War and peace, the Dairygold Henchy affair
Over 19 days, spread across four months, the case of the former chief executive of Dairygold against his former employers delved into almost every aspect of the dairy industry in Ireland and across the world.
Old wounds were opened and the workings of the society’s board and management were picked over in unprecedented detail.
This was always going to be a big case for the Irish dairy farming community, concerning as it did one of the biggest dairy companies in the country and a decade’s worth of gossip. But no one expected it to run and run the way it did.
Jerry Henchy was the first and only witness. Taking the stand on day four, after a lengthy opening speech from his counsel Mr Patrick Hanratty SC, Mr Henchy spent the rest of the proceedings on the witness stand.
There were days in court when the mood was light. Henchy took great pains to make sure Mr Justice Daniel Herbert understood the complexities of the dairy industry.
He would twist in his seat and lean forward towards the judge to explain the damage the own-brand food market had done to companies such as Dairygold since the economic downturn. The judge agreed with him, telling an appreciative court that it was well known that some low-cost outlets were not great suppliers of Irish farmers’ produce.
The economic downturn was an ever-present spectre in the case. Of course, it always would be. There isn’t a story in Ireland taking place between 2006 and 2008 that doesn’t have an almost apocalyptic edge to it. The court heard about rationalisation and redundancies, falling milk prices and farm closures in stark contrast to the extravagant numbers that formed the fabric of the case.
Henchy had lost a job worth around €600,000 a year, before bonuses. He had been told he was due a bonus payment of around €4m from one of the generous long-term incentive schemes the co-operative offered its top executives. He had bought a farm for around €1m at the height of the boom. His farm account had ended up owing €159,000.
The 48-year-old businessman from Kilmallock, Co Limerick painted a picture of a farming industry in crisis, dark events that over shadowed the events of his dismissal and hung heavily over the proceedings.
Henchy told the court that, at the time he was hired, in 2003, Dairygold was due to lose up to €25m the following year unless changes were made. He was brought in to make those changes.
Henchy was flying high at this stage. After qualifying as a research chemist in the early 90s he began working for Dairyland, a subsidiary of the Kerry Group that produced food ingredients for commercial use. He had joined the company in 1992 as a research scientist before moving into management. His career had taken him to the US, Mexico and South America.
Dairygold had approached him through his father. The first time he was approached he said no, but in 2003 he agreed to interview for the position of CEO. He got the job and soon came to the conclusion that the company was not being run as efficiently as it might have been.
The food arm of the co-operatives, which owned household name brands including Mitchelstown, Galtee, Shaws and Calvita, was struggling against those low supermarket prices. The society was also in possession of a number of lucrative brown field sites that were simply sitting there as property prices continued on a steady climb.
At the first AGM, after his appointment, he laid out the problems as he saw them. He told the court that he had certainly not expected the outcome. A vote of no confidence was called in the board and they all resigned.
Four months into the job he had effectively caused the dissolution of the board he reported to and that, as management, he needed to have a good working relationship with.
Seven of the board were re-elected. As Henchy told the court, the next board meeting was “interesting”.
Soon afterwards, Henchy started working on a code of conduct for the board. This would prove to be a highly controversial move.
During his evidence, Henchy frequently mentioned the tendency of the board to leak like a sieve. He told Judge Herbert that it was common for matters discussed at meetings to end up in the press.
He had argued that it was this tendency to leak that resulted in the damage to his reputation, when details of the debts owing on his farming account appeared in the press with the suggestion that this had been the “real” reason behind his ultimate dismissal.
One board member in particular disagreed with the concept of a code of conduct. Vincent Buckley, whose name appeared often in proceedings, had argued back in 2003 that he was unwilling to sign any code that would prevent him from airing his disagreements with some of the things that went on within the company.
The issue of the code of conduct would rumble on for the next three years. In 2006, Henchy told the then vice chairman that he would be uneasy working with anyone who had not signed the code. Buckley was then in the running for the chairman of the company.
Henchy insisted that he had not meant to meddle through this conversation but that was not the way it was taken by Buckley and several of his fellow board members. The meeting descended into acrimony and Buckley and his allies left, and the whole affair was subsequently reported in great detail in the farming press.
Henchy frequently found himself at odds with various members of the board. He’d been brought in at a time when difficult decisions needed to be made and some of these were never going to be popular.
His plan to have Dairygold exit pig production was met with fierce opposition from pig farmer and then-chairman of the IFA pig committee Pat O’Keefe, from Cork, whose father, politician Ned, called for Henchy’s resignation.
Henchy ran into further opposition over the contentious issue of milk testing. In 2007, an IFA-commissioned report on milk testing reached differing results to the Dairygold tests, results to the detriment of the farmers.
While Henchy-the-research-chemist disagreed with the scientific basis of the report he felt that the bottom line needed to be looked at. He decided that it would be fairer if an independent testing regime was established and took it upon himself to announce this to the gathering at several farmers meetings.
Henchy had once again run into trouble with the board.
This was not a decision for the chief executive they told him, but for the board. Matters got worse when it came to deciding the practicalities of this new milk testing regime.
Board member Bertie O’Leary, who was also the head of the dairy industry production sector body the Irish Co-operative Organisation Society or ICOS, announced that the ICOS should take on the testing. Henchy disagreed. ICOS didn’t even have any scientists, he told the court.
When Henchy failed to attend an ICOS presentation on the subject things came to a head and Henchy received an irate phone call from O’Leary. O’Leary felt that Henchy wasn’t taking the ICOS proposal seriously and told him so, bluntly.
As each old disagreement was picked over in evidence the Dairygold members sat impassively. They lined the back of the court each day and listened intently to the evidence, sometimes passing around sweets to mitigate the dryness of the court air.
Sometimes, when Henchy lost a point, especially once his cross examination began, there were grim smiles at his discomfort. This was personal for both sides.
At one point even Judge Herbert showed signs of irritation. He asked Henchy if he wasn’t being over sensitive. A CEO couldn’t have a thin skin after all. The whole courtroom erupted into knowing laughter when he described farmers as “long-looking people” who wanted to know every side of a situation.
Henchy’s scientific background frequently showed itself when he was trying to answer a complex question. Holding his left hand up for quiet he would turn to ask the judge if he should explain things further. As the days went on the answer was more frequently ‘no’.
In 2006, as part of the continuing streamlining of the company to rectify the problems Henchy had seen when he took up his role, the decision was taken to separate the commercial elements of the company into an independent legal entity.
The idea was to enable shareholders who had left farming, as increasing numbers were doing, to be able to benefit from non dairy income.
Reox Holdings was to contain the commercial food sector, the Munster-based 4Home DIY stores and those profitable brown field sites. In 2006, the property market was at its height and there were high hopes for the profits of the sale of those sites.
Henchy was to serve as CEO for both companies, dividing his time between the two. His salary was also to be split between the two companies, with Dairygold paying Reox for his services.
Unfortunately, it wasn’t long before the property bubble burst and the effects of the global economic downturn made themselves painfully felt. Reox was soon, as Henchy described it in court, a “dead duck”.
The fabulous sums that the sites were supposed to earn dissolved and the fortunes of the company fell with them. The long-term incentive scheme through which Henchy and other management executives might have hoped to get an early windfall of €4m would never pay out.
Despite the difficulties named brands were facing in the face of plummeting grocery budgets, names such as Dairygold, Calvita and Mitchelstown still had excellent brand recognition. The consumer foods end of the company was housed in a company called Breeo, which came under the Reox mantle.
Initially, it had been hoped to arrange a merger between Breeo and Glanbia but after this fell through the company started to look for buyers.
After a while, Kerry Group emerged as the front runners in the sale. Since Breeo contained the Dairygold spread brand agreement needed to be reached on the licensing of the name to Kerry. The board argued that this would mean a degree of rebranding for the co-operative and, rather than accept an offer from Kerry to foot the bill for any future rebranding issues, they decided to look to Reox for an upfront €5m payout. A move Judge Herbert pointed out did make good business sense.
The Breeo sale was still on the table when Henchy’s own employment issues began to take centre stage. The sale had fallen foul of the Competition Authority and Kerry was fighting it in the courts when Henchy’s own financial affairs hit the spotlight.
He told the court, repeatedly, that he had taken his eye off the ball that year – 2008. There was trouble coming from all sides and he didn’t pay attention to his accounts. He’d set up the farming account soon after he started in Dairygold after it was pointed out that it didn’t look very good if the CEO was buying his farm supplies elsewhere.
Henchy had two farms, the small one that surrounded his family home and a larger one of some 90 acres that he had bought at the height of the boom in 2006. He had paid €1m for two separate tracts of land and had poured money into improving the drainage and building up the stock. He was making good use of his farm account but, unfortunately, as his work life got increasingly stressful, he didn’t keep up his payments.
His balance grew. It seems to have somehow become common knowledge, certainly it could have been seen by anyone he bought from, able as they were to pull up his account when he paid. A question was raised at the AGM in 2008. Buckley was now chairman. He had eventually been the one to resolve the long-running code of conduct issue, settling on an agreed document only four months after his election. Buckley became concerned about Henchy’s growing debt. He asked for assurances that it would be paid. At this point it stood at around €99,000.
In an effort to save both Henchy’s reputation and that of the company, his trading account was taken off the general system and handled personally by the chief financial officer Michael Harte. But things didn’t get any less stressful and Henchy didn’t attend to the matter. He told the court repeatedly that he simply hadn’t understood that it was a serious matter. As far as he was concerned Dairygold benefitted from the interest paid on debt. It formed a sizeable chunk of their profits.
He didn’t pay attention and the debt continued to rise. In the end it stood at €159,000 and the Dairygold took legal advice on how to proceed. The matter was raised before the board and before the Dairygold audit committee. Henchy always said that he could have got the money, in the end he did raise it in a swift four days, but it was always on the long finger.
The board was unhappy. In the end, it was decided that Dairygold needed its own chief executive rather than a shared one. On January 26, 2009, the board voted to let him go.
Unfortunately, the industry press got word of that fateful meeting and several articles appeared suggesting that Henchy’s removal was down to financial matters rather than simply Dairygold getting its own CEO.
After he left Dairygold Henchy was aware that his position in Reox was also in danger. The company was in enough financial difficulty as it stood – without having to foot the whole of his now €1m a year wage bill. He asked for clarification but received none.
He told the company that he understood that they couldn’t continue to employ him. In March 2009, Reox Holdings made him redundant. While he told the court that he did not accept that his position was redundant, Henchy had not brought any proceedings against Reox.
Henchy has not worked since he was made redundant from Reox. He told the court that he had applied for numerous jobs in Ireland and internationally but got nowhere. He said that recruiters would now routinely screen applicants by Googling them and when the allegations of financial impropriety were some of the first results when his name was put into a search engine it became impossible to get a job. He said he had been turned down for jobs that he was more than qualified for.
Judge Herbert was concerned that someone could become a “victim for life” because of “blaggardly newspaper reporting”.
Henchy told the court that since his sacking he had busied himself with his farm. His wife, an electrical engineer, had to return to work as a consultant.
Yesterday, Jerry Henchy did not get the €9m he had been seeking for loss of earnings and compensation and instead settled with an agreement for a contribution to his legal costs. He has said that he is happy with the outcome, as are Dairygold.
After four months that could easily have turned into five the sense of relief was palpable from all concerned that the matter had finally come to a close.