Issues prompted by case unresolved


Business Opinion: Next Wednesday morning, all else being equal, Ms Justice Mary Laffoy will start delivering her judgment in the Fyffes v DCC insider dealing case.

During the course of the hearing, which ran for most of the first half of the year, the workings of the Irish stock market were held up to unparalleled scrutiny.

Regardless of the outcome next Wednesday, very few of the individuals, companies or institutions involved will emerge with their reputations enhanced by the evidence given during the case.

One of the many side issues that arose was the quality of the information passed on to the market by Fyffes. During questioning the chief executive of Fyffes, David McCann, revealed that the company had not disclosed to investors that the €82.9 million profit reported in 1999 included €19 million in write-backs from previous years. Equally it did not make it clear that it was relying on a couple of court cases to repeat the performance the following year.

There was much verbal jousting between Mr McCann and the DCC legal team, which ended with Mr McCann drawing a distinction between the truth and "what we believed was the correct thing to say at the time".

The case then moved on to more substantive subjects, but it is interesting to note that some 12 months later Fyffes has announced that it is splitting off its property interests into a separate vehicle, Bluestone Properties. The company argues that this move will enhance shareholder value, but quite how this will come about is hard to see.

The prospects for a listed property company that has most of its property leased to its major shareholder - on what are presumably long and favourable terms - seem pretty limited. Quoted property companies generally underperform and Bluestone has been practically strangled at birth.

But what the splitting off of the property portfolio will achieve is make Fyffes earnings considerably more transparent. The company has over the last year been much clearer about the extent to which property transactions affect its results, and floating off the properties is a natural next step in this process.

It will no doubt go some way towards reassuring those members of the investment community who were both concerned and angered by what emerged in the Fyffes/DCC case about the reliability of information put in the public domain by Fyffes.

If you accept that greater transparency is at least part of the reasoning behind the Bluestone venture, then you might draw the conclusion that the light shone by the Fyffes/DCC court case on the inner workings of the Irish market is having a beneficial side effect. And maybe there are more to follow.

The problem is that - to paraphrase Charles Haughey - Bluestone has all the appearances of an Irish stock market solution to an Irish stock market solution.

The specific issue of the transparency of Fyffes' figures has been addressed, but nobody wants to go near the much more fundamental issue that David McCann raised, which is about ethical standards in Irish business.

It is hardly surprising then that the other serious issues raised by the evidence in the Fyffes/DCC case remain unresolved, the most significant of which is the doubts cast over the effectiveness of the Irish Stock Exchange's self-regulatory regime.

During the course of the case it emerged that DCC had prevailed on the Irish Stock Exchange to try and stop the Director of Public Prosecutions' investigation into the alleged insider trading by DCC. Both PricewaterhouseCoopers and Investment Bank of Ireland were involved.

The stock exchange appears to have been quite willing to help DCC and thus the organisation charged with investigating and reporting on insider trading to the DPP was helping the subject of its investigation to avoid prosecution.

Some 12 months on there has been no formal explanation by the stock exchange as to why this happened, or any indication that changes have been made to ensure it is not repeated. There may well be an Irish solution in the works that the general public may or may not be made aware of.

In many ways these two points are perhaps the most wide-ranging of the issues thrown up by the case, but the judgment itself may also raise a few. Ms Justice Laffoy will have to decide on a number of issues, which centre on whether Jim Flavin, the DCC chief executive and Fyffes board member, had insider information and used it to sell DCC's shares in Fyffes at profit.

If Fyffes loses then Mr Flavin is vindicated. But if he is found to have done some or all of these things then it is very hard to see how he can remain at the helm of DCC, notwithstanding any appeal that might be lodged.

However, one suspects that very few, if any, large-scale investors - based of a cold-blooded assessment of his performance - want Mr Flavin to leave the company he successfully built over the last 20 years.

His board may well take the same view, certainly while an appeal is under way.

If things do not go Mr Flavin's way on Wednesday we may yet see an Irish solution to another ethical dilemma.