HISTORIC PRESS RELEASE : Myners Urges All Life Mutuals To Adopt Corporate Governance Best Practice [December 2004]

The press release issued by HM Treasury on 20 December 2004.

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.”