Mutual life office directors should be required to follow the same Combined Code of Corporate Governance as listed companies and provide even greater voting rights when seeking to act in the best interests of members, says the latest report from Paul Myners.
Details of the study launched today – entitled Myners review and the governance of life mutuals - was produced in part on the back of the Penrose Report into the Equitable Life affair in February 2004, as that document was highly critical of the management structure and the role of non-executive directors.
As a result, Myners has produced a new study for the Treasury which suggests not only should members be given greater information and voting rights on key decisions within mutual life insurance firms – given members are the effective ‘owners’ of the company – but the role of the board of directors and non-executive directors in particular should be reinforced through specification of role and the information they should be measuring.
In particular, the latest report recommends non-executive directors assume greater importance within mutual firms and receive the appropriate training and support to be able to deal with the complexities of the business.
All mutual companies will also be required to follow the same Combined Code of Corporate Governance as that adopted by all listed companies to ensure better transparency between the firm, regulator and consumer members.
Likewise, non-executive directors should meet without the executive present to ensure maximum scrutiny of the firm’s practices, and that same group ought then to conduct a rigorous appraisal of the board each year as well as interact with FSA supervisors in the management of the life mutual, he adds.
Myners, of course, recognises the code in its current state would not suit mutual firms in its entirety, so a “version” of specific clauses for life companies to follow have been specified within the document.
Among the reforms proposed, Myners addresses the issue of demutualization and director benefits by suggesting members should be asked to vote first on the matter of demutualising a firm before assessing whether there is any conflict of interest in the financial benefits directors would receive as a result of that shift in the company’s status.
Similarly, the firm should publish a directors’ remuneration report and send details out in an advisory note to members, to keep members informed in the same way listed companies state the board of directors’ salaries and benefits, says Myners.
“The mutual insurance sector has already done much to address the issues raised by Lord Penrose in his report on Equitable Life, and has shown a clear commitment to the principles of good governance,” he says.
“What has become apparent is the strong group of the life mutual sector – the realisation that just as problems for any one firm could tarnish the whole group, the collective interest lies in protecting and improving the mutual brand,” adds Myners.
All mutual life offices now have until 2008 to decide what steps need to be taken to reform and improve information flow as well as adopt the specified terms of the Combined Code of Corporate Governance.IFAonline
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