Flavin very 'vexed' over decision of Fyffes board

DCC plc chief executive Mr Jim Flavin was very "vexed" about a conclusion by the Fyffes board that Mr Flavin could not be regarded as an independent director of Fyffes because of his position in DCC, a company with a notifiable 10.5 per cent shareholding in Fyffes, the High Court was told yesterday.

Mr Flavin wrote to Fyffes chairman Mr Neil McCann in late January 2000 expressing disagreement with the board decision, made on December 21st, 1999. Mr McCann responded on February 2nd, 2000 that the decision was not a failing or criticism but reflected the company's commercial circumstances. Mr McCann said the "key issue" was the DCC shareholding in Fyffes.

Mr McCann also said that the accounting policy for DCC's shareholding in Fyffes, in which DCC included its share of Fyffes profits in DCC's consolidated statements, was based on Mr Flavin's "significant influence" in Fyffes affairs and could not reasonably be reconciled with independence. He added it was not practical to reopen the matter again.

Mr McCann's response was written the day before the first of three controversial sales of the DCC shareholding in Fyffes which are the subject of legal proceedings before Ms Justice Laffoy. The €106 million share sales yielded a profit of €85 million for DCC.

In its action against DCC, Mr Flavin and two wholly owned DCC subsidiaries, Fyffes claims the sales breached ìnsider dealing provisions of the Companies Acts. The defendants deny the claim and deny possession of price-sensitive information at the time of the transactions.

Mr Frank Gernon, Fyffes' group finance director, became the third witness in the case on the 18th day of the proceedings yesterday.

Mr Gernon outlined DCC's and Mr Flavin's involvement in Fyffes from 1981. He said Mr Flavin was appointed a director of Fyffes as DCC's nominee and was appointed to Fyffes audit and compensation committees in 1987. Mr Flavin had a thorough knowledge of Fyffes' business and was the leading accounting authority of the audit committee.

In June 1997, Mr Flavin had concluded the compensation committee was unable to issue share options as Fyffes was in discussions with Chiquita then and therefore in possession of price-sensitive information. Mr Geron said Mr Flavin was up to date on corporate governance.

He said Mr Flavin's fees as Fyffes' non-executive director were invoiced by and paid to DCC and there was no change to that arrangement following the alleged transfer of the Fyffes shares held by DCC to Lotus Green (a wholly owned DCC subsidiary and one of the defendants) in 1995 or at any other time.

On October 31st, 1999, DCC held approximately a 10.5 per cent shareholding in Fyffes. DCC included its share of Fyffes profits in DCC's consolidated financial statements. Mr Gernon said he understood the principal basis on which DCC believed it could do this was a letter to DCC from Fyffes each year which acknowledged that DCC, through Mr Flavin, exercised "a significant influence in group policy decisions".

Under new corporate governance rules in the late 1990s, there was debate within Fyffes as to whether Mr Flavin could be considered to be an independent non-executive director. Under the new Combined Code (Cadbury), a director, to be independent, had to be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgment.

At that stage, and despite the alleged transfer of the DCC shares to Lotus Green, Mr Gernon said he still regarded Mr Flavin/DCC as controlling some 11 per cent of the shares in Fyffes. This was the common perception of the Fyffes board and consistent with the actions of Mr Flavin himself.

A board sub-committee had discussed the issue on December 21st and agreed that Mr Flavin and two other non-executive directors - Mr Roland Benner and Mr Paul Cluver - each had a business or other relationship with Fyffes which could be perceived to influence the exercise of their independent judgment. The particular concern regarding Mr Flavin was that he was a director and employee of DCC.

While the minutes of that meeting recorded that Mr Flavin accepted the board's decision, Mr Gernon said he had afterwards received several phone calls from Mr Flavin on the subject of his independence. Mr Flavin was quite vexed on the topic although their discussions were always businesslike and friendly. There was no mention of Lotus Green.

Mr Flavin had written to the Fyffes chairman on the issue, on January 28th, 2000, saying he had acted independently at all times and that Fyffes was not consistent on the issue of independence. He asked Mr McCann to reconsider the matter.

Mr McCann replied on February 2nd, 2000 that the issue was not Mr Flavin's view of his independence but the board's view and declined to reconsider the issue.

Later yesterday, Mr Gernon said he had elaborated to a board meeting on December 9th, 1999 about trading difficulties in November and December 1999. Speaking from a hand-written note, he had said that January 2000 could be behind budget. At that stage, the meeting was breaking up into small discussions and nobody had questioned him about the veracity of his numbers. He said his figures for January had no basis and were a "guesstimate". It was very early on December 9th to be looking at what would happen in December, never mind January, he said.

The case continues today.