Examination of Witnesses (Questions 560
- 579)
WEDNESDAY 6 JANUARY 2010
MR ANDREW
COOKSEY, MR
ROB KNIGHT
AND MR
PHILIP MOODY
Q560 Mr Cox:
May I say straightaway, Mr Moody, I am not suggesting the contrary
to that for you personally. What I am exploring is the perception
as my colleague, Mr Williams, said that it might have given rise
to and the notional conflicts at least which would have arisen.
In this case, it is precisely the policy of expansion that is
under serious question, particularly the acquisition of ACC.
Mr Moody: And I am sure we will
come to that.
Q561 Mr Cox:
We will. And to have a member of the board who was recruited by
the chairman, as I understand it, specifically to give financial
advice, business advice of this kind, who had an interest to a
perception of a third party, might have compromised him was probably
on reflection unfortunate, was it not?
Mr Moody: I do not believe so.
I believe that it was a major source of capability, which was
injected into the company without which it would have found difficulty
in pursuing its ambitions, given the scale of its ambition.
Mr Knight: There is nothing that
Mr Moody has said that I would not concur with, nothing.
Mr Cooksey: From the executive's
point of view, we needed a team of people to work with who had
a depth of knowledge and understanding and, particularly having
project managed the acquisition of ACC, we had invested effectively
in an outsourced M&A team who had learnt all about the business
that we had acquired. When we were looking at making infill acquisitions,
they were absolutely the right team, there was no cost to our
business of bringing a new team up to speed to be able to get
into the detail in relation to the right reasons for acquiring
that particular business. It was an invaluable resource; it was
capitalising on an investment that we had made and they were a
very effective team of people.
Q562 Mr Cox:
It is not coincidence that it happened to be the firm to which
a member of the board belonged?
Mr Cooksey: That is a given, but
we had invested in an outsourced team. It was not a team that
was internal. Do you then invite another team of consultants to
come in who then spend eight weeks trying to understand the business
that you have got? The nature of acquisitions, particularly the
kind of infill acquisitions that we did, was rapid, so you had
to respond to the opportunities that were there.
Q563 Chairman:
I think what Mr Cox is probing, and I am grappling towards understanding,
is perhaps the difference between the objectivity of policy decision-making
as opposed to the execution of policy.
Mr Moody: Exactly, that is the
distinction, Chairman. Smith & Williamson was involved in
the execution of policy, it was not involved in advising on the
setting of policy.
Q564 Mr Cox:
No, but you were.
Mr Moody: I was not advising.
I was participating as a director; it is a different thing.
Q565 Mr Cox:
You were recruited to give the benefit of your experience on the
board to give advice to fellow directors in the way that directors
do on boards. I think we are of a common ground. What you are
really saying, Mr Moody, and I understand it, and for my part
I have no reason to doubt it, that in practice you preserved your
ability to give your own intellectual judgment and best business
judgment and advice to your colleagues on the board, and the apparent
conflict of interest, which you accept existed, was not in fact
impinging on the execution of your duties as a director.
Mr Moody: Indeed.
Q566 Chairman:
And was the members' council presented with this arrangement and
did they comment on it?
Mr Moody: At the time that I was
invited to join the board, I was invited to meet the council at
a council meeting, present my credentials and present what I believed
I could bring to the board of Dairy Farmers of Britain. They then
voted on whether or not to appoint me and clearly they chose to
appoint me. The role of my firm was reported in the annual accounts
of every set of accounts during the time we were involved with
the firm, so it was completely transparent and known to the council
and, indeed, every single member. I attended a significant number
of council meetings and on no occasion did a council member come
up to me and raise this as an issue.
Q567 Lynne Jones:
I want to go back to a comment that Mr Knight made some time ago
when you were acting chief executive and chairman, and you said
that there was a need to improve the skill set in the business.
Mr Knight: I think I said "change".
Q568 Lynne Jones:
Could you tell us what changes were introduced as a result of
your identification of whatever the need was?
Mr Knight: As I think I mentioned
earlier, we had looked at a business that was 130 souls and was
fundamentally a milk brokerage business and now, all of a sudden,
we were a major employer of some 2,000 or so people. It was judged
by the board that we needed to look at adapting and building on
the executive team in order to provide the necessary skill sets:
people who had been used to handling lots of people, used to employment
law and so on. That was one of the reasons why we made the significant
change that we did at the executive level. In terms of the board,
as we evolved the board, then clearly there was a need with the
board to look at enhancing the non-executive roles within the
board and indeed, that was the time when we brought in more branding
experience on the board in the form of Mr David Felwick, who had
been managing director of Waitrose and deputy chairman of John
Lewis Partnership, and also brought in a gentlemen called Mr Richard
Fisher, an engineer of some note, who had been with the Mars Corporation
for a very long time.
Q569 Lynne Jones:
You were satisfied that you had the appropriate skill sets by
the time Mr Cooksey took over as chief executive?
Mr Knight: That was the decision
of the board. We took a judgment that when Mr Cooksey finally
took over, having spent some time in the business as both commercial
director and then growing into managing director, and then ultimately
the chief executive, that the board's skill sets were sufficient.
That was the judgment.
Q570 Lynne Jones:
Would Mr Cooksey care to comment on that? There were comments
later on when Lord Grantchester took over about the inadequacy
of the skill sets on the board.
Mr Cooksey: Defining the skill
set of "the board" as in the farmer and non-executive
board versus the executive team.
Q571 Lynne Jones:
It is all the board, is it not? They all have their roles to play.
Mr Cooksey: Yes, but as non-executive
directors. The board that I have access to as chief executive
had a very complementary skill set in terms of facing into the
challenges that we had by way of trying to develop brands as a
business, we had complex challenges as far as customer relationships
were concerned, we had a manufacturing strategy where we were
investing in the restructuring of the company, so I had the independent
members of the board who we could talk to and who were invaluable
to our executive team.
Q572 Lynne Jones:
Mr Moody, you referred earlier on to your sub-committee, the finance
committee, minutes from that being made available. You also referred
to documentation that was made available to the board. Was this
information made available to the members' council?
Mr Moody: No.
Q573 Lynne Jones:
What information was made available to the members' council?
Mr Knight: The communication with
the members was fulsome in that we would meet—we being the
members of the board and the executive—the regional chairmen,
of which there were some eight or nine, monthly, members of the
board and the executive, and talk through in a communication manner
and an informal manner the issues that we were currently facing—not
all of them, obviously. I will come on to the reasons why.
Q574 Lynne Jones:
Was written documentation made available?
Mr Knight: Presentations were
given to them at those sorts of meetings and, yes, if they needed
written documentation and they requested it, they would get it.
I am going to come on to a particular point in a moment, if I
may. There were then five to six full district council meetings
per annum, which were very formal meetings. A typical agenda of
those meetings would be probably about two to three hours of the
executive team talking the 60 or so district chairmen through
the issues that Andrew Cooksey and his executive team were facing,
and in some detail. Given my business experience, I can genuinely
say it was fulsome. Then there would be approximately one hour
on the finances and banking and issues surrounding that. There
would always be briefings from sub-committees of the board, so
Lord Grantchester, who chaired the audit committee, as appropriate,
would talk about the business of the audit committee.
Q575 Lynne Jones:
From what date did he chair the audit committee?
Mr Knight: I would have to refer
back to my notes to be precise. Approximately, he chaired the
audit committee for two years.
Q576 Lynne Jones:
From when?
Mr Knight: From 2005. The chairman
would need to qualify that, precisely the date.
Q577 Lynne Jones:
After the acquisition of Associated Co-operative Creameries?
Mr Knight: Yes, without a doubt.
There would then be possibly some training sessions or communication,
we certainly had major retailers talk to them, and then there
would always be a board Q&A session. A very full day, five
or six times a year. The issue always with the council was obviously
in terms of information, they became very hungry for information,
that was completely understandable as they took part in their
own business. But the decision and the judgment always was about
information that was confidential, that could have been damaging
to the business if it got out into the wider world, that was customer
sensitive, all sorts of information like that. We had to be careful
about that. We were very open with the council. I was very open
in terms of my desire for openness and transparency and trying
to strike an understanding with the council that there would be
sensitive information that we could not and would not be able
to pass on to them until appropriate. I always made that very
clear; always.
Q578 Lynne Jones:
Apparently, a committee of the council submitted a paper to the
board, I am not sure when, highlighting ways in which the capital
structure could be improved. Do you remember that, and what happened
about it? Mr Moody is nodding his head.
Mr Knight: I do recall, but perhaps
Mr Moody can recall better than I.
Mr Moody: I certainly recall that
one of the major issues that Dairy Farmers of Britain faced throughout
its life was the extent to which it was able to raise capital
sufficient to pursue its strategic mission. It was always clear
to the board that the capital aspirations of the company would
exceed either the ability or the willingness of the members to
be able to finance it. But that did not detract from the fact
that members were nevertheless providing in aggregate very substantial
sums of money compared to their own wealth. Therefore, the form
in which that money was invested by members in the company was
always a matter of great interest to the members and a matter
of considerable issue to the board. This was a matter that the
board sought to engage constructively the advice of the Council
to try and see whether a form of investment from members in the
company could be struck that met the needs of farmer members and
also met the needs of the company. There was a sub-committee of
the council formed, under the chairmanship of Mr Roger Taylor,
who was a very experienced individual within the council. That
sub-committee came up with some recommendations, which it presented
to the board for the board to consider in the context of its own
capital structure. There was, certainly during my period on the
board, a continuing dialogue about how one could evolve not only
the basis of taking money from members, but also the return that
one should be providing to members as investors, as opposed to
members as suppliers of product to the company.
Q579 Lynne Jones:
You left the board in 2008. What were the circumstances of your
leaving the board?
Mr Moody: I left the board because
I believed at that time that the company was in severe danger
of becoming insolvent and I did not believe that it was consistent
for me as a professional to stay on the board of a company that
was in imminent danger of becoming insolvent.
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