Conclusions and recommendations
Attendance by witnesses
1. Notwithstanding
the seniority of Marc Firestone's position within Kraft, we strongly
believe that Irene Rosenfeld herself should have given evidence
before us, not least because the statements regarding Somerdale's
future—its re-opening and then its closure—were made
and announced by her. Irene Rosenfeld's attendance would have
given an appropriate signal of Kraft's commitment to Cadbury in
the United Kingdom and provided the necessary authority in respect
of the specific assurances offered to us during our evidence session.
(Paragraph 6)
The closure of the Somerdale factory
2. We
believe that Kraft acted both irresponsibly and unwisely in making
its original statement that it believed that it could keep Somerdale
open. A company of Kraft's size and experience ought simply to
have acted with better judgement. By making its announcement and
the subsequent reversal Kraft has left itself open to the charge
that either it was incompetent in its approach to the Somerdale
factory or that it used a "cynical ploy" to cast a positive
light on Kraft during its takeover of Cadbury. We can neither
prove nor discount either conclusion. We are aware of speculation
in the press that the Takeover Panel is examining this issue.
We would expect this to be the case; such serious questions deserve
the detailed scrutiny that only the Panel can give. (Paragraph
19)
3. What is clear is
that Kraft's actions in respect of Somerdale has undoubtedly damaged
its reputation in the United Kingdom and has soured its relationship
with Cadbury employees. It will now have to invest significant
time and effort into restoring both. (Paragraph 20)
Kraft's undertakings
4. We
note Kraft's undertakings to continue to manage Cadbury from within
the UK and that Dairy Milk and Cadbury's other products currently
produced in the UK will continue to be produced here. (Paragraph
24)
5. We note the fact
that Kraft will honour Cadbury's undertakings given to the Somerdale
workforce. (Paragraph 26)
6. We are disappointed
that while there has been frequent contact between Unite the Union
and Kraft's UK human resource team, Kraft's American senior management
have yet to engage in any meaningful dialogue with the Union.
We believe that it is vital that Kraft's senior management from
the US meet representatives from Unite the Union and the workforce
as a matter of urgency in order to start to restore trust. (Paragraph
31)
7. We note Kraft's
assurances that there will be no further compulsory redundancies
amongst manufacturing employees and no additional plant closures
in the UK for the next two years. However, a guarantee for a longer
period would have been welcome. We strongly believe that it would
be in both Kraft's commercial interests as well as the UK's national
interest for Kraft to regard the existing manufacturing plants
in the UK as long-term investments which require sustained investment
to remain competitive and at the leading edge of technology. Theoretically
the undertakings given in respect of Dairy Milk guarantee the
future not only of Bournville but also of Chirk, near Wrexham
and of Marlbrook in Herefordshire, which supply the ingredients.
However, we note the lack of a specific guarantee about the future
of these two plants and we ask the Government to invite Kraft
to provide further clarification of their intentions and to put
the reply in the public domain. (Paragraph 32)
8. We both note and
welcome Kraft's acceptance of its obligation to support Cadbury's
existing pension arrangements. (Paragraph 36)
9. We note Kraft's
commitment to maintain Cadbury's R&D facilities in the UK.
We also note Mr Firestone's careful use of words and that there
is no specific commitment to the current level of employment and
world class skills in R&D at the centres of excellence at
both Reading and Bournville. We invite Kraft to reflect on the
reputational consequences for their company in the UK of not honouring
the spirit of Mr Firestone's assurances and warm words. We ask
the Government to invite Kraft to clarify its intentions and to
put its response in the public domain. (Paragraph 39)
10. We note the commitment
by Kraft to continue Cadbury's support for the Cocoa Partnership
and uphold Cadbury's undertaking to extend its use of Fairtrade.
Any dilution of Cadbury's commitment would reflect very seriously
on Kraft's reputation and integrity. (Paragraph 45)
11. We welcome the
announcement that Kraft has confirmed the funding arrangements
for the Cadbury Foundation for the next three years. We also note
Kraft's undertaking to adhere to Cadbury's commitments for community
investment. We look forward to seeing how Kraft will maintain
and build upon Cadbury's heritage of philanthropy both during
the initial three-year period and beyond. (Paragraph 49)
12. We welcome the
commitment given by Kraft to rebuild and maintain the Fry Club
at Somerfield. (Paragraph 51)
13. We note that Kraft
intends to uphold Cadbury's commitments to the environment. (Paragraph
54)
Conclusion
14. The
Kraft takeover of Cadbury has been marred particularly by the
controversy over the closure of Somerdale and has heightened the
feelings of mistrust in which Kraft is held. Kraft now faces a
significant challenge to restore its reputation in the United
Kingdom. Our evidence from Kraft did, however, give some welcome
clarity on Kraft's intentions for brand management, the Cadbury
workforce and the many philanthropic activities for which Cadbury
is rightly admired. These commitments—which have been personally
endorsed in writing to us by Irene Rosenfeld—are now in
the public domain, and therefore will be subject to close scrutiny
over the next few years. If Kraft is serious about restoring its
reputation in the United Kingdom, it is vital that it delivers
on all of them. Any back-tracking from these commitments, or any
evidence that support management and other functions, especially
Cadbury's world class Research and Development, are indeed being
transferred to the United States would be a serious breach of
trust. We recommend that the Department for Business, Innovation
and Skills monitors Kraft's compliance to these commitments. If
it is serious about them, Kraft will have nothing to fear from
such scrutiny. (Paragraph 55)
Short-termism in decision-making
15. We
are deeply concerned by reports that the takeover of Cadbury by
Kraft was ultimately decided by institutional investors motivated
by short-term profits rather than those investors who had the
company's long-term interests at heart. As a template for takeovers,
this is not in the interest of UK companies or the UK economy.
(Paragraph 62)
16. We welcome the
Government's focus on the issue of 'short-termism' in decision-making
on the future ownership of UK companies, and its efforts to engage
with institutional fund managers as part of the process. However,
we are sceptical about the extent to which informal engagement
alone can instigate any fundamental change in institutional shareholder
behaviour, in particular where there are financial incentives
for fund managers and others to act in the short term. (Paragraph
63)
Review of takeover regulations
17. We
welcome the fact that the Government is considering a review of
the rules and legislation governing takeovers in the United Kingdom.
We also welcome the current consultation by the Takeover Panel
on its City Code on Takeovers and Mergers. Such consideration
of the underlying issues must not be seen as protectionism against
foreign takeovers but as seeking to ensure that all takeover activity,
whether entirely domestic or by foreign companies, is conducted
in the interests of the UK economy. (Paragraph 69)
18. While we have
not taken sufficient evidence at this stage to enable us to come
to a view on the merits or otherwise of extending the powers of
intervention by the Secretary of State, we strongly believe that
this issue should be considered as part of the wider debate on
takeover regulations. (Paragraph 75)
Conclusion
19. The
takeover of Cadbury by Kraft has highlighted a number of important
issues in respect of the way in which foreign takeovers of UK
companies are conducted. It has been the catalyst for a wider
debate, both in Government and in the City, about how takeovers
are conducted. In highlighting the Kraft takeover of Cadbury,
we have contributed to that debate which now needs to continue,
and with urgency. Time does not allow us to consider the wider
proposals for reform in detail but it is clear that the Companies
Act 2006 has not resolved these major issues in corporate governance.
We urge our successor Committee to consider this Report as a starting
point from which to conduct a detailed inquiry into these important
issues and into the role of shareholders and managers of companies
more generally. Recent experience of the behaviour of boards and
shareholders in situations ranging from the fall of RBS to the
Kraft acquisition of Cadbury indicate that it is time to reconsider
many aspects of corporate governance. (Paragraph 76)
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