Wednesday 26 June 2019

Boardroom battle casts a lengthy shadow at INM

ODCE move to the High Court is latest twist in saga that began with battle between chairman and CEO

Robert Pitt, the then chief executive of Independent News and Media, abstains from voting for the re-election of INM chairman Leslie Buckley during the company’s AGM in the Westbury Hotel in Dublin last year
Robert Pitt, the then chief executive of Independent News and Media, abstains from voting for the re-election of INM chairman Leslie Buckley during the company’s AGM in the Westbury Hotel in Dublin last year

Fearghal O'Connor

When Independent News & Media (INM) chairman Leslie Buckley presided over a show of hands on his own re-election as chairman at the publishing group's annual general meeting last August you could cut the atmosphere in Dublin's Westbury Hotel with a knife.

Shareholders and reporters had packed into the room and the only sound was the clicking of press cameras as the motion regarding Buckley's continuation in the role was put to the meeting.

All eyes in the room turned to then chief executive Robert Pitt, as one of the highest profile rifts in recent Irish corporate history seemed to reach its climactic moment.

On the face of it, Buckley's re-election was completely routine.

The result was never in doubt with backing from 96pc of INM shareholders and the show of hands was entirely symbolic in a process that sees more than 700 million votes cast in huge blocks by the big financial institutions and investors that dominate the share register.

But everyone in the room knew that if a chief executive of an Irish PLC declined to publicly support his chairman in such a public manner it would be, by any measure, an extraordinary turn of events.

With Buckley's eyes firmly fixed upon him from the far end of the top table, Pitt's hand stayed firmly by his side, his abstention meaning that the company, which is the publisher of this newspaper and a number of other titles, was heading into uncharted waters.

Since that day in the Westbury, both Buckley and Pitt have departed their roles in INM. Pitt departed the business in October and has been replaced by Michael Doorly, while Buckley stepped down as INM chairman last month and was replaced by British industry veteran Murdoch MacLennan.

But, if anything, the search for answers by INM's management, staff and shareholders has only gathered pace. Last Friday week the Office of the Director of Corporate Enforcement (ODCE) made the dramatic move to seek the appointment of High Court inspectors, prompting an emergency meeting of the INM board the following afternoon.

The ODCE had been investigating the company since late 2016, when it is understood former CEO Pitt made a protected disclosure under whistleblowing legislation raising corporate governance concerns.

Pitt's move followed a high-profile dispute with Buckley over the potential acquisition by INM of Newstalk radio station.

Newstalk is wholly owned by Denis O'Brien's Communicorp Group and the businessman is also INM's largest single shareholder, with a 29.9pc stake. O'Brien is a long-term business associate of Buckley.

The row between Pitt and Buckley reportedly related to the price to be paid for Newstalk.

For its part, INM, which initiated its own independent review in December 2016 into the Newstalk affair, has always insisted the discussions over the aborted acquisition ended at a preliminary stage and it was never considered by the board.

On July 15, 2014 - ironically the same day that the new Protected Disclosures Act 2014 came into force, under which he would later disclose his concerns - Pitt was appointed as the new chief executive of INM, replacing Vincent Crowley.

The appointment of the 43-year-old, who had held a number of operational roles in the supermarket retail sector in Eastern Europe for both Lidl and Tesco - but had no experience as CEO - was a surprise appointment, but was flagged as a new beginning for a company that had endured a series of corporate challenges.

The end of businessman Tony O'Reilly's control of the company had been decisively signalled by the nomination of O'Brien's close business ally Buckley as chairman two years previously.

A major debt restructuring process had also been completed and management had begun the process of creating a strategy to navigate the decline of print and the rise of digital. A difficult pension row was looming at the company but it too would be resolved under Buckley and Pitt's watch. But the reported disagreement over the price to be paid for Newstalk completely changed the dynamic between the two, setting off a chain of events that continues to have serious implications for the company.

Once Pitt had made his protected disclosure, the ODCE requested records in relation to the planned acquisition of Newstalk, including records from Buckley.

In February, as Buckley prepared to step down as chairman of INM, High Court president Mr Justice Peter Kelly, who later this month will decide whether High Court inspectors should be appointed to INM, ruled that Buckley was entitled to assert confidentiality over a number of these documents because they concerned preparation of his response to the ODCE's requirements.

Behind the scenes at INM matters had been escalating.

In August 2017 the company had notified the Office of the Data Protection Commissioner of a potential personal data breach, and it had hired the consultancy Deloitte to look into the matter.

The company later said that the commissioner's office had told it that the matter "did not constitute a personal data breach under the terms of their voluntary code of practice and was, therefore, recorded as a non-breach on their files".

INM said that Deloitte's mandate from INM's board was "terminated when it was established that no breach had occurred".

Nevertheless, it was reported in November that, despite the data-protection commissioner's clearance, the ODCE inquiry had been widened to include the nature of the potential data breach and INM's handling of it.

Then, last Friday, after months of speculation, came the bombshell: the ODCE made the dramatic move to seek the appointment of High Court inspectors.

The High Court is due to hear the case on April 16, when INM will have an opportunity to seek to oppose the appointment.

Under section 748 of the Companies Act 2014, the court may appoint an inspector to investigate the affairs of a company, and to report on those affairs to the court, if the court is satisfied that there are circumstances suggesting that the affairs of the company have been conducted in an unlawful manner, or on certain other specified grounds.

It is understood that the ODCE wants the High Court to appoint inspectors to investigate whether several companies had access to INM's information-technology systems following a suspected data breach at the company in late 2014. If appointed, it is believed that the inspectors would be tasked with finding out if any confidential information was disclosed to third parties in breach of EU-wide market-abuse regulations and the ODCE has submitted an affidavit to the court that runs to several hundred pages in support of its application.

"The board of INM is taking legal advice as to whether the court would have sufficient grounds to make the appointment," the company said last week in a notice to the stock market.

The company said that it had "put its insurers on notice" of the potential costs of responding to the ODCE move.

INM chief executive Doorly said that if inspectors were to be appointed, there would be a "material cost".

Engaging with an earlier ODCE process had been one of a number of factors behind lower-than-anticipated profitability at the company.

But Doorly also insisted that just because such an action had been initiated by the ODCE, was not evidence that wrongdoing had occurred.

"We are an awful long way from any finding that anyone has broken any law," he said.

Last Tuesday morning a large group of managers and editors from right across the INM group gathered at Croke Park for a pre-planned series of workshops as part of the development of a new corporate strategy that it is currently developing with the help of consultants EY.

That plan is expected to provide a roadmap for a company that faces the same challenges as all other publishers of news in the digital era but which also has the distinct advantage of a €91m cash pile on its books with which to implement any new strategy.

But, not surprisingly, all the talk of strategy at the meeting, initially at least, was blown away by the news of the ODCE's move to appoint inspectors.

Shareholders too took fright with INM shares initially falling as much as 8pc in reaction to news of the probe.

Goodbody summed up the news for investors in a note: "This morning's news will be greeted negatively given the significant legal costs incurred last year as part of the ODCE investigation and hopes that such material costs associated with this would be confined to last year."

It was reducing its 2018 earnings forecast for INM to €20m-€22m, it said.

"We await an update on further costs associated with this investigation which would see some downside to this number," said the note.

At Croke Park, Doorly and his management team fielded a series of questions from the concerned staff present about how the unfolding corporate drama could affect the day-to-day running of the newspapers.

"It's a pain (but) we need to get on with the day job.

"I think it can be ring-fenced and we can get on with the job," he said.

At that, the 70 or so managers and executives in the room turned their attention to the strategic plans that they were there to discuss, moving on from what Doorly had described as "the elephant in the room".

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