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A vote of confidence?

Standard Life’s board has given the green light to demutualisation and the campaign for the yes vote is now officially under way.

Europe’s biggest mutual insurer needs 75 per cent of voters to respond in the affirmative for the motion to be passed at a special general meeting set for May or June next year.

But what happens if Standard’s demutualisation proposals are shunned by its policyholders?

Spokesman Scott White says that if this is the case, then it is back to the drawing board for the firm.

“If members vote no you have to respect what the members want but then the firm would have to be managed on a completely different basis,” he says.

Standard has been painting a pretty bleak picture of the future should it remain a mutual. It has been well documented that the firm needs an injection of capital if it is to continue writing significant levels of new business. The alternative is to run the business in a constrained way, perhaps all but exiting the most capital-intensive areas of the market.

Cazalet Consulting director Ned Cazalet says the only real alternatives to demutualis- ation are closing to new business, paring back the markets it operates in or a trade sale.

Cazalet says: “Why would anyone vote against this? The company needs capital and people would have to have rocks in their head not to support the idea. When you see the documentation next spring it will go into some detail outlining the options and frankly there is no alternative.”

Demutualisation looks a done deal to many but Standard is set to embark on a huge information campaign in the coming months, starting with a validation mailing to confirm member details – quite an undertaking when one considers the firm has 2.4 million eligible members.

Standard’s “meet the management” roadshows will continue apace, basically providing a forum for group chief executive Sandy Crombie et al to put their case forward. This will be backed up by member updates and a detailed prospectus next spring.

White says Standard is aiming for a very high turnout at the vote next year. Normal AGM votes typically pull in 200,000 votes, he says, but the firm is targeting more than one million voters. This would be comparable to the number who voted in 2000 when carpetbagger Fred Woollard attempted to force Standard into demutualisation.

If there is one fly in the demutualisation ointment, then it could well be the legacy of Woollard’s failed campaign. Having spent 10m fighting demutualis- ation four years ago, it may baffle some policyholders that Standard is now so adamant this is the right course of action.

Crombie says the market has changed, which few would argue with. But will consumers accept let alone understand this?

Scottish Life group head of communications Alasdair Buchanan says he does expect demutualisation to go ahead but the Standard board will certainly not be taking anything for granted and may have to work that bit harder because of the history.

He says: “It would be a big surprise if it does not go ahead. I do not think there is any example of management recommending demutualis- ation and the members voting against it but there is a bit of history given the management’s past defence of the benefits of mutuality.”

Syndaxi Financial Planning managing director Robert Reid does not think it will be a tough sell regardless of this because the lure of free money will be enough to convince the majority to tick the yes box. He believes that the attraction of free money will outweigh any perceived benefits of mutuality.

Reid says: “I would be very surprised if Standard got a no vote because people will want the money and they have been waiting for it for a long time.”

Mutuality does offer the advantage of management being beholden to policy-holders rather than shareholders first. This is Which? senior policy adviser Mick McAteer’s main concern with the proposals.

He says: “I understand the logic behind it but I am concerned that long term it will result in a levelling down of competition in the life industry and consumers will pay higher charges. Payouts on policies will be reduced because the company will have to fund dividends and so on.”

Buchanan agrees, noting industry evidence does tend to show with-profits policy payouts falling after companies demutualise.

So that is the trade-off facing Standard policy- holders. A short-term gain in the form of a windfall payout but potentially lower policy payouts in the future.

Some fear the firm will be run with the large instit-utional investors’ interests put first rather than those of the policyholders, which will gobble up most of the free float. But if there is no real alternative to demutual-isation, members can always take the money and run.


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