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Supplementary memorandum submitted by Lord Grantchester (DFoB 34a)
Please find enclosed my answers to the Committee's follow-up questions.
Please give my apologies to the Committee that these have been delayed. I would be grateful if you would circulate this to the Chairman and Members fo the Committee at your earliest convenience.
Question: What was the Board's approach to communication with DFB members?
1. In more normal times, the Board's approach to communication was multi-layered. The Company communicated directly with members through their nominated representatives in the Member Council (meeting 3 or 4 times per year) and in the Regional Chairman's Committee (meeting monthly). The Board also undertook council member meetings by region at regular intervals, and all member meetings by region twice a year when it would also be accompanied by members of the executive team. Indirect communication took place through the monthly member newsletter ("Talking Points") as well as through milk price updates, e-mails and letters on key issues. In addition, members could telephone the Membership Call Centre.
2. This structure was more than adequate to communicate effectively. However, the effectiveness was limited prior to my becoming chairman, due to the reluctance of the previous chairman and senior executives to engage adequately with the communications team, employees and members.
3. One of my key tasks on becoming Chairman was to improve communication. To help the Committee, I enclose examples of "Members Update".
1. 5th September 2008-under the leadership of the previous Chairman. 2. 21st November 2008-after I had become Chairman, regarding communication. 3. 5th December 2008-Revised Business Strategy. 4. 19th December 2008-Member meeting summary. 5. 16th January 2009-Communication Commitment. 6. 13th February 2009-Restructuring Progress. 7. 9th March 2009-Capital Structure.
4. Under the pressure of sustained adverse criticism from industry commentators, which was undermining morale with loud and often false allegations, interpretations and malice, I concentrated communication to all members via news sheets to provide up to the minute coherent information on business and marketing developments, every Friday. The Company employed a specialist PR consultant to cascade information through the organisation.
5. The objective of the communications was to put balance back at member level, and counter the criticism of insufficient communication, while maintaining both commercial confidentiality and the appropriate level of communication with other important audiences including customers, "Sharemark" (the exchange mechanism for company financial instruments),and HSBC.
6. Overall, DFB was more open in its communication to members than almost any other food business of its size and position. Rather than simply reporting interim and final annual results at EBITDA level, like many other co-operatives, the Company provided members with full accounts to "best practice" and at each stage submitting more detailed analysis than most.
Question: As Chairman of the Board, do you think that Board Communication with DFB members in the months preceeding the receivership gave members an accurate picture of the state of the business?
7. Up until March 2009, the picture was accurate. From March 2009, with the engagement of PWC and the company's position with HSBC, it became increasingly difficult. In a crisis, communication needs to be fast and transparent. From March 2009 all communication had to be agreed and done in conjunction with HSBC. Communication can nearly always be improved upon.
8. After I became Chairman, the Board was scrupulous in providing honest and truthful information about specific marketing achievements and successes as well as business and membership developments. Clearly, it would not have been possible to give members an early view of the precarious financial position of the business as this would have precipitated business failure when that was far from a forgone conclusion at that stage. There was also considerable financial information that could not be communicated for fear of giving commercial advantage to competitors, many of whom were fuelling the speculation.
9. The imperative behind the communication was to keep members committed to the business in the interests of the entire membership and staff since the biggest risk of failure lay in the extent to which resignations (speculative or real) undermined customer confidence and the ability to secure future contracts. So long as member's commitment persisted, the co-operative could not fail.
10. From the Member Updates as attachments with these answers, it can be seen from the 5th September 2008 Update, that when the full effects of the recession and the acute retail market price-cutting competition it stimulated became apparent, members were clearly warned regarding the difficult circumstances.
11. On becoming Chairman, the format and content of Updates were changed to reflect greater transparency throughout the business and to focus on the progress of the liquid dairy restructure. 12. When in March 2009 it became apparent that events were moving so fast and negatively that communication was becoming widely distrusted, the updates were reduced in frequency and finally suspended.
13. I believe the Board acted responsibly during my Chairmanship, and was often open to the extent of being over-trusting in its stakeholder communications.
Lord Grantchester,
December 2009 |