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The Shoeshine Column: Same events, different versions

Friday 9th June 2000

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Fletcher insider report exposes Hoggard's damage control

Nufarm chairman Kerry Hoggard has commanded the highest level of respect we accord our business leaders. Until recently his reputation both for rigorous business conduct and for personal honesty and integrity was without blemish.

So the media was hardly exaggerating when it reported the "tightly knit business world" was "rocked" by his resignation, on December 23, as chairman of Fletcher Challenge amid a share trading scandal.

Even so the market accepted his replacement, Telecom chairman Rod Deane, as a man of no lesser ability and quickly settled down. It was, it seemed, all a misunderstanding, just one of those things.

Nobody expected much to come of the Securities Commission inquiry into Hoggard's trading. In a way they were right - the commission, in a typically cautious report <www.sec-com.govt.nz/ public/publications/fcl/index.html>, chides Hoggard for insufficient attention to his responsibilities but makes no recommendation on any further action.

But a careful read turns up some disquieting questions about Hoggard's actions before and after the trades became public.

Now seems as good a time as any to say Shoeshine doesn't doubt for a second that Hoggard never intended to profit dishonourably from his trading.

Common sense alone says a man of Hoggard's wealth wouldn't jeopardise his reputation for the relatively small sum involved. And it's inconceivable he would be stupid enough to do it under his own name.

So it's unlikely anybody will take issue with the reasons he has given for buying the shares in the first place. He did it, he says, to demonstrate to the market, and especially to senior management, his commitment to seeing through FCL's restructuring.

But the commission's report calls into doubt his statement accompanying his resignation that "there was no intention at any time to deliberately mislead any person."

In the same statement, Hoggard explained how he had come to breach FCL's director share trading regulations (and the Securities Amendment Act).

In short, on December 14 an FCL board meeting decided the company's letter stock structure, much-blamed for the sharemarket's lack of recognition of the true worth of each of its four divisions, would be dismantled.

The following afternoon Hoggard got on the phone to his broker, JB Were, and placed orders for parcels of shares in all four divisions worth a total $635,000.

FCL made its restructuring announcement the next day, predictably sending the four divisions' share prices sharply upward. By the close of business on the 17th Hoggard had made a paper profit of $53,790.

His December 23 resignation statement explained, "The company announcement was intended for December 15 but was delayed for various reasons. I failed to consider this appropriately and must accept that I have as a result technically breached the company's share trading regulations."

This was taken by all and sundry to mean Hoggard believed, at the time he placed his orders, the announcement had already been made and that the market therefore had all the relevant information he had.

Hoggard hasn't disputed this interpretation and it's hard to think what else he might have meant.

But that's not the way it comes out in the commission's report.

Its inquiries show Hoggard placed his order at around 2pm on that day. The conversation was taped and lasted around three minutes.

"In the course of the conversation," the report says, "Mr Hoggard confirmed that there had been a board meeting on December 14, a matter already publicly known, that no public statement had been released about the meeting but that one would be released (in Mr Hoggard's words 'but hold your breath, it will')."

How can this be squared with Hoggard's earlier defence - that he was unaware the announcement had not been made as planned?

Then there are the different stories told by Hoggard and by FCL company secretary Gary Key.

Hoggard informed Key, on either December 13 or 15, that he intended to buy FCL shares. Key told the commission he advised Hoggard to wait until after the announcement.

Hoggard told a subsequent board meeting he couldn't remember Key giving such advice. But if Key said it had been given then he (Hoggard) did not dispute that was the case.

Then the story changed - he told the commission he didn't accept Key's version of their conversation. Asked how this squared with what he had earlier told the board, Hoggard said those comments were "a pragmatic response" made when he thought there was nothing to be gained from taking issue with Key over the matter.

And then there's the issue of reparations to the selling shareholders. Until now there's been no reason to believe Hoggard's offer of compensation was anything other than entirely spontaneous and voluntary.

The report reveals the FCL board "had previously insisted that Mr Hoggard undertake to provide full compensation to sellers in a letter ... dated December 22," the day a board meeting was held to discuss Hoggard's share trades.

This seems heavy-handed. Why was it necessary? Surely a quiet word from a fellow director - "you are going to make full compensation, aren't you, old boy?" - would have elicited the appropriate response?

We don't know. But all these things cast doubt over the main planks of Hoggard's reputational damage control - that he broke the law unwittingly and that he came clean and volunteered full restitution as soon as he was aware he had done so.

These contradictions might seem nitpicking if they didn't concern a man of Hoggard's stature.

FCL, an icon of the industrial landscape, is being dismantled. The largest division has already been sold overseas.

Hoggard's own company, Nufarm, has moved its head office to Australia. Speculation abounds that a raft of other big firms are heading the same way.

Business confidence is in the pits. Any suggestion the integrity of our top-tier directors is less than unimpeachable is a serious worry.

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