Correspondence: 29/11/2002 - Letter to the Non-Executive Board Members of Equitable suggesting the Chairman should be replaced 29 November '02 - Letter from the committee of Equitable Members Action Group to the Non-Executive Board Members of Equitable To the Non-Executive Board Members of Equitable: The Chairmanship of the Equitable For two reasons the Committee of EMAG requests the Board of the Equitable to consider as a matter of urgency the desirability of appointing a full time Executive Chairman of the Society. First, leaving personalities aside, the executive structure of the Society needs to be deepened and strengthened. The present Chairman's lack of relevant experience and his extensive other commitments mean that he cannot perform the necessary function. Secondly and most unfortunately, Mr. Treves' record since becoming Chairman has destroyed his credibility as leader of the Society. When he assumed office, he enjoyed a fund of goodwill. It has been dissipated because of:-
We briefly enumerate below examples of (a), (b), and (c) above; (d), (e) and (f) do not require elaboration. However, before listing the examples given below, we put on record our recognition that the fault and the responsibility of what has happened since the appointment of the new Board cannot be laid exclusively at the door of Mr. Treves. It has become increasingly clear that the previous direction and management of the Society were grossly defective, with the result that the new Board was dealt a bad hand. Regrettably, under Mr. Treves' leadership, that hand has been played unnecessarily badly and in those circumstances the least that the new Board can now do is to replace the top man. As incoming Chairman he should have immersed himself in getting to grips with the deeply troubled Society. We find it difficult to believe that he did, because had he done so, the subsequent events would not have unfolded as they have, with the Society staggering from pillar to post. We now list some examples of the criticisms at sub-paragraphs (a), (b), and (c) of paragraph 4 above. Major strategic errors These include:- (i) An undue delay until July 2001 in stopping members departing with significantly more than their asset share. We have calculated that this cost the remaining members circa £200m. (ii) A flawed compromise which grossly prejudiced the non-GARs by making only a minimal attempt to redress the inequity of the House of Lords decision and discounted Warren & Lowe's second report. The Compromise directly led to the Bacon & Woodrow report, with up to £75m more in provisions and the inappropriate proposal of another section 425 agreement. (EMAG proposed a mechanism for redressing the inequity in 2001). (iii) The failure to face up to and deal with the GIR issue (as EMAG proposed in August 2001), which hamstrings the Society within the GAR compromise and the very serious failure to declare and highlight the GIR ramifications in the Compromise. (iv) The failure to have one clear-down in 2001 which has resulted in "death by 1000 cuts" and widespread mistrust of the Society. (v) The failure to investigate unit linking the fund. Misleading statements It is no longer possible for members of the Society to rely upon statements made by the Chairman. His past statements have given current policyholders a misleading picture in connection with whether to stay with the Society or, even subject to a penalty, to shift to another life office, and he left annuitants entirely unprepared for a drastic reduction in their total income. Neither the Society's Annual Report & Accounts, nor his presentation at the AGM addressed the annuitants' prospects. With regard to the prospects after the section 425 compromise was approved he claimed:-
Members' disillusionment has been heightened by the fact that, when Mr. Treves took office, he pledged that he, and in future the Society, would be open with members. My letter of 12 November 2002 to Mr. John Tiner of the FSA provided detailed substantiation of ways in which he has not honoured his pledge. In consequence members of the Society have not been provided with the information needed to judge their own interest. Mr. Treves has ignored that the Equitable is a mutual that should not only be run for the members, but be seen to be run for the members, and be democratically accountable to the members. Failure of administration The Committee of EMAG appreciates that the previous mis-management and misdirection of the Society created a situation in which exceptional demands would be made upon those undertaking the administration of the Society including, in particular, the interface between it and policyholders. There were two ways in which the resulting challenge could be met: either by strengthening the administration or by taking the view, especially after the Society closed its doors to new business, that there was no need to seek to preserve goodwill through the maintenance of customer-friendly administration. The Society is widely perceived to have opted for the second course. Many policyholders find that there is now no meaningful interface between them and the Society and that in relation even to specific transactions they are expected to take on trust and without explanation figures produced by the Society. As I found out myself, the response commonly given to policyholders who request an explanation of how maturity or surrender values have been calculated is that:-
In view of the seemingly inexplicable differences in values attributed by the Society to apparently comparable policies (I cite those of my wife and myself), such a response is manifestly unacceptable. Of course we appreciate that good administration costs money. But if the Board will compare the amounts spent by the Society under Mr. Treves' Chairmanship on outside consultants like Burson-Marsteller (the benefit from which is certainly not apparent to members) and the amount spent on administration, for which the Society's control group is directly responsible, any claim that the Society cannot afford to maintain an adequate administration sounds pretty hollow. It must surely now be clear to the Board that things cannot be allowed to go on as they are. A necessary change, which would be least disruptive of continuity, is the immediate replacement of Mr. Treves by a full-time executive Chairman experienced as a company doctor. As the FSA are so closely involved in the management of the Society, I copy this letter also to Sir Howard Davies and John Tiner. Yours sincerely,
c.c. Mr. Vanni Treves, EMAG Committee |