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

Correspondence: 27/01/2003 - Letter from Peter Wilmot of ELAS re petition on Governance

27 January '02 - Letter to Paul Braithwaite of EMAG from Peter W. Wilmot, Equitable Life

Dear Mr. Braithwaite

Thank you for your contributions, on behalf of the Equitable Members Action Group (EMAG), to the review of the Society's Memorandum and Articles of Association. Your comments have been carefully considered by the Working Group undertaking this review, and by the Board.

General Approach

The Board acknowledges that in other circumstances it might be appropriate to undertake a radical review and total revision of the Articles rather as Standard Life did in 2002. However, the Board feels that the diversion of management time and the significant expense of such a major exercise are not justifiable in the Society's current position. The Board considers that the objective should be to make such changes as are needed to bring the Memorandum and Articles in line with good business practice and to take the Society forward in its new circumstances. Accordingly the Working Group has restricted the scope of its review to what is absolutely necessary to update the Articles in the interest of all members.

This approach seems to have been borne out by the low-key response of the membership generally to consultation on the review. We received your submission and a number of other members' submissions that appear to have been inspired by your e-mail headed "EMAG asks you to act now on Equitable Life's Governance proposal". Otherwise, although attention was drawn to the consultation in the interim accounts sent to all members, only five other members responded.

Timing of Annual General Meeting

The Working Group recommended that the Annual General Meeting be permitted to be held in April, May or June in each year (rather than April or May as currently provided in the Articles). It was considered that this would give more flexibility in arranging the AGM. We have noted the points you made on this proposed amendment and it has been removed from the proposals that will be put to members at the time of the AGM.

Holding of Offices

The Board shares your view that, as a matter of good corporate governance, the same person should not hold more than one of the offices of Chairman, Chief Executive (by whatever title the post is known, e.g. Managing Director), Appointed Actuary or Secretary. None of these roles are currently combined within the Society and we have no plans to change that arrangement. However, to prescribe this in the Articles might present difficulty in the event of hiatus due to, say, the sudden death or resignation of one of the officers in question. The Board wishes to retain the flexibility that might be needed in an emergency.

Minutes of General Meetings

It is already the Society's practice to provide general meetings minutes to members who request them. We will adopt as standard practice your suggestion that the minutes be published on the website. However, the Working Group feels that it would not be appropriate to incorporate such a practice into the Articles.

Requisitioning of Extraordinary General Meetings (EGMs)

At an early stage in its deliberations, the Working Group expressed a preference for a requirement for a minimum of, say, 1,000 members to requisition an EGM, and investigated this possibility carefully. However, the Working Group was concerned at the possibility that the right to request an EGM would be used for inappropriate purposes. It would therefore have wanted to incorporate a proviso along the lines of that adopted by Standard Life.

As you are no doubt aware, Standard Life reduced to 1,000 the number of members required to requisition and EGM. The Standard Life Articles, however, provide that the Board need not call a requested EGM if it reasonably decides that: the EGM's only purpose would be to deal with business that is substantially the same as business discussed or decided during the previous three years, or is to be discussed or decided at another general meeting within the next three months; or the right to request an EGM is being used to seek publicity for defamatory matter or for frivolous or vexatious purposes. In the Society's case the Companies Act would render such a provision ineffective. We are advised that Standard Life's provision is permitted because it is governed by the Standard Life Assurance Company Act and the relevant section of the Companies Act does not apply to Standard Life.

In the absence of such a proviso, a relatively small group of members might requisition EGMs for vexatious purposes at frequent intervals, and at enormous cost to the Society. Accordingly the Working Group has recommended to the Board that the Companies Act requirements be retained in respect of the number of members required to requisition a general meeting, (and also in respect of the number of members required to requisition a resolution. The Board has accepted this recommendation.

Election of Directors

The Board has carefully considered your proposal for election of directors by "first pas the post" positive votes with no negative votes and no Chairman's proxies. The question of proxy arrangements is addressed in the next section of this letter.

As regards "first past the post" we have investigated the procedures adopted by other companies and have taken legal advice. We have been advised that a public company would not be able to elect directors in this matter; the Companies Act effectively requires that in those companies the election of each director be dealt with by a separate resolution, with members voting for or against. While the Society is not a public company, we think that we should follow that example of good business practice. Moreover we have to take into account the likely reaction of the Society's membership as a whole and we feel that a significant body of members may object to losing the right to vote against the election of a particular candidate for director.

Proxy Arrangements

There seems to be some continuing confusion about the Society's proxy arrangements, notwithstanding that they represent standard practice and are in line with 'Table A', the pro forma regulations for management of a company set out under the Companies Act. The model form of proxy in 'Table A' provides that "unless otherwise instructed, the proxy may vote as he thinks fit or abstain from voting".

The form of proxy specified in the Articles will be updated to reflect modern practice. It wills till be possible for a member to appoint the Chairman of the meeting (or, indeed, any other person) as the member's proxy. The form of proxy will also allow the member to give discretion to the Chairman (or any other person named as the proxy) to cast votes as he thinks fit, if the members does not wish to indicate how the proxy should vote. However, the form of proxy prescribed by the Articles will make clear that a member may instruct the proxy to vote for or against any resolution. If a member appoints the Chairman as proxy and instructs him to vote in a particular manner, the Chairman follows those instructions as he is bound to do. In communications with members about general meetings it will continue to be made clear how, in the absence of 'for' or 'against' instructions, the Chairman intends to vote.

In the guide to the 2002 AGM issued to members, on the page headed 'How do I vote?' the following was stated:

"If you complete a proxy form you will need to appoint a proxy to act on your behalf at the meeting. This can be the Chairman of the meeting or any other member of the Society having the right to vote at the meeting." "Please vote 'For' or 'Against' each of the resolutions. If you leave both boxes blank against any particular resolution you are leaving it to your proxy to decide how to vote, or whether to abstain, as they see fit." "Where the Chairman of the meeting is appointed as proxy, and votes are left to his discretion, he will vote in accordance with the Board's recommendation (set out in the section /What am I being asked to vote on?', on page 4)".

We would welcome any suggestions as to how this message might be made even clearer in the guide to this year's AGM.

Postal Ballots

You made the proposal that "voting on resolutions and for the election of directors should be put to a postal ballot". Special resolutions and extraordinary resolutions are not permitted to be passed by a postal ballot; and certain other resolutions require a meeting to be held. Piecemeal amendment of the Articles, to provide for some matters to be decided by postal ballot and others at a meeting, would be complicated (and correspondingly expensive). Also, this does not seem necessary as the present arrangements give a similar effect. As you are aware, for a number of years, the Society has issued proxy forms to enable members to register their votes on resolutions, by post, if they are unable to attend the general meeting. Although proxy votes only come into effect in the event of a poll being called, the proxy votes are counted prior to the meeting and are ready for display at the meeting. If a resolution is put to the vote on a show of hands and the result of the show of hands is inconsistent with the proxy votes received, then the Chairman would call a poll on the resolution in question and hence the proxy votes would come into effect.

Voting Weight

You proposed "voting weight proportional to each individual member's guaranteed fund". The Working Group feels that alteration of something as fundamental as existing voting rights would be unacceptable to many members. Moreover the Board considers that an important principle of mutual societies is that no one small group of members should be able to exercise undue influence, in disregard of the interest of the generality of the membership. Indeed in mutual building societies the general principle is 'one member, one vote', whatever the size of a member's interest in the building society. In the case of Equitable Life, introduction of proportional voting rights would give enormous influence to a few group pension schemes, and would effectively disenfranchise individual members. The current provisions in the Articles, which restrict any member to a maximum of ten votes, prevent any member or small group of members having an overwhelming voice.

Other Directorships

The Society wishes to attract the best candidates as directors, without arbitrary constraints. The Board follows good corporate governance practice in this respect and considers that the number of directorships (or indeed honorary or other appointments, or other commitments) that a person has is less relevant than the overall contribution that the individual can make to the Society. Accordingly the Board feels that it would be inadvisable to place restrictions in the Articles on the number of other directorships that a director may hold, some of which may not in any event be time-consuming. You may be assured that the Nominations Committee and the Board, when considering Board membership, do and will continue to take into account the overall commitments of directors and potential directors.

Special Board Meetings

Regulations 43, 44, 46, 48 and 65 require a "Special Board Meeting" to transact certain items of business. The Working Group proposed that references to "Special" Board Meetings should be removed and all business should be conducted at 'ordinary' Board meetings. For all practical purposes, there is no difference between "Special" and other Board meetings. The business required to be transacted at a "Special Board Meeting" is not restricted to bonus declarations, contrary to the suggestion in your submission. You state that "the proposed change may be an attempt for devolution and side-stepping of responsibility onto the Appointed Actuary"; I can assure you that it is not.

Provision of Information to Members

Parts of your submission were concerned with disclosure of information to members about the affairs of the Society. In particular you proposed that the Society should comply with accounting and reporting provisions indicated or recommended in a variety of papers, some of which were consultation papers. The Society aims to follow best practice in this area. However, the Working Group feels that it would be inappropriate to give permanency in the Articles to recommended accounting or reporting provisions that can be expected to be altered from time to time.

As stated at the outset of this note, our approach has been governed by what is most appropriate at this time in the best interests of the membership. We have carefully considered all submissions, as I hope you will appreciate from the above. We have tried to balance the need to modernise the Articles, where appropriate and necessary, against management time and the major costs required in order to undertake a more expansive review. In consequence we hope that the proposals taken as a whole will receive EMAG's support.

Thank you again for EMAG's submission to the consultation process.

Yours sincerely

Peter Wilmot
Company Secretary