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David Nish, finance director, Standard Life

David Nish

Standard Life has long been regarded as a sleeping giant of the financial
services industry: defiantly mutual, it underperformed several of its rivals in
terms of profitability, despite managing billions of pounds more in investments.

But all of that changed when the firm finally succumbed to demutualisation
and floated on the London Stock Exchange last summer. Since then, its share
price has soared from a launch price of 230p to 325p at time of going to press.
And brokers forecast a rise to as much as 430p by the end of 2008. Perhaps not
surprisingly, the change in fortunes has coincided with a dramatic increase in
sales, particularly in the investments division. But, just as importantly, it
has coincided with another significant event – the arrival of finance director
David Nish, who joined from ScottishPower in November last year.

Since joining, Nish has played a key role in the group’s transformation – his
experience of taking ScottishPower through its transition to a listed company
would clearly have been an asset. (As we were going to press, ScottishPower was
formally delisting following its acquisition by Spanish energy company

Nish believes that Standard Life is in a similar situation today that
ScottishPower found itself in during the 1990s. “There are similarities with the
1990s energy sector, where public sector utilities were being privatised and
there was a need to introduce different methods of improving growth and
developing business,” he says.

“We have started focusing on efficiency [and] growth. There is also a lot of
focus on adding value and performance. If you look at the mutual environment
there is quite a different method of decision-making. In the plc world, you must
be more focused on share price, value for customers and [delivering value] for
investors. You may be discussing a decision about customer options and products,
but what you must also be asking is, what is the value in this decision? We went
through a similar phase in ScottishPower.”

As a result, there are plans for a further reduction in staff and business
costs, which will add up to a saving of £100m a year by 2009. In addition, there
have also been a number of departures – including that of FD Alison Reed – and
arrivals among senior management, of which Nish was one.

Altered images
But the process was never going to be easy. Standard Life used to have an image
as a rather reserved Edinburgh institution, with an entrenched and conservative
workforce. It’s clear that the board recognised Nish’s experience with handling
difficult transitions from the public sector to the private sector as key to the
future success of the company. And his appointment went down well in the City.

But they are not out of the woods just yet. With private equity continually
on the hunt for new targets and M&A activity at an all-time high, Standard
Life must be wary. The business could be seen as vulnerable – profit is behind
that of many in its peer group and consolidation is always a distinct

“There is a need to improve and to improve quickly. We need to increase the
speed at which we do things and realise that we can actually give up the past
while holding on to those things that work,” he says. “The most important thing
we can do is get on with our work and keep improving the company and its

“There isn’t much we can do to prevent a takeover if it comes, but the best
form of defence is to ensure we have a highly efficient, profitable business
with excellent growth and sound future potential. That is why we are focusing on
driving value and performance.”

Profits up
It seems to be working. New business contribution (the value of all future
cashflows attributable to the shareholder from new business) has increased from
a loss of £117m in 2004 to a profit of £205m in 2006. The return on embedded
value has more than doubled since 2004, while cash generation has risen from a
loss of £17m in 2005 to a profit of £262m in 2006. Overall, the business
returned a pre-tax profit of £453m and produced a dividend of 5.4p. An improving
result, but some way behind rivals such as, say, Aviva.

Analyst views are also improving. Somewhat indifferent to the business
initially, many have warmed to it in recent months, with JP Morgan Cazenove
stating that Nish was leading “a significant cultural shift” in Standard Life’s
use of capital. Others have said that the projected share price is expected to
top 400p by the end of the year. The additional value will make the firm a much
stronger and less vulnerable business.

It is clear that Nish is at the core of these changes and his title as group
finance director is significant in that he has a remit stretching across all of
Standard Life’s portfolio of businesses, including Standard Life Bank and its
rapidly expanding Standard Life Investments business.

Indeed, Nish spends much of his time talking to brokers and selling Standard
Life to the City. In the spring, he and chief executive Sandy Crombie spent ten
days talking to investors in the US, where the company has a large shareholder

“What we do at these meetings is talk the shareholders’ language and bring
the outside world into the business. Investors need to know that our constant
thought is how to bring value to the business and make it grow. We are always
trying to connect everything to a value. You may examine some idea and think,
‘Will that add 10p to the share price?’ and then go ahead with it if you think
it is going to work and make an immediate improvement in the share price. I’ve
always found that people tend to understand the implications of an action if you
put it in those kind of terms and give it a value.”

Nish is looking at ways of using the company’s existing, fairly dormant,
capital to fund expansion and growth. “We are in the process of asset-gathering
at the moment. Our principal asset is our property and we need to look at how to
take capital out of property and develop other areas of the business. We have
the assurance type business, but also, increasingly, healthcare and investment
management products, and we can use some of the released capital to expand and
develop these sectors,” he says.

Nish speaks enthusiastically about the transparency that a listing provides,
in particular the need to constantly review and monitor all aspects of the
business to ensure it is not only compliant but functioning efficiently. The
audit, he says, can be a useful tool in highlighting issues that may need to be
addressed, and he sees a close relationship with the auditor – Standard Life is
a long-time client of PricewaterhouseCoopers, where Nish used to be a partner –
as essential to running a successful plc.

Dynamic management
Nish is not one to rest on his laurels. He understands that a major plc needs a
dynamic management able to analyse and understand the shifting needs of the
marketplace and respond accordingly. “I believe we will be writing a lot less
traditional life business in future. We are one of the biggest annuity providers
in the UK and we have had to adjust to major changes in the market, not least
because so many people are living longer and living healthier lives, so the
basis for many of the previous investment decisions may no longer work. We have
to make sure we are responding effectively to these changes.

“Take pensions. Most [pensions] used to die with the individual, and all of
the costs and liabilities for a firm such as Standard Life were based on that
presumption. Now, most people use various means to keep their pension, albeit in
a different form and probably not an annuity. There is the option of income
draw-down, for example, where individuals can remove the capital, at a loss of
some of the tax relief, but be left with a lump sum which is transferable to an

“One of our most successful products in the last year has been the growth of
Self-Invested Pension Plans (SIPPs) which, I believe, show a growing
sophistication among our customer base who are demanding greater flexibility and
control over their investments and understand more fully the options available
to them. What this means for Standard Life is that our business is changing and
we must change with it to reflect society and the needs of our customers.”

Part of that change will be an increase of choice. He says that the company’s
product mix will increase so that individuals are given a far greater choice
than a single product such as a pension or a life policy. “Everyone wants
flexibility and access, and we are building these features into our products and
services,” he says.

Since joining Standard Life, Nish has clearly had his hands full. He
describes the process of demutualisation as very similar to joining a new
company in its first year of operations. “Everything has to be examined,
reviewed and understood as if the business had just begun,” he says. “That isn’t
to say that the heritage and history of Standard Life is thrown out, but it must
be as effective and efficient as possible to compete in the current

So, while electricity and assurance aren’t obvious bedfellows, running a
successful plc has similarities regardless of industry. Nish’s experience of
transforming organisations into listed companies is far more important to chief
executive Sandy Crombie than whether he understands the intricacies of the life
assurance industry.

But it seems that Nish has also ticked that particular box. Having been a
member of the government’s pensions taskforce between 2004 and 2005, he clearly
understands the technicalities well.

With a sound understanding of pensions and annuities, substantial experience
of business transformation and the respect of his peers, his board, the City and
analysts, it would appear that Nish has all of the boxes ticked.

It goes a long way to explain why many are tipping him for the chief
executive role when, as expected, Crombie stands down in the next two or three

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