Director Nominees Comprise Highly Respected and Recognized Leaders
in Governance, Insurance and Demutualizations and Capital Markets
TORONTO, April 13 /CNW/ - VC & Co. Advisory Limited, which is advising
the more than 100 mutual policyholders of Economical Mutual Insurance
Company seeking to replace its current board of directors, confirmed
today that its proxy circular and related materials have been sent to
all mutual policyholders of Economical. The proxy circular and related
documents can also be viewed and downloaded from www.concernedeconomical.com.
Economical's annual and special meeting is scheduled to take place on
May 26, 2011. In order to ensure that their YELLOW proxy is received in
time to be voted at the Meeting, mutual policyholders are asked to
return their proxies to VC&Co. well in advance of the May 13, 2011
In the circular, mutual policyholders are provided with compelling
reasons why significant change is required at Economical and why they
should use only the YELLOW form of proxy to elect a new board that
mutual policyholders can trust to finally protect their financial
interests and the interests of Economical.
The circular also outlines the track record of the current board and why
it cannot be trusted to protect the interests of mutual policyholders,
• the current board has never treated mutual policyholders like owners,
has concealed the value of the mutual policies and has made repeated
statements, including recently, that undermine and are inconsistent
with the ownership rights of mutual policyholders;
• the current board has consistently failed to deliver any value to
• the current board has always opposed demutualization and worked hard
to avoid it, and is only purporting to act now under the pressure of
the Policyholder Proposals initiative; and
• the current board has a longstanding track record of poor governance,
little transparency or accountability to mutual policyholders and
financial underperformance by Economical.
The circular also highlights the disappointing lack of progress that the
current board has made in the past four months towards its purported
demutualization plan, as well as their complete failure to provide
mutual policyholders with the "final recommendation" and "details and
schedule of the demutualization plan" which the current board
previously promised for the May 26, 2011 policyholders' meeting.
The circular also contains detailed information on the qualifications of
the Policyholder Nominees being proposed for election to the board,
including their biographies. The Policyholder Nominees include a former
Chair of the Ontario Securities Commission, a former Commissioner of
the RCMP and other executives with deep experience in the insurance
industry, including the former Executive Vice President and Chief
Investment Officer of The Canada Life Assurance Company at the time of
The Policyholder Nominees are:
J. Bruce Barraclough (Ontario, Canada)
Corporate Director; previously with Ernst & Young LLP for more than 37
Stanley M. Beck, Q.C. (Ontario, Canada)
President, Granville Arbitrations Limited and one of Canada's leading
governance experts; previously Chairman of the Ontario Securities
Kathryn A. Giffen
Corporate Director; previously senior executive in insurance and
financial services industry including President and Chief Operating
Officer of RBC Life Insurance
Norman D. Inkster (Ontario, Canada)
President, INKSTER Incorporated; previously Commissioner of the Royal
Canadian Mounted Police, President of Interpol and Global Managing
Partner of KPMG's international forensics practice
Kenneth W. Lalonde
Corporate Director; prior senior executive roles in insurance and
financial services sector including President and Chief Executive
Officer of The CUMIS Group Limited
Robert W. Morrison
Corporate Director; previously senior executive in insurance sector
including Senior Vice-President and Chief Investment Officer of The
Canada Life Assurance Company through its demutualization and initial
C. Ian Ross
Corporate Director; extensive board leadership, senior management and
transactional experience in broad range of sectors
Michael D. Woollcombe (Ontario, Canada)
Partner, Voorheis & Co. LLP, and Executive Vice-President, VC&Co.
Glen O. Wright
Corporate Director; highly experienced Waterloo businessman involved in
insurance and other industries who has played multitude of senior
executive and board leadership roles in both private and public sectors
In a letter sent to all mutual policyholders today, Michael D.
Woollcombe of VC & Co. Advisory Limited wrote, "The Policyholder
Nominees are committed to responsibly unlocking and delivering the
significant value of your mutual policy and, unlike the current board,
they collectively have the experience and expertise to get the job
done." He continued, "With an average value of more than $1 million
per mutual policyholder, you owe it to yourself to carefully consider
the issues and ensure that your vote counts."
The full text of the letter sent today to all mutual policyholders is
AN IMPORTANT MESSAGE TO ECONOMICAL'S MUTUAL POLICYHOLDERS
April 12, 2011
Dear Economical Mutual Policyholder,
We are VC & Co. Advisory Limited, which is in the business of providing
strategic and other advice to investors in undervalued, underperforming
or mismanaged Canadian public and private companies. We are currently
advising the more than 100 mutual policyholders of Economical Mutual
Insurance Company - your fellow owners - who submitted the Policyholder Proposals. We believe significant change
is required at Economical. The time is now to elect a new board that
you can trust to protect your financial interests and the interests of
Your mutual policy has significant value - we believe more than $1 million, on average. But to receive that value, you need a skilled, experienced and
trustworthy board of directors that is committed to your interests as
the owners of Economical.
The current board cannot be trusted to properly protect your interests:
the current board has never treated you like an owner and has concealed
the value of your policy;
the current board has consistently failed to deliver any value to you;
the current board has always opposed demutualization and worked hard to
avoid it, and is only purporting to act now under the pressure of the
Policyholder Proposals initiative; and
the current board has a longstanding track record of poor governance,
little transparency or accountability to you and financial
underperformance by Economical.
The Policyholder Nominees include highly respected leaders in their
respective fields, including a former Chair of the Ontario Securities
Commission, a former Commissioner of the RCMP and other executives with
deep experience in the insurance industry including the former Senior
Vice President and Chief Investment Officer of The Canada Life
Assurance Company at the time of its demutualization. The Policyholder
Nominees are committed to responsibly unlocking and delivering the
significant value of your mutual policy and, unlike the current board,
they collectively have the experience and expertise to get the job
Earlier this year, when faced with the prospect of a policyholder vote
on their performance, the current directors spent hundreds of thousands
of Economical's dollars pursuing litigation, all in a failed attempt to
keep you - the owners of Economical - from determining who should represent their interests.
Now, a Court has ordered Economical to hold the vote and give you a choice. This is your
opportunity to make a change for great purpose. Join the more than 100
other mutual policyholders who want a board that will protect
Economical and the interests of its owners. Vote your YELLOW proxy FOR replacing the current board.
The current board has undermined your ownership rights
The current board has demonstrated that it does not understand your
ownership rights and cannot be trusted to protect them. This was made
clear during the lawsuit Economical launched in January 2011 in an
attempt to prevent a vote on its leadership. During the course of this
Economical's lawyer told the Court that Economical's ownership structure
was akin to a private "golf club" where membership could be purchased,
but not sold or cashed in;
Economical's Chairman of the Board gave evidence that he didn't have a
view as to whether the mutual policyholders were the real owners of
Economical and had never expressed a view to Economical's board as "it
never came up"
evidence was provided that, as recently as last October, Economical's
Chairman of the Board expressly told a potential buyer of Economical
that no one (including the mutual policyholders) owns Economical but that the company is instead owned by the "community" and
Economical described the "ownership" relationship between Economical and
its mutual policyholders as merely "temporary" and characterized mutual
policyholders as "custodians of ownership for the next generation".
These statements undermine your ownership rights as a mutual
policyholder. They also undermine the current board's credibility when
it now asserts, in its materials trying to solicit your vote, that
Economical views the mutual policyholders as the "legitimate owners" of
Economical. This is an expedient reversal by the current board. How
can you trust them now?
We urge you to vote only your YELLOW proxy to replace the current board with the Policyholder Nominees who
are committed to recognizing your ownership rights and protecting your
The current board's reversal on demutualization
The current board has long opposed demutualization and for years worked
hard to avoid it. Now the current board claims to favour
demutualization in some form. This reversal was first announced to you
by way of a letter dated December 10, 2010, approximately one month
after the Policyholder Proposals initiative began.
The current board would like you to believe this reversal had nothing
whatsoever to do with the Policyholder Proposals. Consistent with
that, Economical's management proxy circular omits any disclosure about
the connection between the Policyholder Proposals and the formation of
Economical's Special Committee.
In fact, we believe the current board's recent conversion to
demutualization was taken out of expediency and self-preservation, and
was entirely due to the pressure of the Policyholder Proposals to
replace the board. Economical has repeatedly tried to hide this
linkage, a pattern dating back to last December.
You don't have to take our word for it; look at the facts learned in the
recent Court proceedings.
When was the Special Committee formed?
What the current board originally said
"The committee was formed to examine strategic alternatives about a
potential transaction several months ago" [emphasis added] said the board in a letter to you dated December 10,
In a sworn affidavit(1), Economical's Chairman Gerald Hooper admitted the Special Committee was
created on November 15, 2010, the very first business day after
Economical learned of the Policyholder Proposals and less than one month before the board's letter to you dated December 10, 2010.
Did the board know of the Policyholder Proposals when it created the
What the current board originally said
In January 2011(1) Chairman Hooper claimed that the Special Committee was formed "prior to
the directors of Economical being aware of any communications or
solicitation efforts by VC & Co."
In a December 14, 2010 communication to all Economical brokers,
Economical claimed that the Special Committee was formed "before VC &
Co.'s proposals became known."
In cross examination(2) Mr. Hooper admitted:
1. The current board in fact knew of the solicitation efforts by VC
& Co. before the Special Committee was formed.
2. The notice calling the November 15, 2010 board meeting at which
the Special Committee was formed was sent on November 12, 2010, the
same day that the first newspaper advertisement in respect of the
Policyholder Proposals initiative appeared in The Globe and Mail.
3. The meeting notice attached a copy of the advertisement and
stated: "Gerry Hooper would like you to participate in a conference
call … regarding an item in today's Globe and Mail…[PDF attached]".
(1) Gerald Hooper affidavit dated January 12, 2011.
(2) Cross examination of Gerald Hooper, February 28, 2011.
We also learned in the Court proceedings that Economical's board had for
years ignored the recommendations of management (led by Economical's
former President and Chief Executive Officer, Noel Walpole) that
Economical should demutualize. And yet, between the November 15, 2010
creation of the Special Committee and the December 14, 2010
demutualization announcement, the board did not even consult with Mr.
Walpole in the course of its deliberations, even though he remained
President and Chief Executive Officer.
We also learned through the Court proceedings that the current board was
working to double the number of mutual policyholders right up until the
Policyholder Proposals initiative became public, so as to dilute your
voting interest and ensure that Economical remained structured as a
The board's efforts were deliberate. Minutes from an October 28, 2009
board meeting reflect board deliberations about ensuring that
Economical remained a mutual for "generations." Minutes from a
February 24, 2010 board meeting describe an initiative to recruit
"policyholders who are believed to support the continuation of the
Company as a mutual company."
Clearly, the board had considered demutualization, rejected it, and was
actively seeking to implement a plan to frustrate any ability for you
to elect a new board that would better protect your interests.
You, the owners of Economical, were never told about this. Instead you
were told, in the board's communications last December, that the board
had suddenly determined that demutualization would benefit Economical,
and that "the Board has instituted a moratorium on the issuing of new
mutual insurance policies."
Given these facts, do you really believe that the board's reversal had
nothing to do with the pressure of the Policyholder Proposals? If you
do not vote to replace the current board at the Meeting, that pressure
will be gone, and the same board that never wanted to demutualize will
be left in control of your company's future.
Where is the demutualization plan?
Economical announced its intention to pursue demutualization four months
ago, committing that it would "expedite" its process and "present a final recommendation as well as the details and schedule of the demutualization plan no later than the next annual meeting scheduled for May 26, 2011."
Since then, Economical has sent you numerous "Progress Updates" on its
demutualization plan. They all, however, share one thing in common -
they show little tangible progress being made.
Now, in their management proxy circular soliciting your vote for the
Meeting, the current board claims over and over again that "significant
progress" has been made towards demutualization, but provides no
details to back up those claims. In fact, little progress has been
made towards demutualization over the past four months, while the board
instead chose to focus on litigation strategies to avoid a vote on the
Policyholder Proposals at the Meeting.
Further, contrary to what they promised you four months ago, the current
board now asks for your vote but includes in their management proxy
circular no "final recommendation" or even any attempt to outline "the
details and schedule of the demutualization plan". The current board
also provides no guidance whatsoever with respect to what it believes
is the approximate value of your mutual policy. Instead, they ask for
blind trust in a circumstance where they have not earned it.
We urge you to carefully scrutinize the board's claims regarding
"significant progress" towards demutualization, and not to accept more
abstract promises, platitudes and excuses. You deserve better. You
The current board's lack of transparency
Good governance starts with transparency. Ask yourself: prior to the
Policyholder Proposals initiative, when was the last time you heard
from the current board regarding your rights and entitlements as a
The current board should have provided you years ago with the basic
information you needed to properly understand your entitlements as a
mutual policyholder. But they chose to keep you in the dark. Can you
imagine owning shares in a company that refused to tell you what those
shares were worth or give you the information necessary to determine
The current directors have long maintained a policy of not disclosing to
mutual policyholders even the approximate number of mutual policies in
existence, making it impossible for you to assess the value of your
Only after we began publicly expressing our own estimate did the current
board finally acknowledge, in December 2010, that there were
"approximately 1,000" mutual policies in existence. Even today, the
current board has still not disclosed the exact number of mutual
policies. Why have they been keeping this critical piece of information
from Economical's owners?
In a further clear sign that the current board only reacts under
pressure, compare the disclosure on director and executive compensation
in this year's management proxy circular to what you received in prior
years. This was the first year the current board has chosen to
disclose how - and how much - they pay themselves.
The Policyholder Nominees are committed to reporting to you - the owners
of Economical - in a timely, accurate and transparent basis so you can
hold your directors to account.
The current board's lack of accountability
Good governance requires accountability. The current directors have
demonstrated that they do not believe they should be accountable to
The objective of the Policyholder Proposals is to give mutual
policyholders the opportunity to replace the current board if you wish
to do so. From inception, the current board has waged a fierce campaign
to prevent a vote on its leadership, spending untold hundreds of
thousands of dollars of your company's money in the process.
The current board has also long hidden from the concept of director
accountability by maintaining Economical's staggered board terms, where
each director is elected for a three-year term, with only one-third of
the directors up for re-election each year. Staggered board terms are
broadly seen as serving primarily the interests of poorly performing
directors by protecting them from having to face re-election on an
annual basis. Most properly governed companies eliminated staggered
boards many years ago.
We believe that director accountability ultimately flows from your power
to elect and remove directors. If the Policyholder Nominees are
elected at the Meeting, they intend to amend Economical's by-laws such
that every one of them is required to stand for re-election, and be
accountable to you, at each and every annual policyholders' meeting
Economical's financial underperformance - the legacy of the current
The current board has recently highlighted what it described as the
"significant improvement" in Economical's financial results for the
year ended December 31, 2010. This is nothing but spin. Do not be
misled. Economical's financial performance only appears to be improving
when compared to Economical's very poor 2008 and 2009 financial
In fact, under the current board's watch, Economical generated a net
loss during 2008 of $102 million and net income during 2009 of only $24
million. As well, Economical's net income during 2010 was still less
than half of its average net income of approximately $140 million
during each of 2005, 2006 and 2007.
Economical's board may try to blame the company's poor financial
performance on the recession or other external factors, but the facts
do not support that argument either. As shown on page 6 of this
Circular, Economical has consistently underperformed its industry peers
by a wide margin over each of the past five years. If Economical's
cost performance (as reflected by its Combined Ratio) had simply met
the average of its peer group over these five years, Economical would have generated incremental
pre-tax income over this period aggregating approximately $460
million. The current board should be held accountable for this
As Economical's owners, you need a board that will ensure Economical
operates to its full potential. Economical has a dedicated base of
employees and a vital broker network. With a strong, experienced and
credible board - the Policyholder Nominees - Economical's future can be
Economical's misleading claims about fees and Westaim
To distract you from the absence of any tangible progress to report
towards demutualization, Economical devotes much of its management
proxy circular to misleading claims around VC&Co.'s fees and The
Westaim Corporation. Permit us to set the record straight.
VC&Co.'s interests are fully aligned with those of mutual
policyholders. Our fee arrangement with the approximately 100 mutual
policyholders who have entered into an agreement with us is that those
individual mutual policyholders will pay us 12.5% of what they
ultimately receive in respect of their mutual policies, if, as and when
they receive it. These arrangements, which are fully described at
pages 16 to 18 of the Circular, reflect the fact that no mutual
policyholder on their own could accomplish the change to the board
collectively being sought, which was correctly anticipated to be
fiercely resisted by the current board using Economical's own financial
resources against the interests of its mutual policyholders.
Mutual policyholders who support changing the board and electing the
Policyholder Nominees at the Meeting are not being asked to sign any agreement with us, and will have no financial obligation whatsoever to VC&Co. Instead, the approximately 100 mutual policyholders who previously
entered into an agreement with VC&Co. are effectively shouldering the
financial burden for the benefit of all mutual policyholders.
As a matter of fairness to those approximately 100 mutual policyholders,
in the event that the board is reconstituted at the Meeting, VC&Co.
will ask the new board to consider having Economical assume the costs
of effecting this change. The new board will consider this request in
accordance with its fiduciary obligations to Economical. If approved,
the amount that would otherwise have been paid by those approximately
100 mutual policyholders would be paid by Economical if, as and when
such amount ever became payable, with the effect that the indirect cost
to all mutual policyholders would be approximately 1.25%.
We encourage you not to be misled by Economical's claims in respect of
fees. We are highly confident that, under the leadership of the
Policyholder Nominees, the incremental value that you will receive in
respect of your mutual policy will far exceed the approximately 1.25% that Economical could end up paying to VC&Co. if the new board were to assume those obligations.
In the management proxy circular, the current board also makes a number
of misleading claims in relation to VC&Co. and its history with
Westaim, repeating many of the same unsubstantiated and untrue
allegations it unsuccessfully advanced in the context of the recent
Contrary to the claims of the current board, the Policyholder Proposals
initiative has been pursued, and continues to be pursued, solely on
behalf of the mutual policyholders who submitted the Policyholder
Proposals. Further, neither VC&Co. nor any related entity nor any of
their respective principals has any ongoing relationship or ties
whatsoever to Westaim, or to any potential buyer, investor or other
interested party, related to Economical. While an entity related to
VC&Co. provided legal advice for a period of time to Westaim related to
Economical, that involvement with Westaim ended, as the evidence in the
Court proceedings made abundantly clear, prior to VC&Co. beginning the
Policyholder Proposals initiative. There simply is no continuing
relationship or involvement of any nature between VC&Co. and Westaim
related to Economical.
The current board's claims in relation to Westaim are unfounded scare
tactics. If elected, all of the Policyholder Nominees would owe their
duties to Economical. The suggestion that the new board would pursue
an improvident transaction with any party, or that VC&Co. would
encourage them to do so against its own financial interests and the
interests of the mutual policyholders it is engaged to protect, or that
you the mutual policyholders would ultimately approve any such
transaction, defies common sense. The suggestion is neither credible
nor worthy of Economical.
Moving to a brighter future - the Policyholder Nominees are the right
board for Economical
With an average value of more than $1 million per mutual policyholder,
you owe it to yourself to carefully consider the issues and ensure that
your vote counts. We do not think you can rely on the current board,
with its long-term commitment to the mutual structure, its sudden and
expedient reversal in the face of pressure, and its track record of
poor governance and little transparency or accountability.
The road ahead involves a complex process. It will only result in a
positive outcome for you, and all Economical stakeholders, if it is
carefully overseen and directed by an experienced and credible board of
directors that is committed to your interests.
The Policyholder Nominees are well known, experienced and trusted
business leaders who you can rely on to make the right decisions for
you, and restore the credibility of Economical's board. We encourage
you to take the time to carefully review their qualifications and
experience, which are outlined on pages 12 to 15 of the Circular. Far
from delaying the process of addressing Economical's structural issues
and unlocking value for you, the election of the Policyholder Nominees
will accelerate this process as all parties will know that the new
board is committed to what it is saying and resolved to move forward.
The election of the Policyholder Nominees will also start the process
of once again making Economical a place where employees can be proud of
where they work rather than embarrassed by the actions of their board.
The Policyholder Nominees, if elected at the Meeting, are committed to
an inclusive process and will openly and regularly consult with and
seek the views of all interested stakeholder groups as Economical moves
forward. To facilitate that, they will establish a Special Advisory
Committee of mutual policyholders and retirees. Mr. Charles R.
Appleton, a retiree from Economical after more than 25 years service
and one of the mutual policyholders who supported the Policyholder
Proposals, has agreed to Chair that Special Advisory Committee. See
"Removal and Election of Directors - Special Advisory Committee" below.
Economical is not a private "golf club". It is a company with
significant potential, but one that has been poorly governed for too
long. You can change that at the Meeting by electing the Policyholder
Nominees. This change will serve a fundamentally important purpose,
ensuring that your financial interests are protected and building a
better Economical going forward.
Complete your YELLOW proxy today
We believe the choice is clear.
The current board has always worked to maintain Economical under its
mutual structure and has never well-served your interests. They have
not earned your trust.
The Policyholder Nominees will bring a fresh perspective, deep
experience and trusted reputations, and the commitment and credibility
needed to execute and deliver value to you.
We urge you to carefully read this Circular, complete and sign only the
enclosed YELLOW proxy and return it to us. Your YELLOW proxy must be received by us no later than May 13, 2011 in order to be deposited in time to be used at the upcoming Meeting.
Return your YELLOW proxy to us in any of the following ways:
mail it in the enclosed postage paid return envelope or, if you are
sending it after May 6, 2011, telephone us at 416-864-2274 and we will
arrange for a courier or personal pick-up; or
fax it to us at 416-947-1256; or
email it as a scanned attachment to firstname.lastname@example.org.
Please take the time to do this NOW to ensure it is received in time to
be voted at the Meeting.
Even if you have previously signed a form of proxy in support of the
current board - the more recently dated YELLOW proxy automatically revokes the earlier one so please complete the YELLOW proxy today.
If you have any questions concerning this Circular, or in connection
with the completion and delivery of your YELLOW proxy, or would just like to share your perspective regarding
Economical, please telephone either Michael D. Woollcombe or Shane A.
Priemer of VC & Co. Advisory Limited at 416-864-2274. We would very
much welcome the chance to speak to you. We also invite you to visit
our website that is dedicated to this initiative at www.concernedeconomical.com.
In order to ensure that you receive important timely information and
updates from us as this process moves forward, we also encourage you to
provide us with your email or preferred contact coordinates. You can
provide us with that contact information either through the "Stay
Informed" page on our website, by email to email@example.com or by telephone at 416-864-2274.
VC & Co. Advisory Limited
"Michael D. Woollcombe"
MICHAEL D. WOOLLCOMBE
For further information:
Michael D. Woollcombe
Executive Vice-President, VC & Co. Advisory Limited
Client Partner, Longview Communications Inc.