As a young – well, younger – reporter, I remember standing outside Greencore’s headquarters in 1993 as a controversy broke over a placing of shares owned by the Government.
Greencore was the renamed Irish Sugar, a former semi-state, and the public shareholding was being gradually sold down . The broker involved placing the 30 per cent of the company was Davy.
Because of difficulty in placing the shares with buyers, it later emerged that some of the stock had been put into companies owned by some Davy senior executives. The market had not been told – and a £150,000 fine followed from the London Stock Exchange.
This time around the €4.1 million fine is a lot heavier – even allowing for inflation in the meantime – but the real damage inflicted on both occasions was not financial. It was to reputation.
So when you read the statements from the Davy board about lessons learned, reviews, new controls in place and so on, you do wonder. Did none of the older heads in Davy, as they put together the consortium to buy the Anglo bonds in 2014, stop for a second and say: “Remember Greencore”?
After all, two of the senior executives involved in taking Greencore shares into companies they owned– two former managing directors, Tony Garry and Kyran McLaughlin – were also part of the Anglo bonds' 16.
Back in 1993 an exasperated Bertie Ahern, then finance minister, declared that “you cannot sell to yourself. And it appears to me that it got as near as selling to yourself in this case as to make me very unhappy”.
That time it all happened to try to save a share placing which was in trouble. But now, albeit in different circumstances, we saw how Davy sold to itself again in 2014.
When it is acting as an agent for a customer, the fundamental responsibility of a broker is to find the best price. This is not a trivial matter. It is the essence of what a broker does. In this case it sold Anglo Irish Bank subordinated bonds on behalf of a businessman, Patrick Kearney, with a group of Davy employees set up to buy them.
The businessman did not know who the buyers were – and quickly suspected he could have got a higher price. A later court case and settlement with the businessman followed. There is still a lot we don’t know – such as what happened to the profits made by the 16.
Financial gain
The Central Bank verdict is clear. Davy prioritised a personal financial gain for the executives involved over meeting its regulatory obligations. It had no proper rules in place to oversee conflicts of interest or trading done by executives on their own behalf.
Time matters in responding to these things. An apology from the Davy board published immediately after the Central Bank statement – and some clear and transparent explanations of how it had, or would, be dealt with – would not have been the end of it. But it would have helped. One published a day later leaves the inevitable conclusion that they were pushed into it. Deep regret plays better on day one.
And the board statement included the kind of corporate mumbo jumbo we hear much of these days .There had been a process of “ board, management and staff renewal” in recent years. There had been significant investment in “processes, structures, people development and culture”. There had been a third party professional assessment of all this. A further “detailed review” of the findings from the Central Bank was underway. “Appropriate actions” would be taken,
It it possible that all these processes and reviews have actually changed things. And that there might be more to come. We just don’t know.
The role of the Davy board in all this is difficult. In most big companies, the board represents outside shareholders in overseeing what the management are up to. But in Davy the management are the shareholders. And the chief executive, Brian McKiernan, was one of the 16 who bought the Anglo bonds. So the board faces a big challenge. How is it seen to conduct a credible, independent review?
Big business these days is all tied up with ethical guidelines, regulations, sustainability and so on. Consultants are making a mint. You can argue how much of this is for real and how much is just an ethical curtain behind which the usual gouging of consumers and doing-down of competitors goes on.
But either way it is having an impact – notably in terms of sustainability where investors are demanding companies make real change. But also in terms of an obsession with minding corporate reputation and being seen to abide by the rules – and do business with other companies who do likewise.
Loses business
And the danger now for Davy is that it loses business – on a scale that makes the fine look like small change. Big corporate clients may not move as quickly as the horse owners who took their business away from Gordon Elliot’s yard. But they are watching and – crucially – asking questions.
Bank of Ireland, a big Davy client, has said it wants to “ understand” how the failure to meet EU investment regulations are being addressed. Other clients expressed a similar view. The NTMA, which gives Davy massive business on behalf of the Government, noted the “ very serious findings” by the Central Bank and said it is monitoring the company’s response.
This one won’t just blow over with a bit of corporate box-ticking and compliance reviews by some big accountancy firm. The risk for Davy is of a damaged reputation and business slowly slipping away. The events happened in 2014 and Davy will have know for many months that a big fine was looming. Did it really think that if it brazened it out for a few days it would all blow over ?