Examination of Witnesses (Questions 249
- 259)
WEDNESDAY 21 OCTOBER 2009
LORD GRANTCHESTER
AND MR
GERRY SMITH
Q249 Chairman:
Having now fast-forwarded the situation, could I formally welcome
Lord Grantchester, who was the Chairman of the Board of Dairy
Farmers of Britain when, sadly, it ceased trading. I think, as
he will no doubt tell us, he was not there for the duration of
the life of the business but accepted the responsibility towards
the end of the company's life. We are grateful to Mr Gerry Smith,
who is a former member of the Executive Team, who was the Head
of Liquid and Milk Division. Mr Smith, I understand that you joined
Dairy Farmers shortly after the decision was made to purchase
ACC, so you were not part of that decision-making process. Is
that right?
Mr Smith: That is true, Chairman.
I joined in November 2004.
Q250 Chairman:
You are both very welcome, and my apologies again for the slight
disruption of the situation. Lord Grantchester, I think there
may be one or two things you wanted to say to the Committee by
way of an opening statement. Normally we do not like those kind
of things, because people use it as an excuse to bang on and use
up time, but I know you will be succinct. If you want to take
perhaps two or three minutes to give us the benefit of your thoughts,
we will then start our questioning.
Lord Grantchester: Thank you,
Chairman. I was only going to open the debate by saying that the
whole Board and the whole company of Dairy Farmers of Britain
really regret the outcome to both its staff and the supplying
membership of the situation. It was a very regrettable outcome.
A lot of people have either lost considerable sums of money or
their livelihoods. It has been a very upsetting time for a lot
of people and we welcome very much the Committee's inquiry into
the situation as to what lessons can be learned and look forward
to the outcome being a very positive response. I am sorry to be
pausing for breath. I did come in at a very late stage in taking
the position of Chairman, but I have been a long time in the dairy
industry. I have been a dairy farmer in my own right on a dairy
farm in Cheshire for over 25 years, and I am a past President
of the Royal Association of British Dairy Farmers.
Q251 Chairman:
Could I persuade you both to speak up. Unfortunately, sometimes
the acoustics and amplification in these committee rooms is not
always what it could be and it would be, I think, helpful to all
of us if you could do that. It is a bit like accepting, Lord Grantchester,
the poison chalice in a game of pass the parcel, if I do not mix
my metaphors. You happened to pick up the chairmanship in what,
arguably, was the saddest part of the cycle of DFB. Why did you
do it?
Lord Grantchester: Chairman, I
have a big affinity, having been in the business of producing
milk, with fellow dairy farmers. I joined the Board of Dairy Farmers
of Britain to try and help the small farm, the family farm, to
have a sustainable future. I have been involved, as you know,
at a political level in all the machinations that have been going
on with both farmer supplies in the subsidy area and also OFT
inquiries, milk boards, milk marques and we have scars across
our backs. I thought I could perhaps try to help and support farmers
through their own business and at the end it was dairy farmers
who were pulling together to try and restructure the business
for the benefit of the members and its staff.
Q252 Chairman:
What state was the business in when you took over?
Lord Grantchester: Obviously,
it was under severe pressure. We can go back over how it came
to be under severe pressure, but it was under severe pressure,
and we took the decision that we had to reduce our cost base very
substantially and yet supply the same customers that we had. We
were going to have the same returns into the business but cut
our costs very considerably in supply from what was to be three
dairies instead of five liquid dairies. This was an entirely credible
strategy to have at that time because we were not doing anything
different that we were doing in terms of supplying customers but
we were reducing our cost base very considerably.
Q253 Chairman:
For the record, when did you take over?
Lord Grantchester: It was the
beginning of November 2008.
Q254 Chairman:
The beginning of the end had been identified.
Lord Grantchester: The beginning
of the end, or the end of the beginning. Yes, we had a severe
challenge in front of us, one that I felt I could help bring to
the company, to its staff and to the members, to achieve a sensible
and profitable restructure.
Q255 Chairman:
Can you give us some indication of the respective roles of the
Board of the company, the executive team and the members of the
Council and perhaps just explain to us what was the relationship
between these three parts of the decision-making process? For
example, how did communications run up and down the co-operative?
In the case of the farmer members of the Board, what kind of professional
advice, independent of those employed as full-time executives,
did they have access to and in what ways were the membership involved,
if at all, in the decision-making process of the business?
Lord Grantchester: There are a
lot of detailed questions seeking very detailed answers in your
supply of questions there. Can I just say as an overall comment
to the Committee, along with Stephen Oldfield, who, in his submission,
has answered this very same question, I concur with him, there
were no governance issues which in any way led or abetted any
outcome, or downfall, or poor performance of the business. There
were no governance issues. That is the overall point I want to
get across. I can answer your very detailed questions. Yes, all
board members and Council members went through extensive training
periods and were provided through EFFP with booklets and courses
that they underwent in order to make them aware of all the responsibilities
that they had in their respective roles—that was all followed
up—and, as the business developed, members of the Board
also went underwent training programmes in order to help clarify
and help them in their roles. For example, risk management was
one which the Board identified as something we had to be very
careful of and mindful of, but board members went on special management
courses in addition to the general ones in terms of the role of
directors, finance for non-finance directors, and strategic direction
courses. All these were undertaken by board members and, in fact,
there was an annual appraisal of board members whereby we discussed
openly how things were going, what any of the board members felt
they needed to spend more attention doing, and this was in conjunction
with the other non-executive directors which the previous Chairman
recruited to strengthen the Board.
Q256 Chairman:
When it came to, for example, the major decision to invest in
ACC, would the members of the Board have been wholly reliant on
the executive officers of the company for advice and information
about this purchase, or did they have access to any external advice?
Lord Grantchester: If any board
member felt that he was not getting the right advice through the
Board, he would make the Chairman aware of that and ask for that
advice to be provided. This always happened; it was always provided.
There was never a time when any Board director sensed that his
request was being denied and that, therefore, he would have to
go and seek extra outside guidance to help him in his decision,
and that is nothing different to any other board I have been a
member of.
Q257 Chairman:
This is a difficult question, bearing in mind when you took over,
but are you aware when these major investment decisions were being
made, both the purchase of the ACC creameries at the outset and
other assets and then, subsequently, the decisions that were made
with Project 523, the rationalisation process, of any kind of
input from external advisers to the Board or not?
Lord Grantchester: There was considerable
outside expert advice provided to the Board at all times throughout
the company's history.
Q258 Chairman:
By whom?
Lord Grantchester: By the various
skills required, either corporate financial advice in terms of
purchases, strategic considerations, also in terms of any other
accountancy advice, and, of course, at the end, insolvency advice.
The Board were most mindful of their duties and made sure that
they took the appropriate advice.
Q259 Chairman:
When you talk about corporate finance advice, for example, you
started life with a consortium of four banks which eventually
got down to one. Was the advice that was available outwith the
banking group? For example, did you have a City adviser who was
able to help the company with external commentary, both on financing
and the nature of these big investments?
Lord Grantchester: There was considerable
debate about when and if to bring in, as you call it, City financial
advice. We had the best advice we felt we could afford at the
time, and one of those was when, and if, and at what cost it is
appropriate for the company to take on when it then went into,
as you say, very considerable weighty advice.
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