Myners Report

Lord Penrose's report into the events of Equitable Life highlighted several shortcomings in the corporate governance of that society which contributed significantly to its problems. Lord Penrose suggested that these shortcomings were not peculiar to Equitable Life but inherent in the structure of Mutual Life offices generally. This of course includes Building Societies and Friendly Societies.

In the light of conclusions the government asked Paul Myners to conduct a review into the governance of Mutual Life Insurers and to make recommendations to ensure that their Boards are equally accountable to their members as are the Boards of comparable proprietary companies to their shareholders.

The following is a summary of the recommendations of the report:

1. To mitigate the risk of conflicts of interest arising, any question of an increase in direct remuneration or compensation to Directors in the context of a motion to demutualise should be put to members as a separate motion, as required under the Building Societies Act 1986.

2. Given the importance of the role of Non-Executive Directors in Life Mutuals, meetings between FSA supervisors and Non-Executive Directors of Life Mutuals (without the Executive present) are a valuable part of the interaction between the FSA and the supervised firm.

3. Life Mutuals should adhere to a version of the Combined Code that has been annotated with guidance that does not alter the principle of the Code, but aims rather to promote interpretations which best uphold these principles in this sector.

4. The Association of Mutual Insurers (AMI) and the Association of Friendly Societies (AFS) should ensure that the annotation of the Code for Life Mutuals is updated when the Combined Code itself has been reviewed.

5. Life Mutuals should adhere to the annotated Code on a "Comply or Explain" basis.

6. The FSA is to take forward in 2008 work to understand firms' reasons for not adopting the annotated Code as a model for governance or who choose to explain rather than to comply with a particular provision of the Code.

7. The AFS, working with the AMI, should produce more detailed guidance on the interpretation and application of the Annotated Combined Code for small Friendly Societies.

8. The Annual Report of a Life Mutual should contain a description of each Director's experience and expertise.

9. The AMI and the AFS in consultation with the FSA, the Institute of Directors (IoD) and the Institute of Chartered Secretaries and Administrators (ICSA) should develop an 'Induction and Professional Development Programme' for Non-Executive Directors of Life Mutuals.

10. Appointments to the Board should involve appropriate sources of objective external opinion which may include considering using external recruitment consultants and seeking the views of member panels.

11. A vigorous Board appraisal should be conducted annually in all Life Mutuals. This should cover not only the performance of individual Directors but also that of the Board as a whole.

12. The Chairman and the Company Secretary should ensure that issues Non-Executives wish to be discussed are placed on the agenda. Non-Executives should receive the information and proactive support that they require so that an informed discussion can take place.

13. All Life Mutuals should produce a remuneration report along the lines described in Schedule 7a of the Directors' Remuneration Report Regulations 2002.

14. Large Life Mutuals should produce an Operating and Financial Review (OFR) in the same way as listed companies.

15. The AMI and the AFS should devise guidance that promotes Best Practice Member Relations. This should include guidance on fair and accessible voting arrangements as well as advocating the establishment of a Member Relations Function responsible for Member Relations Strategy.

16. All Life Mutuals should endeavour to put in place adequate arrangements for taking into account members' views.

17. Life Mutuals should adopt the practice of notifying members of major transactions. Members consent should be sought in the case of very large transactions. The broad guidance is that members should be informed of transactions above a 5% threshold (measured by reference to assets, profits, turnover, consideration and gross capital) and to obtain members' consent if the transaction exceeds 25% by the same measures.

The Regulator is taking the Myners Review very seriously. There has been a long lead into it and all Mutual firms should by now be in a position where they have either complied, or are in a position to explain comprehensively why they have not complied.

Haven Risk Management can give guidance and support on compliance with Myners. In particular, we have developed focussed training programmes for Non-Executive Directors of Mutuals which cover topical issues and form a very valuable supplement to the more technical training that Boards and Committees of Management are normally subject to.

Please contact us for further information.