Building societies, mutuality and member democracy

This article by Andrew Bibby, in a slightly different form, was first published in the Observer, 2001

2001 is promising to bring a sharper edge to the rumbling debate within Britain’s remaining building societies about how exactly to demonstrate that they are owned by their members.

From the mighty Nationwide to the little (but very right-on) Ecology, building society Boards are preaching the advantages which come from mutuality. Unlike nasty plcs, member-owned building societies can concentrate on delivering good value services to their customers, unconstrained by the need to produce dividends.

The difficulty with this emphasis on mutuality, however, is what it all means in practice. The Boards of two of the larger societies, the Portman and the Chelsea, are currently working out how to respond to unwelcome member attention, from two very different directions - what could be loosely described as the greedy grabbers and the dogged democrats. The Chelsea is facing a traditional carpet-bagging assault from members attracted by the glint of yet another demutualisation pay-out. The Portman, on the other hand, has received a set of resolutions from a group calling itself Mutual Members, calling for greater member democracy and control by members of directors’ pay. Ironically, the Mutual Members initiative is partly the consequence of the society’s expulsion of pro-demutualisation members last year.

The Nationwide faces challenges from both directions. Although one leading carpetbagger, Northern Ireland plumber Stephen Major, announced last week that he would not continue to target the Nationwide, the society’s Board is resigned to the likely prospect of another vote on demutualisation in the summer [2001]. Meanwhile, Taunton member and district councillor Alan Debenham hopes to try for a fourth year to get himself elected as a "members’ representative" to the Nationwide Board. As he put it last year, "I am the only candidate who has stood for long hours outside a branch office collecting nominating members’ signatures, demonstrating real membership participation and opposition to Boardroom self-perpetuation". The Nationwide has been criticised for a ballot paper which separates Mr Debenham’s name from that of other, Board-approved, candidates.

The best way to select building societies’ non-executive directors — the people who, in theory at least, are chosen by the membership but who many would argue have been traditionally recruited via cosy old boys’ networks — has been the focus of debate recently at the Norwich and Peterborough. N&P’s existing directors were joined for the first time at their December meeting by two new non-executive directors, recruited by means of locally placed newspaper adverts. The two recruits are Geoff Loades, an accountant who recently retired as Norwich Union’s personnel director. and Zara Hammond, a Norwich magistrate with a strong voluntary sector background.

The Norwich and Peterborough’s advertisements attracted as many as 210 would-be candidates for the directorships, which involve monthly Board meetings and carry an annual remuneration of £18,000. According to Matthew Bullock, N&P’s chief executive, the idea of advertising for candidates — who had to live and work in East Anglia or Lincolnshire - was designed to strengthen the society’s links with its core community. "My Board is a strong Board, but it tends to have a London feel to it," he says.

N&P’s strategy in advertising for directors copied that adopted by another East Anglian building society, the Cambridge, and is seen by Matthew Bullock as a step forward in building the society’s accountability to its community. He has also instituted a regular series of meetings with members, when he and other senior colleagues travel each month to a town where the society has branches. Even though the provided sandwiches are shared — on a good night — with no more than about a dozen members, he argues that the meetings are valuable. "It’s important to talk to the society’s owners. I think it’s a good use of my time," he says.

Nevertheless — and with the important proviso that N&P’s Board has now doubled its representation by women - it could be argued that, despite the adverts, the society has ended up with exactly the sort of non-executive directors it would have found through the time-honoured quiet word-in-the-ear way of doing things . Matthew Bullock says that it is unrealistic to expect someone with no professional experience to be able to operate effectively as a non-executive director: "We are quite a big business. You’ve got to know how to handle yourself in the Board, if you’re going to be effective," he says. He argues that the direct approach to democracy, as represented by the idea of member-nominated candidates, doesn’t necessarily increase accountability. "It’s a bit of a romantic notion. Who do they represent?"

However, the hard work of collecting valid nominations and taking on the official Board candidates can sometimes pay off. The Nationwide is unusual in having two current Board members who were originally rebel candidates. One, Paul Twyman, was eventually invited to join the Anglia building society board in 1982 before its Nationwide merger, after five unsuccessful attempts to win election. He is up for re-election this summer [2001], this time with the Board’s blessing.

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