing herself. (Most everyone now calls her Marjorie.) She started a profit-sharing program for all 17,000 employees, from white-collar managers to part-time office cleaners. Previously, only a few hundred top managers got such incentives.

"She's an enthusiast and an enthuser," says Dennis Stevenson, the board member who championed her appointment and was then named her boss as chairman, breaking into American vernacular to describe what impresses him about Scardino. Her style, says a longtime friend, "is a mixture of Boston bluestocking, Southern good ol' girl, and dockworker." It's a pedigree that has served her well in Britain: When the public-school prating of the Economist's Oxbridge wits became insufferable, she was known to tell them: "Oh, get over yourself."

When Scardino took the helm at Pearson in January 1997, the stock market was waiting for a sign of her making a clear break with the past. By then, Barlow had so alienated investors that his retirement was moved up by several months. But the first major news on Scardino's watch was doleful: Penguin was taking a $165 million charge against earnings for accounting irregularities at its U.S. unit, sending Pearson's 1996 operating profit down 30%. Scardino took her lumps, meeting with analysts to explain the charge.

In July she told the analysts what they wanted to hear: Within five years, she announced, she aimed to double the company's market capitalization. To achieve that, analysts figure, earnings must rise an average of 15% or more each year--up from an average of 4% over the past three years, a time when media companies elsewhere were expanding strongly. The promise turbocharged Pearson stock, which jumped from 681 pence to over 800 pence. It also placed tremendous public pressure on Scardino and her team.

Since then, however, she has mainly been performing housecleaning measures. In late January she reorganized all of Pearson's electronic publishing businesses under the aegis of the Financial Times. Last year she consolidated the back-office operations of the company's two book publishers, Addison Wesley Longman and Penguin Putnam. She's selling off passive stakes in businesses like medical publishing and satellite TV, and in February was said to be eyeing the educational publishing assets of Simon & Schuster. All told, Scardino has sold off assets valued at $683 million, including a $262 million stake in a Luxembourg satellite broadcasting venture in February. Also on the block is Pearson's 4.3% stake in satellite broadcaster BSkyB, which could bring in several hundred million dollars more. Analysts still want to see a major sale, perhaps of Madame Tussaud's or Lazard Brothers, but Scardino says she won't be rushed. "We are not going to start selling major assets just for the sake of being tidy," she says. "There will be more changes. But for now our aim is to get every business to perform better."

The Financial Times? The pink paper needs to become a must read among American executives with an international bent. Penguin Books? Its familiar logo should be on everything from classical music collections to feature-length films; last fall it signed a deal with DreamWorks to produce books based on movies. Madame Tussaud's? The wax dummies could be cloned everywhere from Amsterdam to Times Square. Even the disastrous Mindscape consumer software and videogame publisher is going the branding route: It's releasing a Lego CD-ROM for kids and a Tom Clancy CD-ROM for adults, and analysts expect it to break even from an operating standpoint this year.

But how will Scardino fit the pieces together? What does the producer of Baywatch have to do with the publisher of Homer and James Joyce? And does Britain's top financial newspaper belong in the same company as a theme-park operator? Pressed by FORTUNE about her vision of what Pearson should be, Scardino wisecracks: "If you come up with a name for it, let me know. It'd be worth a lot of money."

Give Scardino this much: She has a record of plunging into alien, sometimes hostile circumstances and emerging successful. After graduating from Texas' Baylor University and before getting a law degree from San Francisco University, Scardino spent time running a shrimp boat. In 1978 she and her husband, Albert, settled in Savannah, his hometown, aiming to revive a weekly paper called the Georgia Gazette. They pooled their savings, began publishing, and by Albert's count played a part in getting 38 people convicted of felonies. Albert's crusading editorials won the paper a Pulitzer Prize in 1984. It didn't win the Scardinos any friends. As Albert told an interviewer later, "We could clear out a restaurant real quick."

But the weekly, whose circulation never exceeded a few thousand and which ran at a loss, folded in 1985, leaving the Scardinos with $250,000 of debts (paid off, at last, in 1995). Albert was hired as an editor by the New York Times. Marjorie, who had kept her job as a managing partner at a Savannah law firm, began contacting headhunters in New York, selling herself with a dictum that she's repeated often since: "You learn more from failure than you do from success." That attitude, her people skills, and a bit of luck, gave Scardino her big chance.

Her first meeting with the Economist, arranged by a headhunter, didn't get off to a propitious start. David Gordon, then the magazine's CEO, waited impatiently for her in his office 20 minutes after the appointed hour--while Scardino waited nervously in the lobby, the victim of a misunderstanding. "It could have been a total disaster," Gordon recalls, "but instead we wound up bursting out laughing about it." Gordon decided to take a chance on her as North American managing director. "My view was that she had extraordinary human qualities and talent," he says. Besides, she had had "one of those searing experiences"--the Georgia Gazette failure--"that either makes or breaks you."

The bet paid off. The Economist had already started a marketing push in North America, but Scardino took the ball and ran with it. She immediately grasped the magazine's key selling point--it had a strong, informed-sounding point of view about everything from laissez-faire economics to Lepidoptera--and incredible snob appeal in America. The magazine's focus on free markets played to the prevailing sentiments of the Reagan era. But the Economist eschewed the moralizing of the Reagan right and instead offered up quirky ideas and viewpoints that made great cocktail party chatter. One example: a piece on telecommuting and the future of work a decade before the Internet became widespread. It was well informed without being stuffy. Scardino made it hip.

She used catchy slogans to capture the magazine's approach: They appeared on billboards in airports and train stations, where business people congregated. The magazine's red-and-white logo became a status symbol--red-leather Economist diaries became a fashion accessory and a big profit stream for the company. The magazine's status as a highbrow British import also allowed the Economist to charge $85 a year for subscriptions, far more than U.S. weeklies. U.S. circulation rose from 100,000 in 1985 when Scardino joined to 230,000 in 1992, making the U.S. the magazine's single largest market. In 1992, when Gordon left to run a British television network, she was asked to come to London to be his replacement.

It was the second giant career step for Scardino, who now had to prove her skills managing an entire company. Scardino had already expanded the Economist franchise, acquiring CFO magazine, Washington-based Roll Call weekly, and the Business International publishing company while still in New York. But she struck some who worked with her as being in too much of a hurry to make her name. As CEO, she took some expensive gambles and lost. The most notable was the $115 million purchase of the Journal of Commerce, an American daily focusing on the shipping trade that Scardino bought in 1995, paying 19 times earnings. Since then profits at the paper have been sinking steadily, to just $3.6 million on sales of $57.7 million in the fiscal year ended March 31, 1997, down from $5.6 million and sales of $62 million a year earlier. Circulation has slid about 10%, to 19,000 since it was purchased, and in December the paper announced plans to cut 65 jobs. Scardino clearly misjudged the opportunities for exploiting that brand, which she had been reading since her Savannah days and figured could be positioned to capitalize on the boom in world trade. "The Economist finds it quite difficult to make large acquisitions," says Gordon. "It took us years to turn around Business International, and the Journal of Commerce clearly isn't turned around yet."

The Economist Newspaper Ltd. group was profitable enough to carry those underperformers, thanks to strong advertising revenues and continued circulation growth at the magazine. In Scardino's four years as CEO, profits more than doubled, totaling $42 million in the 12 months ended March 31, 1997, compared with $19.7 million in fiscal year 1993, while revenues have jumped 78%, to $316.5 million. But in the past year, growth has slackened: U.S. circulation, at 278,000, was up just 0.5%.

The stakes are a lot higher at Pearson, which, unlike the privately held Economist group, is accountable to the market. No one is going to wait a decade for an acquisition to be turned around. As J.P. Morgan's Bertolotti puts it, "People are being quite patient. But they are waiting for the delivery."

The one large purchase Scardino has made since taking over Pearson has raised more questions than it has answered. In September she spent $513 million for All American Communications Inc., a California TV producer of game shows and the popular series Baywatch. With easily translatable game shows like The Price is Right and What's My Line?--in addition to games like Wheel of Fortune, which Pearson already owned through its Grundy subsidiary--the company reasons it can earn royalties from local television stations worldwide. But at 40 times earnings, many analysts thought the price was too steep, particularly since Baywatch is a "mature" product--a reference not to its content but to the fact that it's been airing for eight seasons.

Then there's the fact that the purchase was masterminded by Pearson TV chief Greg Dyke, 49, a populist TV whiz who has differed publicly with Scardino about the future of the TV business. (He's even been rumored to have offered a management buyout of the television unit, which Scardino rebuffed.) Such public clashes lead some observers to question whether Scardino is really just the operating chief while others are doing the strategic thinking.

"That's horseshit," replies Chairman Stevenson, 52, a corporate turnaround specialist who's also chief of aircraft leasing firm GPA Group. Pearson's first nonfamily chairman in 150 years, he describes himself as a part-time chairman, sounding out ideas and discussing strategy with Scardino but leaving her "huge leeway." Besides, he says, referring to the All American purchase, "whether it was her idea or not, the point is that it happened on her watch."

The acid test for Scardino at Pearson, however, is not making acquisitions or selling off assets, but building up the things Pearson already has--particularly the company's flagship, the Financial Times. In a clear echo of her strategy at the Economist, she has launched a $165 million campaign to win over American readers.

The FT, though widely respected among international business people, until last year sold only about 32,000 copies in the U.S. Scardino is betting that she can triple U.S. circulation by the year 2000 and boost local advertising. FT editor-in-chief Richard Lambert moved to New York for a year to oversee the paper's new U.S. edition. The paper opened a printing plant outside New York in December and will begin printing in Chicago in May. It has poured millions into a high-profile ad campaign, similar in tone to the one Scardino ran for the Economist. "There are 143 countries in the world," one ad reads. "All of them have money."

Scardino figures that with increased globalization of the economy, Americans will be hard pressed to find anyone who covers international business as well as the FT does: The paper is famous for its comprehensive coverage of the business world, everything from the coal industry in Newcastle to emerging technology companies in Taiwan. But the FT doesn't have the kind of edgy, quirky writing that the Economist has, and even at a deeply discounted $225 a year, the FT is far more expensive and a lot more time-consuming to read. It also has some stiff competition in its quest for American business readers. Though FT CEO Steven Hill and Lambert both say they can foresee the day when some readers pick up the FT rather than the Wall Street Journal or the New York Times, both of those papers are formidably entrenched among business readers, and both--perhaps not coincidentally--have recently expanded their coverage of international business news. The Journal last month launched a U.K. edition (though a spokesman says that move wasn't in response to the FT's American incursions). So far the FT has boosted U.S. circulation to 47,000, Hill says.

The FT's U.S. push is a big bet, but observers still expect Scardino to make a larger move, exiting one major line of business entirely. The two main candidates: investment bank Lazard Brothers and Madame Tussaud's. Scardino concedes that Pearson's 50% stake in Lazard, which analysts estimate earned $69 million last year, isn't strategic. "If we were starting over today, we wouldn't have an investment bank in our portfolio," she says. "But, it's got good profits, a good cash flow, no capital cost, and we don't have to manage it. If we sold it, we'd have to find something else that provided similar returns."

More complicated is the future of Madame Tussaud's, whose Manhattan branch is scheduled to open in 1999. Says a source close to the company: "There are strategic questions about whether it belongs in our portfolio." Besides wax museums, the Tussauds Group runs theme parks and hotels; CFO John Makinson sees it managing tourist facilities throughout the world.

Scardino is impatient with those who are pressuring her to do more, more quickly. "They just don't understand that this business isn't like the baked-bean business," she says. "One of the reasons we've been able to attract top management talent is because of the type of businesses we are in. Our skill is managing creative talent--be it writers at Penguin or at the FT. We've just got to do it in a more commercial way."

Scardino's right--there is something magical about the businesses Pearson is in. And she's shown time and again throughout her high-wire career how important instinct is when speaking British to the Americans and American to the British. Now she has to do something that's far more ordinary but that may be more difficult for her: speaking to markets in the language they understand.