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Why Building Societies are Not Democratic

August 4, 2013

Update 6 August: I had not realised how bad things were at Nationwide, see below.

Update on alleged misselling 14 Feb 2014.

Building Societies were originally set up so that ordinary working people could save what they could, thus creating a fund from which mortgages could be granted to members. They were (and still theoretically are) owned by members – one member one vote. Mrs Thatcher gave them the right to demutualise, and some big ones including the Halifax and Abbey National did. Others remained mutual and introduced measures to discourage carpet baggers, but in whose interests are they run? By law the multiple X vote is used to elect directors. In practice what happens is that the board nominates exactly as many candidates as there are vacancies to fill. Usually there are no other candidates. If there are any member nominated candidates, they have a mountain to climb to get elected. The board’s wording sometimes suggests that you have to use all your X votes. This is not the case as they will concede if you challenge them. The only way a member nominated candidate could succeed is if his or her supporters vote ONLY for him or her. Needless to say no member nominated candidate has ever been elected to the board of Nationwide for example. They are not democracies but self perpetuating oligarchies.

Building societies are now much more like banks than formerly. They offer current accounts for example. However they are different in degree. Whilst loans are no longer funded solely by members’ savings and deposits, they are largely so funded. The one that went for short term money market funding in a big way – Northern Rock – came a cropper. Given the excesses of the big banks with their increasing emphasis on investment banking, leading to the 2008 crash, there is surely a case for strengthening the building society sector. Logic suggests that as there are no dividends to pay, members should get better value for money than banks’ retail customers. There is no clear evidence of this, and directors certainly pay themselves well. Governance needs to be improved; directors need to be held to account.

One obvious reform is that the board should be elected by Single Transferable Vote. This would give members much more chance of electing someone they (rather than the board) had nominated, if they were not completely satisfied with the performance of the current board. Under this system voters place candidates in order of preference. Each vote is initially assigned to the candidate of first preference. If that candidates already has enough votes to secure election, or has no hope of election, then the vote is reassigned to the next preference, and so on until the requisite number of candidates have been elected. Plenty of organisations use this system. 192 are listed at, but am I sure this is an underestimate.

So why don’t Building Societies use this system? The short answer is that the law does not allow it; multiple X vote is prescribed. But if you ask the government why they don’t modernise the legislation, they say that the Building Societies
Association is happy with things as they are. Too right they are. They have a nice little earner; they can hand out directorships to their friends. Turkeys don’t vote for Christmas. And of course there is the other reason why change is not contemplated; the government would have to acknowledge that there is a a better system than first-past-the-post.

For more on Building Societies visit:

When writing the above I had not realised just how bad things were at Nationwide. The following links obtained via Building Societies Members Association:


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