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The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

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Media Stories: 09/12/2005 - An outstanding article by Andreas Whittam-Smith

9 December 2005 - An outstanding article by Andreas Whittam-Smith

If you read only one article summarising the new low reached by the incumbent board, make it this one by ex head of the FOS. It includes the following “bon mots”:

“If Vanni Treves were chairman of a publicly listed company, he would be unlikely to survive

Mutual societies……… are owned by their customers and each one has a single vote regardless of the size of funds at risk. It is difficult for policyholders to coalesce as shareholders do. The various action groups set up by angry policyholders are not sufficiently powerful.

………………a special responsibility, I believe, falls to the regulator, the Financial Services Authority (FSA). It has to ask itself whether Mr Treves is the best person to complete the work of either putting the Equitable Life on a footing that maximises policyholders' returns or selling its constituent parts profitably……………..I think the FSA owes it to Equitable policyholders to find a new chairman.

...


The Independent:
Andreas Whittam-Smith: A tale of scandalously poor judgement

If Vanni Treves were chairman of a publicly listed company, he would be unlikely to survive

Published: 05 December 2005

Vanni Treves, chairman of Equitable Life, won't be resigning, he says, even though he has wasted some £45m of policyholders' funds on unsuccessful legal actions. Mr Treves is an experienced lawyer.

Equitable Life was once a widely admired, trusted, rather upmarket life assurance society. It had been the first into the field in the eighteenth century. By 2000 it had a big business in pensions policies. However in that year, the House of Lords ruled that in dealing with different classes of policyholders, it had been behaving unlawfully.

The directors immediately announced that they were putting the 240-year-old mutual society up for sale. No buyer came forward so the Equitable stopped writing new business. Later, the value of its pension policies was substantially reduced. Mr Treves was brought in with a new board of directors to rescue what he could from the disaster.

Mr Treves decided to sue both the society's former auditors, Ernst & Young, and the former directors, for substantial sums. But the two actions failed, with the case against the directors finally discontinued on Friday. In explaining away his first mistake, the action against the auditors, Mr Treves was at pains to emphasise that the new board had sought audit, actuarial and legal advice before proceeding. "Not to have launched this action would have been a dereliction of our responsibilities to continuing policyholders."

Unfortunately, neither the directors nor their advisers had sufficiently considered what the former directors might say in their evidence. They were not likely to be helpful witnesses, for they could be personally ruined by Mr Treves' lawsuits. And what they said was devastating. They indicated that, as directors, they would not have done anything differently - whatever the auditors had done and said. Hence the society suffered no loss from the auditors' actions. So the former directors deprived Mr Treves of an arguable case. He was obliged to discontinue the action against Ernst & Young on the basis that both sides bore their own costs.
Mr Treves then moved to bring the cases against the directors to an end. All of them were anxious to have their costs covered and they largely succeeded. By this token, Mr Treves' defeat was more sweeping. A few even held out for a statement in court exonerating them completely, but in denying this request, Mr Treves had his only success.

In this second case also, Mr Treves had diligently sought advice from City lawyers and leading counsel. But what Mr Treves had to prove was not that the former directors had made errors of judgement, which indeed they did - and for which the proper penalty is dismissal - but that they had acted irresponsibly or recklessly or dishonestly. Courts deal in wickedness rather than folly.
Yet if Mr Treves had considered more carefully the sort of respectable people who comprised the former directors, he would surely have doubted that their behaviour was likely to have been so outrageous that it would warrant chastisement by a court. Two had been chairmen of prestigious city firms. Another had been the National Lottery regulator. There was also Jennie Page, who'd been chief executive of English Heritage before taking on the ill-fated Millennium Dome.

As Mr Treves finally admitted on Friday, whereas a Government enquiry into the collapse of Equitable Life had concluded that the society was the author of its own misfortune, it is a different matter to convince a court that the directors' responsibility "leads in law to culpability and redress".

If Mr Treves were the chairman of a company quoted on the stock exchange which frittered away £45m in fruitless legal actions, he would be unlikely to survive. Shareholders would lose confidence in his judgement. The bigger ones would approach the non-executive directors and ask them to find a new leader.
Mutual societies, however, lack this facility. They are owned by their customers and each one has a single vote regardless of the size of funds at risk. It is difficult for policyholders to coalesce as shareholders do. The various action groups set up by angry policyholders are not sufficiently powerful.

For this reason a special responsibility, I believe, falls to the regulator, the Financial Services Authority (FSA). It has to ask itself whether Mr Treves is the best person to complete the work of either putting the Equitable Life on a footing that maximises policyholders' returns or selling its constituent parts profitably. On the one hand, tidying up the situation is a thankless task - though well remunerated at over £130,000 per annum. You could also say that, whatever his shortcomings, Mr Treves has seen the business this far and might as well finish off the job.

Or you could argue, as I do, that, having shown poor judgement in his own area of expertise, the law, it is unlikely that he will show a sure touch in the essentially entrepreneurial decisions about the future of the society that now need to be made.

In fact, lawyers generally do not make good chairs of commercial enterprises. They have been trained as advisors not as takers of decisions. The admirable Lord Alexander, for instance, who died recently was an outstanding barrister and distinguished in many fields, but his chairmanship of the old National Westminster Bank was, by common consent, his least successful venture.

I think the FSA owes it to Equitable policyholders to find a new chairman.

http://comment.independent.co.uk/columnists_m_z/andreas_whittam_smith/article331145.ece