Building societies have been an essential part of the UK mortgage market for almost 250 years. Building societies have no shareholders, and should act in the interests of their members, with key matters put to a member vote. But recently it appears that these once safe, conservative institutions – focused on offering mortgages financed by member deposits – are at risk of becoming more like banks. Make your vote count at your building society’s AGM this July – if you’re a customer, you’re a member – and have your say on these once-in-a-generation changes affecting the sector.
26 million people in the UK are members of a building society. Membership grants you the right to vote on important matters and this is what makes societies accountable to their members. The founding democratic ethos of these societies is “one member, one vote” – so it doesn’t matter if you are rich or poor, everyone has the same voting power.
Building societies are supposed to be simple and safe financial institutions, with their main purpose to offer mortgages to help people own their home, funded by member deposits. As there are no shareholders, any profits should be paid back to the members: as a dividend, through better prices, or by providing higher quality products and services.
However, two recent examples have shown some worrying cracks in the very foundations of the building society model. This year, two of the largest building societies are planning to acquire smaller banks without offering members a say, which circumvents the law. Nationwide – the biggest building society in the country with 16 million members and the provider of more than one in ten mortgages – is planning to buy Virgin Money (previously the Clydesdale & Yorkshire Banking Group and the now defunct Northern Rock).
The tests in Section 92A of the Building Societies Act (1986) stipulate that the acquisition should be put to a member vote: if the consideration value is greater than 15% of members’ equity, and if the target makes less than 50% of its income from mortgages. The proposed takeover of Virgin Money fits the criteria for a member ballot under law. However, the society’s board is denying members a vote, on the basis of legal and financial advice that has not been shared and therefore cannot be scrutinised by the membership. It is not clear that this decision is morally or legally safe.
Nationwide has also gone even further to disenfranchise its members, denying a recent request for a Special General Meeting to propose a resolution that the acquisition may only proceed if approved by a member vote. The society secretary deemed the request not valid, reserving the decision on whether to hold a vote solely for the board.
Without members being able to vote on the proposed acquisition, no one, apart from perhaps regulators, can challenge the deal and hold Nationwide to account. This sets a dangerous precedent, as this organisation is effectively now becoming an autocracy, rather than the democracy it was designed to be.
If this trend continues, it is important to question in whose interests the society is acting: its 16 million members, or the management team and board?
Building societies, and mutuals more broadly, are critical to the healthy functioning of the financial services sector. Mutuals provide an effective check and balance through competition, limiting the excesses of commercial banks that are otherwise focused purely on profit-maximising activities for their shareholders.
Mutuals are an important source of innovation: they can use their patient, member capital to develop new products and services. For example, the ability to make your mortgage portable – to transfer it from one house to the next if you move – is an innovation that building societies supported and commercial banks had to replicate in order to remain competitive. Building societies often top the tables for the best rates for mortgages and savings.
Further evidence for the balance mutuals bring can be found when comparing the size of the co-operative banking sector to the number of complaints per capita referred to the ombudsman across different European countries. Analysis by management consultancy Oliver Wyman, in its 2008 report, Co-operative Bank: Customer Champion, showed that as the relative size of a country’s co-operative sector increases, the number of customer complaints decreases.
The society’s board is denying members a vote, on the basis of legal and financial advice that has not been shared and therefore cannot be scrutinised by the membership
Therefore the proposed takeovers of commercial banks by building societies raises a number of concerns. Would any culture clash between the two merged organisations erode the focus on doing what’s best for the customer-owners? Would the work of integration and restructuring result in a distracted, less competitive combined organisation – resulting in more expensive mortgages during a cost of living crisis? Might more people lose their homes as a result of these proposed takeovers?
Support has been growing for a grassroots campaign to “Give Nationwide Members a Say on the purchase of Virgin Money.” What started as a simple petition (now with over 5,000 signatories) has grown into a movement, with supporters taking direct action to protest the lack of a vote, seeking publicity for the cause across local and national media and, ultimately, to bring about a change of heart within the society.
While the campaign’s attempt at a Special General Meeting in April was thwarted by the society, the campaign is preparing further challenges to the takeover progressing without a member vote. For example, Nationwide’s Annual General Meeting (AGM) is due to take place on 17th July, and will provide a critical opportunity to challenge the society on the proposed acquisition, which isn’t expected to be completed until October at the earliest.
Usually at the AGM, a set of resolutions is put to a vote by the membership, as well as (re-)election of board members. At the 2023 AGM, only 3% of the 16 million eligible members voted, with over 90% voting in favour of the board and its recommendations. Many members take advantage of an electronic ‘Quick Vote’ option, typically sent to society members via email the month before the meeting (i.e. in June). While touted as a ‘convenience’ for voters, it simply transfers the member’s votes to the Chair to vote “For” the recommended resolutions and re-elections of board members without further scrutiny or challenge. So the concern is that this option undermines the supposedly democratic nature of the building society and the strength of its governance model.
The campaign is therefore seeking to re-invigorate the membership ahead of the 2024 AGM, and asking members to ensure they vote and consider carefully how they vote given recent developments. The campaign is recommending supporters vote “Against” all resolutions and re-elections in protest to the way members have been treated.
To follow the campaign, visit nationwide-virgin-money-member-vote.org.uk
Written by Mikael Armstrong on behalf of the Campaign to Give Nationwide Members a Say on the Purchase of Virgin Money.
