Wednesday, September 27, 2006

Doctors Legal Defence Union & Insurance set up mired in scandal

With all these 'legal defence bodies' up and down the country, for every profession there is, one could be forgiven for thinking that lawyers run the country ... it seems they do to a certain extent .. and if you have ever tried to sue a Doctor for negligence, then the following story is of interest to you .. showing yet again, the lawyers get their tentacles into an area which causes great problems for anyone trying to claim for damages caused as a result of medical negligence, etc ..

article from the Sunday Times, at :,,200-2358765,00.html

Doctors' insurers in turmoil at secrecy over £450,000 pay
By Dominic Kennedy

Independent doctors quit in protest at failure to disclose size of chief executive's salary in the annual accounts

THE doctors’ legal defence body is in turmoil after all its independent directors resigned in protest at a failure to disclose the union chief’s salary.
Michael Saunders is being paid £450,000 a year to run the Medical Defence Union (MDU) instead of the £229,000 suggested by the annual accounts, which will be presented to members next week.

The 170,000 doctors in Britain and the Irish Republic who pay up to £7,000 for their annual MDU cover provide the organisation with a rapidly growing income of £153 million a year. The board of the institution is trying to change its rules to dispense with the need for independent directors, such as the whistleblowers who have just resigned. The trouble has arisen as a result of the creation of a joint venture between the MDU and a Swiss group of insurers.

The exact size of Dr Saunders’s salary as chief executive was undisclosed because, like his fellow directors, he now receives two salaries. Part of his income is still paid by the MDU but the bulk comes from the new company, MDU Services Ltd (MDUSL).

The independent directors have no argument with the size of Dr Saunders’s salary. However, they believed that greater transparency was needed, and suggested adding a paragraph in the MDU’s annual accounts suggesting that doctors should refer to the other company for the full total of the executives’ salaries.

The board’s rejection of the audit committee’s advice led to the walkout by the independent directors. A report has been sent to the Financial Services Authority (FSA), which regulates insurers.

The four independent directors who have resigned are all eminent public figures: Lord Glenarthur, who served as Health, Home Office and Scotland Minister from 1983-89; Andrew Chambers, an authority on corporate governance, whose clients include the UN and Shell; Sir Robin Mountfield, former Permanent Secretary to the Cabinet Office; and Michael Arnold, a former chairman of the Association of Consulting Actuaries.

The union was created in 1885 as a mutual aid society by doctors shocked at the case of a physician who was wrongly convicted and jailed for assaulting a woman patient. The principle was that everyone pooled their money and helped one another if the need for legal advice arose. Payments were discretionary.

Dr Saunders steered the MDU through negotiations for an ambitious joint venture with a Zurich-based insurance group in 2000. Faced with increasingly compensation-hungry patients, doctors would benefit from a chance to be insured fully against future claims.

The independent directors are believed to have become concerned at what they felt was the misleading way in which the top executives’ salaries were presented in accounts supplied to members.

There are three executive directors: Dr Saunders; his deputy and the professional services director, Christine Tomkins; and the finance director Maurice Gallivan. They work for the MDU and MDUSL. Accountants work out the proportion of the executives’ time spent working for each branch and pay them accordingly.

The consequence is that the MDU’s accounts, to be considered next Tuesday at a meeting open to all members, show the highest paid director earning £229,000. Doctors and dentists might well assume that is the salary of Dr Saunders, but the calculations result in Dr Tomkins getting most from MDU.

The MDUSL pays the lion’s share of Dr Saunders’s salary. The Times has learnt that his full earnings this year will be £450,000. Of that, 80 per cent will be specified in MDUSL’s accounts; the balance, paid by MDU, is not in MDU’s accounts because it is assimilated into the total paid to all the mutual company’s directors.

The MDU’s motto is “Doctors for doctors”, but few doctors can hope to match these incomes. A GP earns about £83,000, a consultant £126,000 and a junior doctor just over £20,000.

The independent directors are members of the audit committee, whose duties include reviewing the annual financial statements before publication.

They proposed a modest change to the presentation of the accounts to improve transparency but not disclosing the exact payment to Dr Saunders. They suggested adding a note in the MDU accounts telling members that further remuneration for the executive directors was disclosed in the accounts of MDUSL. Any doctor could get these from Companies House.

The board rejected its audit committee’s advice, a rare and serious revolt in a boardroom. Dr Saunders said yesterday that the board had felt that the amendment would be misleading. Members might add up the two top salaries, assume that they went to one person and reach the wrong conclusion.

Mr Arnold had resigned in March expressing his concerns about the disclosure and levels of executive remuneration. The remaining three apparently felt that they had no choice but to follow. One is said to have described the matter as deplorable. The four issued a statement saying: “Our concerns are about transparency in relation to the disclosure of executive remuneration and about other aspects of good corporate governance practice.” They declined to comment further.

Dr Saunders said yesterday: “Of course we are disappointed that this has happened. Any suggestion that there is obfuscation is wrong. There are clear statements of accounts in the reports of these two companies.

“Of course we could do things differently but we are doing it appropriately, which accords with the advice of independent auditors. The suggestion that in some way the corporate governance of the company is faulty or not proper just doesn’t accord with the facts.”

Finbarr Fitzpatrick, secretary-general of the Irish Hospital Consultants’ Association, said: “The Medical Defence Union says it is run by doctors for doctors. When we see how they are not being transparent with their members it shows very scant regard for the founding philosophy.”

The four directors also felt it was wrong that the audit committee, which meets the MDU’s auditors privately, includes the chairman and deputy chairman of the organisation. Dr Saunders emphasised that the independents had held a majority on that committee.

They were also alarmed by a resolution proposed by the board for next Tuesday’s annual meeting. That motion suggests deleting Article 42 of the Articles of Association without stating what the passage contains. This is the guarantee that the board must include a minimum of three non-executive directors who are not members of the MDU, in other words independent watchdogs. Dr Saunders said that the reform also removed the obligation to have a minimum of seven MDU members on the board, a change designed to remove the distinction between different types of non-executive directors, he said.

The joint venture with the Swiss insurers has changed the MDU’s nature radically. The MDUSC now employs all 242 staff. The only employees of the MDU are the three executive directors. The MDUSC is regulated by the FSA but the MDU is not.

All the actions of the MDU and its auditors are within the law. A source said a problem with governing mutual organisations was that the members, who each have one vote, were too busy with their own jobs to provide much scrutiny. By contrast, companies’ actions are heavily policed by investors such as pension funds.


The 4th Baron became a whip in Margaret Thatcher’s Government in 1982 and went on to serve in four ministries, becoming Minister of State in the Scottish and Foreign Offices. An Old Etonian, he served with the 10th Royal Hussars, was commissioned, became a civilian helicopter pilot and is a commissioner of the Royal Hospital Chelsea. He was a senior executive of Hanson and consultant for British Aerospace and Imperial Tobacco Group. His alarm, in a Lords debate, at a European directive which threatening lead-based church organs was heartfelt; his hobbies in Who’s Who are choral singing and organ-playing

An internationally renowned corporate governance academic, he is former Dean of the City University Business School and founder Editor of Blackwell’s International Journal of Auditing. Now serves as Professor of Internal Auditing at London South Bank University and Visiting Professor in Internal Auditing at the University of Central England. He serves on the Corporate Governance Committee of The Institute of Chartered Accountants in England & Wales

An eminent life in the Civil Service took him to HM Treasury, the Ministry of Power and secondment to the Stock Exchange. He worked for 19 years at the Department of Trade and Industry and its predecessors which were responsible for corporate governance issues. His career culminated in his appointment as Permanent Secretary in the Cabinet Office from 1995-98. He is an independent national director of Times Newspapers Holdings and a member of the council of the University of Essex

One of Britain’s leading actuaries, his skills were particularly valuable on the board of a mutual organisation making provision for the risk of future claims against doctors and dentists. He acts as Appointed Actuary to several insurance companies and sits on the Board for Actuarial Standards. Known as Mike, he qualified as a Fellow of the Institute of Actuaries in 1973. He is head of the Life Practice at Milliman in London. Past appointments include two terms as a member of council of the institute, as well as chairman of both the UK and International Associations of Consulting Actuaries

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