Summary of Conclusions and Recommendations
from the Committee's Report
(a) It appears from
our evidence that at least some of the advantages claimed for
building societies, especially those involving closer links with
the community and close attention to customer care, could be replicated
in non-mutual organisations, and that some building societies
have not always shown these characteristics. Nevertheless, the
existence of a sector with potential for lower overheads, and
therefore better rates for savers and borrowers, is both a valuable
spur to competition and a very important part of the UK housing
finance market (paragraph 19).
(b) Though the distribution
of profit to customers by means of loyalty incentives may be equivalent
in cost terms to improving rates, we recommend that building societies
which wish to remain mutual should introduce loyalty incentives
because they provide a more visible demonstration of the advantages
which a mutual organisation can provide (paragraph 24).
(c) We believe that
building society charity schemes, as described in paragraph 50,
may be a way of securing the benefits of windfalls for the community
(paragraph 31).
(d) Although the assets
of building societies were built up by past generations, and—if
the societies continue—are available for future generations,
we do not believe that this fact can be elevated to the principle
that these assets are held in trust. A mutual organisation is
under the control of its current members, and they have, and should
continue to have, the power to vote to demutualise. However, to
ensure that the decision is taken in the interests of the society,
there need to be safeguards in this decision-making process, and
we need to examine whether they are adequate and, in particular,
whether the provisions of the 1986 Act are working as intended
(paragraph 36).
(e) We recommend that
the law should be changed so that members' resolutions advocating
conversion should require the same majorities and thresholds (for
savers and borrowers separately) as for transfer resolutions proposed
by the board (paragraph 41).
(f) We recommend that
the law should be changed so that borrowers' resolutions on conversion
are subject to the same requirements for the majority (75 per
cent) and turnout (50 per cent) as savers' resolutions (paragraph
43).
(g) We recommend that
the law should be changed so that windfall distributions of cash
or shares should be available only to savers or borrowers of at
least two years' standing as originally intended (paragraph 48).
(h) We oppose the
policy, which some societies have felt compelled to impose, of
a large minimum deposit to deter carpet-baggers, because it excludes
genuine small savers, and we conclude that this requirement should
be dropped. We consider that the charity schemes represent a more
positive way of discouraging carpet-bagging (paragraph 54).
(i) We recognise that
increasing the number of members required to propose motions or
candidates or call meetings is an attractive option in that it
could be done in secondary legislation, and we believe that it
would be an improvement on the current situation; however, we
believe that as it would also diminish accountability our recommendations
in paragraphs 41, 43 and 48 (which would require an Act of Parliament)
are preferable (paragraph 57).
(j) We recommend that
the legislation which we have proposed in this Report should be
brought in within the next Parliamentary session (paragraph 63).
(k) We believe that
there is a need for a higher level of participation by policyholders
in the corporate governance of insurers, and that insurance companies
should take steps to bring this about. In addition, the Financial
Services Authority (FSA) should rigorously police whether insurance
companies are informing their policyholders of substantial changes
in policy (paragraph 70).
(l) We believe that
the FSA should scrutinise all demutualisation proposals to ensure
that they are proper to be put to policyholders. In addition,
consideration should be given to competition law, and whether
the situation of mutual insurance offices should be considered
by the Office of Fair Trading (paragraph 71).
(m) We recommend that
the FSA should be required to rule on the meaning of the phrase
"policyholders' reasonable expectations" (paragraph
72).
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