20 December 2004

Myners Urges All Life Mutuals To Adopt Corporate Governance Best Practice

Launching the final report of his independent review of the governance of mutual life offices, Paul Myners said:

“Good corporate governance is essential to all forms of business. It provides the checks and balances that ensure that firms are run efficiently and meet the objectives of their owners, whether shareholders or the members of a life mutual.”

“It also has its limitations. In formulating the review’s recommendations, I have recognised that risk is inherent in the conduct of business, and necessarily so. Good corporate governance can ensure those risks are identified and appropriately managed, but it does not eliminate them, and it should not be believed that it does. Indeed measures that sought to eliminate risk could destroy the very purpose of these entities.”
Commenting on the review’s recommendations, he said:

“The recommendations I am making today aim to achieve greater accountability by life mutuals to their members. In doing so I have looked to develop a package of measures to help improve accountability, recognising that there are limits on what can be expected of life mutual members. This includes measures to better enable other external monitors to scrutinise life mutuals, promoting better internal scrutiny of management by firm’s boards as well as the role of the Financial Services Authority.”
“My approach is to address these issues in a realistic and proportionate way, with recommendations based on established practice and common sense. Taken together they provide the basis for life mutuals to ensure that their governance will compare very favourably to best practice in proprietary companies. I am not recommending legislation, as the issues identified do not warrant it. I expect the recommendations in the report to be taken forward by life mutuals and their trade bodies, supported by FSA supervision.”

“The FSA has made considerable strides in recent years in recognising the importance of good corporate governance to good regulation. I hope it will take into account the lessons from this review as it further develops and refines its approach.”

Recommendations include:

Promoting greater engagement by life mutuals of their members, through guidance on fair and accessible voting procedures on a member relations strategy. This includes promoting dialogue with members as well as facilitating communication among members. Members also have a clear responsibility to look after their own interests as the effective owners of life mutuals;
Proposals to better inform life mutual members and the market through providing better information, including on directors’ remuneration, and for large mutuals, publication of forward-looking strategic information in the form of an Operating and Financial Review;
Promoting adherence to best practice corporate governance through producing a life mutual specific piece of guidance. This takes the form of a number of annotations to the Combined Code to reflect the particular characteristics of life mutuals. The Review’s objective is that this Code will be used by the FSA as its benchmark when it looks at governance as part of its risk monitoring process;
Proposals that give particular prominence to the need for a strong independent element on life mutuals boards, and underlines the importance of board appraisals. Monitoring of business risks should be an explicit function of the non-executive directors; and
Helping equip non-executives to deal with the challenges they face in monitoring a complex, technical business. Proposals in the report aim to foster informed discussion and challenge. The company secretary or equivalent in friendly societies has a very valuable and pro-active role to play in this regard and in supporting non-executives more generally.

Commenting on the report, Sir Derek Higgs said:

“I welcome Paul Myners’ proposals for enhancing the governance of life mutuals. They build pragmatically on the sound, common sense principles of the Combined Code.”

Financial Reporting Council (FRC) chairman Sir Bryan Nicholson commented:

“These are sensible, proportionate recommendations that build on the principles of good corporate governance set out in the Combined Code. The FRC stands ready to support the Association of Mutual Insurers in promoting best practice in the life mutual sector through the Code.”
Callum McCarthy, Chairman of the FSA said:
"The FSA sees effective corporate governance in authorised firms as being crucial to our statutory objectives of maintaining market confidence and consumer protection. So we welcome the recommendations of this report that are aimed at strengthening governance in one of the sectors we regulate. In particular, we support the aims behind the annotations to the Combined Code which we hope, when they are finalised, will provide a useful benchmark against which we will be able to measure governance standards in mutual life offices."

Notes for Editors

1. Following the Report of the Equitable Life Inquiry, led by Lord Penrose, the Government asked Paul Myners to conduct an independent review into the governance of mutual life insurance offices in the UK.

2. The review’s full terms of reference were to:

Consider the governance framework for mutual life offices in comparison with that for comparable companies (and, where relevant, for listed companies).
Where appropriate, bring forward recommendations to ensure that boards of mutual life offices are as accountable to their members as boards of comparable companies are to their shareholders.
As part of this, the review will examine:

The level of member involvement in the governance of mutual life offices;
Board accountability for mutual life offices; and
The level of regulation by the FSA to which mutual life offices are subject.

The review will consult as widely as possible, taking into account the recent experience of other mutuals in this area in developing its conclusions and recommendations.
Since the governance of mutual life offices has much in common with that of other mutual societies, where appropriate, the review may also develop general governance principles for other types of mutual (taking into account the particular characteristics of other parts of the mutual sector).
The review will deliver a report with recommendations by the end of 2004.

3. Paul Myners is currently chairman of Marks & Spencer and of the Guardian Media Group. He was formerly chairman of Gartmore Investment Management from 1987-2000. In 2000 he was commissioned by the Treasury to lead a review of institutional investment in the UK. The review reported in 2001.
4. The pdf file of the report can be downloaded here
5. Media enquiries should be directed to Will Straw at the Treasury press office on 020 7270 4420.
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