Baroness Bowles of Berkhamsted, speaking in support of Amendment 142E

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• Amendment 142E to the Financial Services and Markets Bill [HL]
• Peers question whether building society governance law is fit for purpose – “not acceptable” that societies “can fiddle who gets onto the Board”
• Watch the video instead on ParliamentLive.TV

“My Lords, building societies occupy a unique place in the United Kingdom’s financial system. Unlike banks, they are not owned by external shareholders; they are owned by their members. That distinction is fundamental. It means that the legitimacy of a building society rests not only upon prudent management and financial soundness but also upon effective member democracy.

“The Building Societies Act 1986 established the statutory framework for that democracy. It has served the sector well for many years. However, Parliament has not stood still. During the four decades since the Act was passed, this House and the other place have progressively strengthened governance standards in many comparable areas of law—I mean company law, obviously.

“For quoted companies, Parliament introduced binding shareholder votes on remuneration policy through the Enterprise and Regulatory Reform Act 2013. For occupational pension schemes, Parliament has required member representation on trustee boards. For statutory elections in trade unions, Parliament has established detailed protections to ensure that elections are conducted fairly, that candidates are treated equally and that election addresses are not altered without consent.

“Building societies, however, remain governed largely by a statutory framework dating from 1986 that has not developed in a similar way.

“My amendment does not seek to transplant those other regimes wholesale, nor to interfere with the independence of boards or with the mutual model itself—quite the opposite.

“The amendment is intended to strengthen confidence in mutuality by ensuring that members enjoy democratic protections comparable to those that Parliament has already recognised elsewhere.

“The amendment is also deliberately framed as an enabling provision. Rather that attempting to prescribe detailed rules in primary legislation, it would require His Majesty’s Treasury to make regulations requiring the Financial Conduct Authority to establish minimum governance standards for authorised building societies. The FCA is plainly the appropriate body to consult on and develop those detailed standards.

“This amendment identifies a number of areas where minimum standards should exist.

“The first is elections. Members should be able to choose between candidates through elections that are demonstrably fair. Candidates should be treated equally and have equal opportunity to communicate with members, and independent scrutineers should operate to consistent statutory standards.

“The second area is voting arrangements. The amendment would require voting procedures that ensure that members determine their voting instructions independently for each resolution. Modern electronic voting should, of course, continue. Boards should continue to make recommendations. Proxy voting should continue. Nothing in the amendment prevents any of that, but it seeks to prevent voting arrangements that diminish independent member choice by combining multiple decisions into a single instruction.

“The ‘quick vote’ option is a good example: it enables a member to cast all their votes exactly as the board recommends in one action, before they have seen any of the candidates or the resolutions. That is bundled blind voting, not independent decision-making . Even proxy voting agencies in listed company markets, which handle thousands of resolutions, require investors to adopt an informed voting policy and allow them to override recommendations; they do not encourage blind, pre-selected voting.

Instead of encouraging people to ‘Quick Vote‘, should boards not instead encourage voters to take their time, consider the options and exercise their democratic right in a considered manner? In other words, should boards not be asking people to ‘Slow Vote” instead?

The third area is executive remuneration. Parliament has already decided that shareholders of quoted companies should have a binding vote on remuneration policy. Building societies have members rather than shareholders, but it is therefore entirely reasonable to ask whether members should enjoy comparable rights in relation to executive remuneration.

The fourth area is member representation. The amendment proposes minimum member-nominated representation on the boards of the largest building societies. That is not a proposal for representative directors; any member-nominated director would owe exactly the same statutory and fiduciary duties to the society as every other director. Rather, it recognises that democratic representation has become an accepted feature of governance in other member-based institutions, including occupational pension schemes.

The final area is annual general meetings. Technology should widen rather than reduce accountability. Hybrid meetings should therefore preserve both digital participation and the opportunity for members to attend and question boards in person.

I anticipate that some may ask whether legislation is necessary. I suggest that it is at least timely for Parliament to consider the question. Recent Parliamentary Questions have asked the Government whether they intend to review the governance framework for building societies, and the answer has been that there are currently no such plans.

The Committee may be aware that concerns have recently been raised regarding the conduct of elections within one of the UK’s largest building societies. I do not intend to comment on the particulars of that case, but it has highlighted the wider question of whether the current statutory framework provides sufficient safeguards for members and candidates. Those wider questions are what this amendment seeks to address.

Baroness Bowles of Berhamsted

The amendment therefore provides an opportunity for Parliament to consider whether the framework established in 1986 remains adequate for today’s mutual sector.

I emphasise again: this amendment does not prescribe detailed rules, alter the mutual ownership model or affect prudential regulation; it simply asks that the governance standards applicable to member-owned financial institutions should be reviewed in the light of standards that Parliament has adopted elsewhere over the past 40 years.

Strong member democracy strengthens confidence in mutuality.

Strong governance strengthens confidence in mutual institutions.

I therefore hope that the Minister will give careful consideration to this amendment. If he is unable to accept it today, I hope he will explain how the Government intend to ensure that the democratic governance framework for building societies keeps pace with modern expectations.

I beg to move.