Page 46 - Articulate Files

time when other companies were cutting back on these

bonuses.

The simple fact was that the economic climate had changed.

Where in 2000 the stock market boom was at its peak with
high interest rates by 2003 it had fallen dramatically wiping

up to 40% of the value from companies such as Legal &

General, Aviva and the Prudential.

Standard Life in 2000 – 3003 faced an increasingly difficult

situation. The perceived value placed on it by Woollard was
around £15 billion at floatation. The company would dispute

this figure but, at the time, would have placed a value in

excess of £10 billion on it.

Moreover, the company was writing new policies in 2000 in
a period of high inflation and high interest rates, and backed

these by its bonus and mortgage promises. This was an

untenable position if, as happened, the financial market

changed to low inflation and low interest rates thus giving
the prospect of lower long-term investment returns.

Exacerbating this situation was the additional factor that

Standard Life, and in particular its Group Chief executive
Iain Lumsden, was committed to holding up to 80% of its

with-profits funds in equities when, as has been seen their

value was falling and other companies were moving out of

them. The effect of these was that the strategy of increasing
volume by the writing of new business did not necessarily

add profit to the business’ bottom line. Furthermore,

income from investments – equities- were drying up. The

final nail in this coffin was the high commissions the
company had to pay for business.