Page 47 - Articulate Files

In July 2003 a second attempted demutualization vote

occurred when David Stonebanks sought to take the
company public. However, from a financial perspective, the

prospective demutualization of 2000 was the right time, but

sentiment towards the management was positive at that

time and members were still happy to continue backing the
board. By 2003 sentiment has changed and there was a

great deal of anger.

Of the four asset classes - cash, property, fixed-interest and

shares - the latter is the only one to have fallen, during the
period yet sound investment management which after all is

all about the continuous process of old-fashioned asset

allocation, the regular discipline every single day of looking
at your portfolio and adjusting it in line with asset price

movements did not appear to have been followed at

Standard Life.

During the later part of 2003 the Financial Services
Authority, in response to the Equitable Life fiasco,

introduced a new ‘Realistic Accounting’ method. This meant

that the company now had to put capital away to cover the

promises it had made to its policy holders. By December
2003 Standard Life was facing almost negative free cash

flow and an almost terminally reduced capital position.

The outcome of this was the replacement of the Group Chief

Executive, Iain Lumsden with ‘the fixer’ Sandy Crombie, the

selling of £7.5 billion of shares, at the lowest point in the
market and the purchase of bonds at their highest point.

Crombie immediately introduced a ninety-day-review of the
company and came up with what was termed a ‘Capital Lite’

strategy and the acceptance of demutualization. Essentially,