It has taken almost 10 years to get to the truth, but this week the report of a High Court inspector should finally reveal what really happened when Jim Flavin, the former chief executive of DCC, decided to sell a large shareholding in Fyffes, the banana company, in early 2000.
Flavin, who was eventually forced to resign from DCC just before the inspector was appointed by Judge Peter Kelly in 2008, has already been branded an insider dealer by the Supreme Court. In a damning judgement, delivered in 2007, the court ruled that Flavin had been in possession of inside information when he decided to sell the shares in Fyffes for a profit of e85m. As a director of Fyffes, Flavin knew that the company had been trading below market expectations. When that poor trading performance was announced to the stock market -- after Flavin had sold the shares -- the Fyffes share price plunged.
Flavin survived the original investigations into his dealings. An Irish Stock Exchange probe was referred to the gardai and to the Director of Public Prosecutions, but no criminal charges were brought against Flavin.
He then survived the first round of a civil action, brought by Fyffes against him and DCC because of the alleged insider dealing, when the High Court ruled that he had not been in possession of sensitive inside information when he sold the shares. On appeal, however, the Supreme Court decided that the High Court had been wrong. Flavin had traded with inside knowledge -- an offence that one judge called a "fraud on the market".
And that is where the Flavin story took a remarkable turn. The Supreme Court's decision should have signalled the immediate end of his corporate career. Instead, his board of directors -- which included Michael Buckley, the former chief executive of AIB, and Maurice Keane, former chief executive of Bank of Ireland -- decided to stand full square behind their man. It was an astonishing attempt by some of Ireland's most respected businessmen to deny reality. The highest court in the country had decided that Flavin, by then executive chairman of DCC, had committed one of the most serious offences that a director of a publicly quoted company can commit, but the directors of DCC were unconcerned. In their view, Flavin had done nothing that merited dismissal.
At the time the case attracted some heated comment from sections of the media, but Ireland's political and business elite were mostly silent. The message that Buckley, Keane and the rest of the DCC board had sent to the rest of the world was as simple as it was bizarre: in this country, we do not care if our business leaders commit a fraud on the market, and we do not care for the opinion of our Supreme Court.
Neither Buckley nor Keane were directors of DCC at the time of the insider dealing, so they had been given a perfect opportunity by the Supreme Court to put clear water between their own reputations and Flavin's. They could have claimed that their previous support was natural and unavoidable -- everyone is entitled to the presumption of innocence and their executive chairman was no different. They opted instead to align their reputations with a man who should have been a pariah.
With hindsight, it is all too easy to see that the cosy acceptance of low standards of corporate governance by the DCC board was a clear signal of the hubris and arrogance that characterised the very top of Irish business as the economic boom reached its zenith. Buckley and Keane were two of the most respected executives in corporate Ireland, yet they chose not to punish insider trading (and even chose to serve on a board that had an executive chairman, rather than insisting on a proper division of responsibilities between a non-executive chairman and a chief executive).
They were not alone. Ireland's business and investment community should have been convulsed with outrage by this blot on its reputation, but instead it stayed silent. It took almost a year after the Supreme Court's ruling in July 2007 for the Irish Association of Investment Managers to pluck up the courage to criticise Flavin, and it was that intervention, allied to the appointment of a High Court inspector, which finally prised Flavin out of his job. He resigned, reluctantly, when he should have been sacked unceremoniously the previous summer.
DCC and Fyffes has by then settled their differences: Flavin's company handed over e35m -- less than half of the profits it had made on the illicit share transactions -- in an out of court settlement.
That could have been the end of the affair -- a neat, out of court settlement that meant that neither side had to suffer any further embarrassment. Flavin would have survived -- he had vowed to stay in his job until 2010 -- and the nasty smell would have been washed away by time.
But then came the final blow. Paul Appleby, the director of the Office of Corporate Enforcement, had watched from the wings as the civil actions had wended their way through the high and supreme courts and, once the matter was settled, he applied to the High Court for the appointment of an inspector. He wanted to establish the facts surrounding both the sale of the Fyffes shares by Flavin and an earlier transaction in 1995 when the DCC shareholding had been hived off to a foreign company, and he wanted to establish who else had been involved.
Inspectors are not appointed to fish for evidence: before agreeing to an application, the High Court judge must be satisfied that the affairs of the company to be investigated have been conducted in an unlawful manner. Even if that hurdle is crossed, the court still has the discretion to turn down an application for the appointment of an inspector. In this case, Judge Peter Kelly was also concerned that Appleby's motivation was pure. Kelly was not prepared to appoint an inspector if his purpose was to compile a report that would break no new ground but which would give Appleby the basis for his own action against Flavin and other DCC directors.
In his judgement, Kelly argued that an inspector would be able to do more than compile the already known facts, even if he would not be starting with a clean sheet of paper. The High Court and Supreme Court actions had uncovered plenty of evidence, but both had been conducted along traditional adversarial lines. An inquisitorial approach would, he accepted, deliver far more.
An inspector would examine witnesses who had not been required in court and would also examine the roles of other directors and executives who had not been subject to the original court proceedings. The High Court had already established that Flavin had not acted alone and that he had enjoyed the implicit approval of the DCC board. So Kelly accepted Appleby's application and appointed Bill Shipsey as an inspector. That decision, and the IAIM's lack of confidence, caused Flavin's resignation. Shipsey's report was circulated last week to all the parties concerned in the case and is expected to be published in full this week.
The Shipsey report should tell the full story for the first time, charting the events of 1995 and 2000, putting them in context and naming the executives and directors who were involved in both transactions. If his findings are conclusive, and damning, the report will trigger actions by Appleby's office against those who broke company law.
Flavin's reputation has already been shredded by the Supreme Court, but it is the reputations of those who backed him despite that ruling which stand to suffer further damage from Shipsey. Even those who were not involved in the transactions -- like Buckley and Keane -- saw nothing wrong in them, and gave their support to the man who committed a fraud on the market. They gave that support knowing the facts that Shipsey will reveal -- and if they did not know those facts, they should have done. They chose to put their reputations in his hands and they cannot escape contamination by association. The report will have more direct consequences for directors and executives who helped and encouraged Flavin to sell the shares.
Until the banking sector started to unravel in 2008, the Flavin case stood out as an indictment of corporate governance standards in Ireland. Buckley and Keane and their fellow directors were part of a business culture that had come to believe that it was untouchable and irreproachable, better than the rest of society and beyond the reach of the highest court in the land. That culture gave us the banking bust, and we will all pay the price for many years to come. Shipsey's report, unfortunately, comes too late.