The Association of Financial Mutuals (AFM) represents friendly societies, mutual insurers, not-for-profits and discretionary mutuals in the UK, many of which have operated for over 100 years. Financial mutuals are either owned by their customers or set up on a not-for-profit basis, so focus entirely on the best interests of their customers because they do not have to account to shareholders. The nature of their ownership, and the consequently lower prices, higher returns or better service that typically result, make mutuals accessible and attractive to consumers.
Financial mutuals believe all stakeholders in an organisation should be treated fairly and well. Setting the right tone and culture from the top ensures that this happens, and a clear position on how the organisation is governed helps customers, members, employees and suppliers understand better how the organisation achieves good outcomes.
That is why AFM developed the AFM Corporate Governance Code, which sets out a series of principles intended to help directors of AFM member organisations to meet their obligations for effective corporate governance.
The Code draws on expectations of directors from a range of sources, including the relevant legislation, regulatory rules and internationally recognised standards.
The AFM Corporate Governance Code: overview of Principles
- PURPOSE AND LEADERSHIP: An effective board promotes the purpose of an organisation, and ensures that its values, strategy and culture align with that purpose.
- BOARD COMPOSITION: Effective board composition requires an effective chair and a balance of skills, backgrounds, experience and knowledge, with individual directors having sufficient capacity to make a valuable contribution. The size of a board should be guided by the scale and complexity of the organisation.
- DIRECTOR RESPONSIBILITIES: The board and individual directors should have a clear understanding of their accountability and responsibilities. The board’s policies and procedures should support effective decision-making and independent challenge.
- OPPORTUNITY AND RISK: A board should promote the long-term sustainable success of the organisation by identifying opportunities to create and preserve value, and establishing oversight for the identification and mitigation of risks.
- REMUNERATION: A board should promote executive remuneration structures aligned to the long-term sustainable success of an organisation, taking into account pay and conditions elsewhere in the organisation.
- STAKEHOLDER RELATIONSHIPS AND ENGAGEMENT: Directors should foster effective stakeholder relationships aligned to the organisation’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions.
The AFM Corporate Governance Code (AFM Code) took effect from 1 January 2019. AFM consulted on the new AFM Code in October and November 2018, to replace the Annotated Corporate Governance Code, which had been in place, with modification, since 2007, and which was based on the corporate governance code for premium listed companies.
To learn more about AFM’s approach to corporate governance or to view other AFM Governance Documents, visit the AFM website.
