Where There's Life

Troubled pensions provider Equitable Life is in the news again as it tries to buy off another group of dissatisfied former policyholders.

The mutual has hardly been out of the headlines since the House of Lords ruled two years ago that it had to honour an undertaking made to holders of guaranteed annuity policies to increase payments.

The Law Lords’ judgment blew a £1.5bn hole in Equitable’s accounts and led directly to it closing to new business after 238 years. It triggered the resignation of the entire board – now being sued by the new board for #3bn – and set off a civil war among different classes of policyholder over the society’s remaining assets.

So perhaps the surprise is not that Equitable is still in the news, but that it is still here at all. And FDs who think the only reason for studying its affairs is to wallow in schadenfreude, should think again. The way Equitable Life dug itself out of its £1.5bn hole has a few useful lessons for companies that find themselves harassed by groups of dissatisfied stakeholders – and with more profit warnings on the horizon, it looks as though the ranks of the grumblers are set to grow.

Gavin Grant, vice-chairman of PR agency Burson-Marsteller, was close to the centre of Equitable Life in the months leading to the vote in January 2002 when members agreed a compromise plan that ended the immediate threats of legal action and winding up. He says: “Stakeholder power is without question on the rise and it’s extremely unwise to say, ‘It could never happen to us.'”

He points to the way in which groups of dissatisfied shareholders or customers organise themselves on the internet. “You are seeing the establishment of action groups that you ignore at your peril,” he says.

Equitable Life saved itself by appointing a new board which won the confidence of members. But that wasn’t easy, especially as one of the board’s first actions was to cut policy values by 16%. To save itself, Equitable had to get various classes of members to agree to a scheme to share assets under section 45 of the Companies Act.

The society organised the fight-back like a political campaign, with a steering group headed by FD Charles Bellringer. His first action was to clear the polished table and oil paintings out of the historic boardroom and turn it into a 24-hour campaign headquarters, complete with whiteboards detailing hourly tasks.

Grant says: “We had to defuse the anger among policyholders at the way they’d been treated and start to seek a consensus for compromise.”

That was never going to be easy. The nub of the problem was that implementing the House of Lords judgment for policyholders with guaranteed annuity rate (GAR) policies would leave less in the pot for other members.

For any plan to get through, it had to receive the support of more than 50% of policyholders voting by number and 75% by value in each of three classes. So the board set out to construct a compromise plan that would cap the GAR liability while providing a sweetener for non-GAR policyholders to vote for it.

Grant says: “The key to winning the vote was consulting on the draft compromise plan. We had to engage with policyholders and be completely open with them.” There was a website and a series of roadshows at which chairman Vanni Treves and chief executive Charles Thomson answered questions.

But by the time that show got on the road last autumn, the picture was confused with different interest groups all fighting their own corners.

“We had to boil the message down to something very simple that would appeal to all of them. It was that this was a mutual and people who shared the gain should be willing to share the pain,” says Grant.

The reality was that the compromise plan was the only show in town and members passed it by 90%-plus majorities in all classes.

Grant says that one of the key lessons when dealing with dissatisfied stakeholders is to keep communicating. “When you’re the centre of something, you can get a false sense of how much other people know about it,” he says. “It’s no use thinking that you can organise a shareholders’ meeting, stick the chairman up there behind a barricade and expect him to fend off all questions. That won’t do the trick.”

Anybody with a profits warning pending, please note.