Letter: Mutual confidence

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The Independent Culture
Sir: Andrew Verity's report "Hewitt snubs societies' bid for protection" (7 January) quotes rather selectively from an interview I gave on the Today programme on 6 January. This letter aims to set out more fully what needs to happen before a building society can convert to a plc.

What differentiates mutual societies from other organisations is that they are run for the benefit of their members (rather than external shareholders) each of whom has a vote, and that their boards are answerable to those members. So I do not think we ought to be surprised, or worried, if, from time to time, members want to put down resolutions about a society's future. But a pro-conversion resolution tabled by members is (if passed) only one possible first stage in a much longer process. None of the societies that have converted, or been taken over, in recent years has started down that road on the basis of a members' resolution.

For such a resolution to be carried over half of those voting have to vote in favour. If such a resolution were to be passed -and so far none has been - then it would be for the board to decide what to do next. They are obliged to act in the best interests of their members. Only they can formally propose conversion. If they chose to do nothing, then members might seek to vote in new directors at the next opportunity, but that would take time - probably some years; and again, they would need to achieve a majority of those voting in order to succeed.

If the board were to propose conversion to the members, then an even stiffer voting hurdle would have to be overcome. First, a turnout of 50 per cent of investing members would be required, and 75 per cent of those voting would have to vote in favour, for conversion to take place. It was this government that raised the turnout threshold from 20 per cent to 50 per cent.

There are also separate voting arrangements for borrowing members. The majority of those voting also have to be in favour before a conversion can go ahead.

So whether or not building societies remain mutual is a very long way from being something that can be decided by 50 members. That is why this government does not see the need for more "protection" for societies.


Economic Secretary to the Treasury

London SW1