! AFM’ S CORPORATE GOVERNANCE CODE Martin Shaw Chief Executive, AFM
EVOLUTION OF THE CODE EQUITABLE LIFE In 2000 the House of Lords ruled • that the society must honour the bonuses that it promised to 90,000 policy holders with Guaranteed Annuity Rates (GAR) pensions. LORD PENROSE “The Board was a self- • perpetuating oligarchy amenable to policyholder pressure only at its discretion” • “Non-executives in mutuals face particular challenges”
EVOLUTION OF THE CODE PAUL MYNERS • “a mutual life office is no different from any other type of enterprise in needing good governance” • “The main task for non-executives is to ask the right questions, and if they are not satisfied by the answers, to ask again and again” • The principles in the (FRC’s) Combined Code also provide the right basis for good corporate governance in mutuals”
EVOLUTION OF THE CODE THE ANNOTATED CODE • Launched in 2005 by AFM’s two predecessors Since 2011 complying is a condition of • membership of AFM Last updated November 2012 • FSA and HMT reviewed Code • compliance in 2009, and were content with self-regulatory approach Similar approaches by building societies, • co-operatives, and credit unions
SECTIONS OF THE CODE Leadership Relations with Effectiveness members Remuneration Accountability
SECTIONS OF THE CODE Leadership 19 main principles Relations with Effectiveness members Remuneration Accountability 53 code provisions
COMPLY OR EXPLAIN 53 code provisions AFM compliance questionnaire YOUR report and accounts Approach recognises there are legitimate reasons for non-compliance
COMPLY OR EXPLAIN: SMALLER MUTUALS Code recognises smaller mutuals may ‘judge some of the provisions disproportionate or less relevant’ Should try to avoid using size alone as a reason for not complying Should consider how to adopt the spirit of the provision A ‘comply or explain’ statement should make clear what has prevented compliance
COMPLIANCE PROCESS Executive completes AFM questionnaire Response reviewed by Board/ approved by Chairman Summary of questionnaire send to AFM AFM publishes aggregated report
HIGH STANDARDS OF COMPLIANCE, 2011 25 ¡ Compliance levels: Compliance by section all principles 20 ¡ leadership 15 ¡ effectiveness accountability 10 ¡ remuneration 5 ¡ relations with 0 ¡ members under ¡ 70 ¡to ¡ 80 ¡to ¡ 90 ¡to ¡ 100% ¡ 80 90 100 70% ¡ 79% ¡ 89% ¡ 99% ¡
BOARD COMPOSITION, 2011 Total Directors and NEDs proportion of female directors 25 40% 20 30% 15 10 20% 5 10% 0 Number of non-executive directors all directors 0%
LOOKING AHEAD 2012 changes to the • Chairman’s statement • Gender policy Code take effect • Focus on fair, BALANCED and understandable reporting now, including: • Audit commitment requirements • New AFM ‘governance microsite Overhaul of • Simpler to complete and easier to navigate compliance exercise • Sits alongside our regular Remuneration Report External focus on • New regulators governance to • EU review of ‘comply or explain reporting • Government action on remuneration continue
Martin Shaw, martin@financialmutuals.org www.financialmututals.org Want a copy of our regular governance update?
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