Focus falls on DCC's Buckley over the Flavin controversy

ANALYSIS:DCC NON-EXECUTIVE director Michael Buckley must decide in the coming weeks whether he should continue to defend its executive chairman Jim Flavin, or capitulate to investor pressure to bring forward the retirement of its embattled founder.

Attention turns to Mr Buckley as he is the senior independent director on DCC's board, which has steadfastly backed Mr Flavin in defiance of a unanimous Supreme Court ruling that he acted illegally when selling its stake in Fyffes in 2000.

It will be recalled that board support for Mr Flavin was unqualified and unanimous, meaning his continuation in office has the personal imprimatur of every member of a group formed from the very top echelon of Irish commerce.

In addition to Mr Buckley, a former AIB chief, DCC's non-executive directors include former Bank of Ireland chief Maurice Keane, former Central Bank director Bernard Somers, former CRH chief Tony Barry and former chair of the Irish Association of Pension Funds Paddy Gallagher. Róisín Brennan, chief of Bank of Ireland subsidiary IBI Corporate Finance, is also a non-executive director.

Only time will tell whether the board maintains its support for Mr Flavin in the coming weeks or bow to disquiet among certain investors who are no longer willing to stand by while he continues in the company's top post.

For major shareholders, Mr Buckley will be the board's primary contact person. DCC and Mr Buckley have declined to comment on the current situation.

Investor engagement with DCC will be conducted via the Irish Association of Investment Managers (IAIM), a body that aims to ensure "best standards" in the investment industry. The IAIM has not contacted DCC since its legal confrontation with Fyffes was settled a fortnight ago at a cost of €41 million, but such contact is widely held to be imminent.

Although the IAIM did not take action against DCC after the Supreme Court ruling, some members now want DCC to move in advance of its annual general meeting (agm) in July to name a date for Mr Flavin's departure.

Implicit in that is the suggestion that they might withhold support for board resolutions at the agm if they do not receive a satisfactory response.

The IAIM acquiesced last year - months before the Supreme Court ruling - when Mr Flavin took on the dual role of chairmanship of the DCC board in addition to his duties as head of its executive team. DCC stressed then that the diversity of its five business divisions, including energy and healthcare, made the organisation "more complex from a management perspective". Yet if support then for Mr Flavin's dual role implied that he was best-suited to manage such complexities, rumblings in recent days imply that dissatisfaction within the investment community is growing.

For some investors, at least, it seems now that the constant distraction arising from the persistent questions over his fitness for office, may override concern that would arise from his retirement about the loss of the particular skills and knowledge he brings to the job. Also hanging over Mr Flavin is the distinct threat of an action to disqualify him as a director from the official enforcer of corporate law, Paul Appleby.

Although no senior business figure has decried it publicly, Mr Flavin's exalted view that DCC has always fostered "high ethical standards" finds little support outside his immediate circle. The same goes for Mr Buckley's assertion that Mr Flavin's departure after the Supreme Court ruling could not be justified in the interests of justice and fairness.

The Combined Code, which is the regulatory requirement for listed companies and institutional investors in Ireland, makes it clear that institutional shareholders can intervene when they have concerns about independent directors failing to hold executive management "properly" to account.

If boards do not "respond constructively" when institutional shareholders or their agents intervene, they are empowered to consider on a case-by-case basis whether to escalate their action. Among the actions open to them are to make a public statement in advance of the agm or an egm; to submit resolutions at shareholders' meetings; or to requisition an egm, possibly to change to board.

It is only as activity intensifies in the coming weeks that the intentions of investors and Mr Buckley's response to them will become clear. He himself faced down calls to resign from the top post at AIB in the aftermath of the Rusnak rogue trading scandal. It is a given, however, that his board duties must supersede any empathy he may have for Mr Flavin.