JIM FLAVIN, who resigned as executive chairman of industrial group DCC on Tuesday night, bowed to the inevitable. Notwithstanding the trenchant support of the company's board, the significance of last year's Supreme Court ruling that he had engaged in insider trading had made his position untenable.
He was facing mounting pressure on two fronts. The Irish Association of Investment Managers, which represents big institutional shareholders in DCC, last week called for his resignation and indicated a willingness to back up the call with action. Secondly, the Director of Corporate Enforcement indicated this week that he wanted High Court inspectors to investigate DCC and two of its subsidiaries in light of the unanimous ruling from the Supreme Court.
By resigning now, Mr Flavin has headed off any attempt by the company's large shareholders to remove him at its annual general meeting in July. He has also given an out to his board who by supporting him so staunchly had backed themselves into a corner and found themselves at odds with the wider investment community.
As a result, further damage to the company has been avoided for which shareholders should be grateful. But DCC's reputation has been badly tarnished and the credibility of the board of directors and their approach to corporate governance seriously undermined. Further changes to boost shareholder confidence in the board are needed.
The company has also had to pay out in the region of €50 million in compensation and legal fees as a result of the finding that Mr Flavin broke the law on insider trading when he sold DCC's stake in Fyffes eight years ago. Further damage to the company's reputation as a result of investigations by the Director of Corporate Enforcement cannot be ruled out and if the complexity and pace of previous inquiries are the yardstick, then this cloud will linger over the company for several years to come.
Much, but not all, of this damage could have been avoided had Mr Flavin resigned immediately after the Supreme Court ruling last year. It would have sent a strong signal to the market and the wider constituency that the company understood the gravity of the Supreme Court findings. Instead, Mr Flavin battled on with the support of his entire board and continues to maintain that he acted honourably in the best interest of shareholders.
Along with his fellow directors, he chose to interpret the High Court and subsequent Supreme Court judgments as support for his position that what occurred in 2000 was little more than an inadvertent breach of a now-repealed piece of company law. By taking this stance DCC was flying in the face of the import of the Supreme Court ruling, as expressed by Mr Justice Fennelly, that to trade on the use of insider information is a fraud on the market; and those who do so commit a crime and may be made answer for the profits that follow. Mr Flavin has finally been made answer.