WINDSOR INC. What Britain's Queen and the royal family are worth -- and are they worth it?
(FORTUNE Magazine) – WHILE recession ravages many companies, stripping away not only executive perks but jobs as well, one family business -- call it Windsor Inc. -- ought to be immune. The British monarchy has assets worth billions, a world-famous brand name, and a CEO who is in no danger of being fired. And yet the managers who run this outfit behind the John Nash facade of Buckingham Palace are facing some very common, and vexing, business problems. Royal costs have become a royal pain. While inflation in Britain averaged 9.5% last year, upkeep of the five royal residences jumped 22% to $49.6 million. Last summer the House of Commons approved a 56% raise in the Queen's allowance to cover the swelling expenses of her household staff. Lumping together all the contributions from various government departments, but omitting the costs of security and a new jet, the royal family takes a $101.5 million dip from British taxpayers. That far exceeds the expense of any other European royal family (see box) and is more than double the comparable costs of the U.S. presidency.
The Gulf war has complicated matters. In February the conservative London newspaper, the Sunday Times, launched an attack on the royal family for not doing enough to support British troops in the Middle East. The editorial, a watershed in the generally amicable relations between Fleet Street and the royals, chastised the jet-setty younger generation for ''parading a mixture of upper-class decadence and insensitivity, which disgusts the public and demeans the monarchy.''
In the swiftest response in memory, Queen Elizabeth II dispatched her No. 2, Prince Charles, to mingle with troops, and various other royals quickly vacated ski slopes and tropical beaches for the duration. But the war is just one of a number of issues that put the grand style of the Windsor family out of sync with the times. The consumption-mad bash of the Eighties ended in Britain with a grim recession. Furious over the new so-called poll tax, the public wants to know why the Queen pays no taxes. And new Prime Minister John Major, who shinned his way up from the working class without benefit of a university degree, has touched a populist nerve by preaching the virtues of a classless society. Says Harold Brooks-Baker, who is the publishing director of Burke's Peerage, which tracks royal lineage: ''The whole issue of the monarchy is very problematic in this country. If I had to bet on there being a monarchy in 20 years, I wouldn't do it.'' The Queen sits like a silver tea service on the sideboard of British life: glittering, expensive, immaculately maintained, an heirloom to be brought out on special occasions. The rising cost, however, has focused debate on the tricky equation of value for money. Simply put: Do the royals earn their keep? Though most of her formal powers were long ago removed or diluted, the Queen, at 64, remains the symbolic embodiment of her nation. She is the head of Parliament, the Church of England, and the British military. Sealed red leather boxes embossed with her monogram arrive daily containing summaries of all parliamentary proceedings, minutes of cabinet meetings, and Foreign Office dispatches. Every Tuesday evening, if she is in London, she meets privately with the Prime Minister for about 45 minutes. For all that, most of her work consists of entertaining visiting dignitaries, riding in parades, and showing up to cut ribbons, christen ships, or toss a shovelful of dirt at the groundbreaking of a new building. After 39 years she is expert at these duties, though she has never been able to overcome her woodenness as a public speaker. BUCKINGHAM Palace, the Queen's 600-room home in the center of London, is headquarters for the family business. In this highly insular and secretive outfit, even the press officers refuse to be quoted by name. The Earl of Airlie, a former merchant banker, serves as chief operating officer, with the title Lord Chamberlain. The Queen's closest personal aide is her private secretary, Sir Robert Fellowes, who also happens to be married to the sister of the Princess of Wales. He oversees the Queen's official correspondence, arranges her schedule, and gives political advice. The Duchess of Grafton holds the job of Mistress of the Robes and heads a team of ladies-in-waiting that includes six Ladies and Women of the Bedchamber, who take turns attending the Queen and doing her shopping, making personal arrangements, and answering all letters from children. FORTUNE conservatively estimates the Queen's wealth at $10.7 billion, not including the five palaces, which can't be appraised in any meaningful way. But that figure is deceptive because only $860 million is the Queen's to do with as she pleases. The rest is made up of hereditary Crown possessions that pass from one sovereign to the next and cannot be sold. The Queen also receives an annual allowance from what is called the Civil List, which makes payments to members of the royal family to cover expenses for their public appearances. She gets the most -- $15.3 million this year. The House of Windsor built its fortune over 150 years, accumulating it without collecting customs duties or levying taxes, the heavy-handed methods of earlier English kings. In fact, they did it largely by accepting handouts. From their throne at the apex of what was once the world's greatest global empire, the family opened its arms to the gifts of friends and subjects. From the ascension of Queen Victoria in 1837 to the present, treasure has poured in from European royals, from Middle Eastern sheikhs, and from Indian maharajahs eager to celebrate Windsor weddings, commemorate birthdays, or offer simple tokens of friendship and esteem. The royal collections are the centerpiece of this extraordinary hoard. A partial inventory gives a flavor of their scope and incomparable quality. -- Art. The breathtaking collection includes no fewer than 779 drawings by Leonardo da Vinci; dozens of others by Michelangelo, Raphael, Filippino Lippi, and Giovanni Bellini; 26 paintings by Van Dyck; four works by Rembrandt; 50 Canalettos; oils by Frans Hals, Rubens, Correggio, and Titian; numerous portraits by Gainsborough; and two paintings by the 17th-century Dutch master Vermeer. -- Stamps. It takes 325 volumes to hold the world's best stamp collection, and a part-time philatelist to manage it. High points include rare samples from the initial printing of Britain's first stamp, issued May 6, 1840 (the penny black); the first colonial stamp, issued in 1847 for use by the master of the steamship Lady McLeod; and the nearly priceless 1847 Mauritius stamps engraved by a local jeweler named J. Barnard -- only 26 of which are known to exist. -- Porcelain. Among the masterpieces: the Table of the Great Generals, which Louis XVIII gave to George IV. In 1806, Napoleon commissioned Sevres, the renowned French porcelain factory, to do the work; it took six years. -- Faberge eggs and figurines. Queen Alexandra, wife of King Edward VII and the aunt of Czar Nicholas II, loved the work of the legendary Russian jeweler Peter Carl Faberge. The most beautiful: rock crystal vases containing carved sprays of flowers. The most valuable: three imperial Easter eggs commissioned by the Czar as gifts for his wife and his mother, today worth some $4 million each.
-- Furniture. In the 18th century the Crown commissioned William Vile to make cabinets, bookcases, and bureaus for the palaces. Vile's jewelry cabinet built for Queen Charlotte ranks among the finest pieces of furniture of the period. -- Jewelry. The Crown Jewels on display at the Tower of London make up only a portion of the largest, most valuable collection of jewelry in existence. The Queen Mother's fur-fringed coronation crown, for example, bears the 108-carat Koh-i-noor (''Mountain of Light'') diamond. The British East India Company confiscated the jewel from the treasury of the Maharajah of Lahore and presented it to Queen Victoria. Other impressive gems are affixed to Queen Victoria's coronation crown: a sapphire from the Stuart line and a ruby from Edward the Black Prince. Pieces in the royal collections dating up to and through the reign of Queen Victoria are classified as hereditary possessions of the Crown -- and are therefore highly illiquid assets. The same is true for later additions, if they were presented to the sovereign as an official gift. Personal gifts remain exempt from this restriction and are still gratefully received. Only minor sales can be made to eliminate duplication or to pay for purchases that further enhance the collections. THE Crown Estate is another so-called inalienable chunk of the royal fortune, this one conservatively valued at $3.9 billion. The Queen can't get rid of this royal real estate, nor can she get her hands on its income, a not insignificant $90.4 million last year (on revenues of $150 million) that went straight into the government's coffers. She has George III (who got into that little tiff with the American colonists) to thank for this arrangement. Upon ascending the throne in 1760, he found he was overextended. He cut a deal with Parliament to surrender the income and control of his landed estate in return for an annual allowance that ultimately became the Civil List. The deal had distinct advantages: The monarch would no longer have to pay for all the expenses of the government, including its considerable navy. Using Civil List money, he did have to pay for judges, embassies, and the civil service, but only until 1830. George III signed away the rights to the land under what is today Regent Street, London's premier shopping avenue. The Crown Estate continues to own every building along Regent Street as well as the western corner of Trafalgar Square, all but one building on Pall Mall, and a huge swatch of St. James's square. It also owns 270,000 acres of agricultural land and the right to 50% of Britain's shoreline between the high and low watermarks. There is more: The Crown Estate controls all the land under territorial waters extending out 12 miles and mineral rights (except hydrocarbons) out 200 miles. These rights have belonged to the Crown since the conquest of the British Isles by William I in 1066. The mining of sand and gravel and the leasing of moorings, fish farms, and mineral rights bring in revenues of $19.1 million annually. The stream of income from the Crown Estate will revert to the Queen's successor six months after her death. But it will be virtually impossible for Charles as King to hold on to this cash. He will be obliged by precedent -- to say nothing of pressure from Parliament -- to perpetuate the Civil List arrangement. Eight commissioners manage the crown lands. The Earl of Mansfield and Mansfield, a former Conservative minister, holds the part-time job of First Commissioner, an appointment made by the Queen on the recommendation of the Prime Minister. He has been diversifying the portfolio by developing shopping centers and office parks primarily in Oxford, Cambridge, Edinburgh, and Glasgow. Lord Mansfield sees himself as working for two masters: the House of Commons and the Queen, with whom he has an audience once a year. Says he: ''She is interested ((in the estate)), but she would pay an even greater interest if all the income came to her.'' The Queen does take home the $5.6 million in income from a second, much smaller estate called the Duchy of Lancaster. Henry III seized the original parcels of land -- which today total 52,000 acres -- from a pair of vanquished earls following the Barons' War in the 1260s. He gave the land to his son Edmund, who hoped to become king of Sicily and needed an inheritance. The Queen uses the money for the maintenance of her private estates, to support her favorite charities, and to cover the welfare and amenities of some of her retired staff; some goes toward her allowance for ceremonial garb. The Duchy of Lancaster's millions, like all the Queen's income, comes tax- free. Why? Explains David Starkey, an expert on the monarchy at the London School of Economics: ''All the revenues raised through taxation are the revenues of the Crown. The Crown can't tax itself -- that would be a constitutional absurdity.'' Even so, Parliament could close the loophole, and there is a precedent -- Queen Victoria paid taxes, albeit voluntarily. ESTIMATES put Prince Charles's fortune at about $400 million. He and Princess Di live handsomely on the tax-exempt income from a third hereditary estate, the Duchy of Cornwall. This estate serves as a trust fund for the heir to the throne and is passed from one Prince of Wales to the next. Since all this income is his, Prince Charles, alone among his siblings, is not on the Civil List. To forestall criticism, he turns over to the state 25% of the $4 million in annual income in lieu of paying taxes -- which in his bracket would be 40%.
The value of the Queen's untaxed securities portfolio -- mainly British bonds and blue chips -- was less than $120 million in 1971 when the Queen's closest advisers were called before a select committee of the House of Commons to comment on her financial affairs. FORTUNE estimates this portfolio at $675 million today. The asset allocation is probably known only to her private banker at Coutts & Co. and her broker at Rowe & Pitman. Says Harold Brooks- Baker: ''My understanding is that there is no major investment that is not brought to the attention of the monarch, and considerable thought given to it.'' Privileges at Windsor Inc. far exceed the business world's most generous perks. The Queen travels through London in one of her five Rolls-Royce Phantoms or, on special occasions, in one of the seven horse-drawn coaches. The Queen's Flight (staff: 200) has been upgraded to include three BAe 146s (which can seat 128 when used as airliners), purchased at a cost of $77 million over the past four years (annual cost to maintain: $13 million), and two helicopters. The royal yacht Britannia, 412 feet long, carries a crew of 286. The upkeep for this ocean liner last year came to $17.9 million. The royal family also uses a private 12-car train (annual cost: $2.8 million). BUT THE MOST regal perks of all are the palaces. The Department of the Environment picks up the $49.6 million annual tab for these spacious piles. The Queen has the use of Buckingham Palace (sometimes called Buck House), Windsor Castle, and the Palace of Holyroodhouse in Scotland. Charles and Di share Kensington Palace with Princess Margaret and two sets of cousins: the Duke and Duchess of Gloucester and Prince and Princess Michael of Kent. The Queen has a few retreats of her own: her 100-acre stud farm, West Ilsley, and two estates, Balmoral and Sandringham. Queen Victoria bought the 50,000-acre Scottish Balmoral Castle sight unseen in 1848. Among the amenities: excellent grouse hunting and salmon fishing plus a nine-hole golf course and a two-lane bowling alley. The Jacobean-style Sandringham in Norfolk, described by Edward VIII as ''Dickens in a Cartier setting,'' has 274 rooms and sits on 20,104 acres. The estate contains some of the best farmland in England. Together the estates are valued at $90 million. Once upon a time the Civil List had to be stretched to cover virtually the entire costs of the monarchy. It paid for the palaces, the yacht, and the royal train. Through the years many of these costs were quietly shifted to various departments of the government, a trend that has heavily favored the royal family. Says royals expert Andrew Morton: ''Over time, the monarchy has unburdened itself of its fiscal responsibilities while retaining its fiscal privileges.'' Which again raises the question: Are the royals deserving of their privileges? Many insist that the lavish lifestyle goes naturally with the territory of kingship. Says Morton: ''If you are going to have a monarchy, you have got to have the trimmings. Otherwise, it would be like having a Christmas tree and not decorating it.'' History, however, belies this idea: A lot of the expensive pomp and pageantry of the British monarchy was added in the late 19th century -- just as the institution's powers waned. A better defense is offered by those royalists who claim that the monarchy pays for itself through the prestige it brings to the nation when the Queen entertains foreign dignitaries or the royal family travels abroad. Besides, if you evict the royals, these same fans point out, the state still will have to pay to keep the palaces operating as museums. Other defenders of the Crown have tried to justify the monarchy by looking at the purely commercial contribution the royal family makes to Britain. But how do you calculate the share of the $1.1 billion in annual tourist income that can be attributed directly to the royal family? The exercise quickly runs up against the very real intangibility of the royal goodwill. Writes Philip Howard in The British Monarchy in the 20th Century: ''If you add the concealed costs of the monarchy, and subtract the concealed profits, you arrive at the conclusion that such arithmetic is not worth the calculation.'' WITH AN ANNUAL budget of some $375 billion, Britain can certainly afford the royals, whatever their cost. But the willingness of the nation to pick up the tab is based on a few unspoken assumptions. As Anthony Sampson puts it in The Changing Anatomy of Britain: ''The magic ((of the monarchy)) has always been more contrived than it looked, and behind it lies a realistic commercial bargain: The taxpayers and their governments are prepared to subsidize the royal family, provided that they show themselves sufficiently and do not overstep their political limits.'' Or financial limits. When Charles and Di flew to Tokyo for the enthronement of Japan's Emperor Akihito on a chartered 747, the bill to the Ministry of Defense reportedly came to some $1 million, causing opposition MPs to grumble. The Sunday Mirror labeled it the scandal of the ''flying palace.'' Normally the couple would have flown in an RAF VC 10, but it had been redeployed in the Gulf crisis.
The monarchy's tax-free status also troubles the public. In a survey of attitudes toward the royal family that appeared in London's Daily Mail in February, 73% of the sample felt that the Queen should pay income taxes. Still, only 14% felt Britain would be better off without the monarchy, though 38% (up from 24% a year ago) felt the royal family was ''an expensive luxury the country cannot afford.'' In its own decorous way, the royal family works to maintain its high popularity. With two notable exceptions, every member of the royal family has made a job of public do-gooding. The exceptions: Prince Andrew, 31, who is in the navy, although not in the Gulf, and Prince Edward, 27, who recently joined an independent theatrical production company after working for four years for Andrew Lloyd Webber. And even they have taken a few turns lately. During the 1980s the royal family doubled the number of appearances it made yearly to nearly 3,000. The Queen, who showed up at 570 engagements last year, and Princess Di (323) may be the brightest stars of this act, guaranteeing the best turnout by the public, but the hardest worker by far is Princess Anne (768). THE QUEEN may not be much of a cost-cutter but she gets high marks for frugality. She is said to take tours of Buckingham Palace just to flick the lights off. In the royal household, according to Brooks-Baker, ''there is no waste. There isn't a quarter of a bottle of wine that doesn't get pushed down to the servants' quarters.'' What then explains the spiraling costs of the monarchy? It involves more than loose management. If you drag an antique infrastructure into the late 20th century and then attempt to keep it up-to-date and secure, your costs are bound to soar. This is the white elephant syndrome, and the royals are feeding a herd. The gigantic annual expenditure has clearly disturbed the Queen and her trustees. Last summer they appointed a partner from the Queen's accounting firm, Peat Marwick McLintock, to run the palaces. The hope is that these buildings can be run more efficiently. The royal advisers have engineered another shrewd maneuver. The Civil List, described by one royalist as ''the thorn in the side of the monarchy,'' will no longer be calculated annually and presented to the House of Commons. Instead, this will be done once every ten years. The move allows for better planning and has the added virtue of removing the Civil List as a hot topic of discussion for the British tabloids. The Queen's ornamental and symbolic role makes her heavily dependent on the good will of her subjects, who at the moment still revere her. Perhaps with her countrymen so strongly in favor of her paying taxes, she ought to ignore constitutional niceties and start doing so. It behooves her to give more to the nation that has treated her and her family so generously for so long.