From: "Stephen Burke" 
Newsgroups: uk.finance
Subject: Re: Equitable wins right to sue directors
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Date: Thu, 23 Oct 2003 20:30:48 +0100

Thom Baguley  wrote:
> PR/media role. I'm happy that non-execs can have different
> duties/responsibilities, as long as they do the job. They also have
> to accept that they may be taken to court in relation to their
> responsibilities (and they are entitled to mount a defense). It is a
> risk that goes with the territory.

That's obviously true, but the responsibilities still have to be something
it's reasonably possible to do or no-one will do it. By definition a non-exec
has no management responsibility or direct power within the company, and
typically works only a few days a year, most of which will consist of
attending board meetings and reading briefing papers the company provides to
them, so the responsibilities need to be something within that scope.

> According to the BBC documentary on the Equitable life debacle the
> chief exec didn't seek legal advice (in advance) on his opinion that
> there was a loophole that meant the guaranteed annuities didn't have
> to be honoured.

Well, for a start I thought we were talking about non-executive directors, the
chief executive is not a non-exec! If it's true that a decision on a legal
point was taken without legal advice I would agree that it would be an
indication of negligence, but I'm surprised that anyone would have done such a
thing.

> It also seems highly dodgy supposition to me (in that it renders the
> guarantees meaninglesss). I'm no legal expert, but generally it is my
> impression such loopholes fail when dealing with consumers.

It wasn't really a loophole, it's part of the way w/p funds work. Insurers
have enormous discretion in how they set bonuses, and there is no general
requirement for them to be fair, indeed in a sense the with-profits concept
only works because it isn't fair (some people subsidise others). One of the
ironies of this situation is that Equitable had tried to be fair to
policyholders by paying out as much as they thought was reasonable, while most
insurers have built up big pools of unclaimed assets by systematically
underpaying (I notice no-one is suggesting clawing back some of the bonsues
paid in the 90s :) The legal point was a technical one about exactly how far
the discretion on bonuses went. We have seen substantial variations in how
MVAs are applied, for example, so presumably those are legal (or else no-one
has challenged it).

-- 
Stephen Burke