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.

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