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
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