A whole new set of moves

The traditional image of the high street insurance broker is one of a family business owned, run and dominated by a single personality that makes the decisions about the day-to-day running and long-term future of the company. These are the type of operations where consideration of the structure of the board, the division of responsibilities within the board and the technical structure of the broker into component companies are often not significant issues.

We all know long-standing, friendly businesses where 'management' is almost a dirty word and where operational difficulties go as far as concern over the decision when next to decorate. These businesses are alive and well and continue to thrive. As one senior manager recounted: "I saw one broker the other day and asked about his business plans. He said to me that his business plan was to sit in the office and see who comes though the door. Many of us were like that 20 years ago, but larger brokers have to be more business-like and, although everybody knocks the Financial Services Authority, its desire for greater professionalism is good for broking."

Beyond the door

He is right. The attitude of 'wait and see' may be marginally more appropriate for small businesses, but for any decent-sized UK insurance broker in 2008 the reality is different, as issues such as the composition of the board have become serious matters in the wake of statutory regulation. At the bottom, management structure and directors' responsibilities are no longer for an individual broker to decide; instead the regulators and the wider currents of financial transparency are driving them.

Look at any of the really successful broking operations in the UK. You will find a sophisticated setup where issues of operational risk have been considered and where board-level responsibilities are demarcated clearly. In many ways this is to the industry's credit, as some of these changes are not strict requirements as one would expect of a publicly listed company; they are self-imposed changes made by companies as part of a trend towards greater professionalism.

Oliver Lodge, a partner at financial consultancy Kinetic Partners, commented: "Brokers have begun to focus on corporate governance and senior management responsibilities. The management has moved from a slightly amateur approach where these people would have been brokers 75% of the time and directors for 25% of it."

Delegation

Jon Wade is operations director at Birmingham-based independent commercial broker Perkins Slade, where there is a board of eight people with a chairman and a chief executive. On the surface it is fairly traditional, with the chairman managing the board and keeping in touch with clients while the chief executive officer makes sure directors and associate directors keep up with the day job. It has directors with responsibilities: the South, Birmingham, specific business development director, someone to look after the sports division and, in addition, a financial director.

But even at Perkins Slade there have been moves that typify the way many brokers are changing. Wade said: "What's different here is that we have an operations director. If it's to do with finance then it goes to the financial director, and if it's to do with insurance then there are dozens of people to address it. However, if it's something else such as premises, marketing and process management then that's my responsibility."

Such a position could now be considered as de rigueur for brokers as it is for most City companies. Wade commented: "As the business gets tougher, with competition for finding clients, growing revenue and finding repeat business, you have to have focus. The FSA requirement of a chief executive to have 'apportionment and oversight' means that they must agree on who is responsible for what."

Senior managerial changes have not ended at the boardroom door, he added: "I created the role of associate director to cultivate strategic decisions, help directors implement them and take on responsibilities including e-commerce, broking strategy and corporate client delivery. These guys are here to fit between managers and the board."

It's at the structural level that some of the most fundamental reforms have taken place in recent years, according to Ian Richens, director of affinity and schemes at the Bollington Group: "Companies are restructuring and forming holding companies that they transfer goodwill into, and these holding companies are not regulated by or registered with the FSA.

"Then they have their trading companies, which are regulated. This hasn't happened for all insurance brokers, but it seems to be the trend for everyone regardless of size because goodwill appears to be a problem for so many."

Brokers that would have considered themselves able to decide their strategy by themselves are now increasingly amenable to outside influence. Richens continued: "A number of non-executive directors have been appointed, so they have more outside influences on their operations and strategy. Non-executive directors give a different dimension."

Despite changes at board level among some of the UK's larger brokers, many are happy to continue with a very traditional model, as Valerie Stewart, who heads successful Edinburgh-based broker EH Ranson, explained: "The business is owned by my father, Simon Bolam. He has been a sole trader since 1971, so we don't have a board of directors. Dad handed the reigns to me two-and-a-half years ago, but the rules for a sole trader are different from those of a (limited) company.

"We haven't had to change our management structure in the three years since regulation by the FSA came in; it's all been fine here and it's working really well."

BOARDROOM BASICS

- Have clearly demarcated responsibilities

- Do not make your board too big

- Consider creating associate directors

- Do not muddle your objectives

- Consider creating a holding company

BOARD LEVEL STRUCTURE AND RESPONSIBILITIES

AIM-listed Cobra Holdings includes an underwriting agency in addition to its retail and wholesale broking subsidiaries. It is representative of the increasing complexity of the modern UK insurance broker, with a spread of businesses contained under the umbrella of a single holding company.

Cobra's board structure:

- A division of responsibility between the chairman and the chief executive; the board comprises five directors of whom three are independent non-executive directors. None of the non-executive directors have day-to-day involvement in the company.

- The board is responsible for strategy, approval of major projects and significant financing matters.

- The directors have access to the advice and services of the company secretary as well as independent professional advice.

- A share-dealing code imposes restrictions on the directors, members of their families and employees of the company, or the group likely to be in possession of unpublished price-sensitive information.

- There is an audit committee, a remuneration committee and a nomination committee. The members of the audit and remuneration committees are the non-executive directors.