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By National Federation of Builders

Independent review of building society governance published

Building Societies Association | Building Societies Association

3 min read Partner content

Management and governance at building societies must be every bit as rigorous as that at shareholder-owned banks.

An independent report published today reviews governance in building societies.  It has found that the quality of governance in the sector has improved significantly since the financial crisis.  All building societies follow the UK Corporate Governance Code (UK Code). 

The review by Odgers Berndtson, found that adherence to the UK Code across the sector was strong, with considerable positive change coming from board responses to the changing regulatory landscape.   There has been a substantial refresh of society board composition and capability, with candidates who have strong financial services or risk management credentials favoured.  Diversity is firmly on the agenda, but with a limited pool of talent to draw on, competence and skills fit come first.

The UK Code remains appropriate for building societies, despite its design for PLCs.  There are however, areas where building society governance is distinct.  Boards are, for example, clear about the particular role they have to serve the best interests of their members and are committed to doing this.  In addition, a number of boards articulated a distinctly different stewardship role: meeting the needs of future generations of members as well as today’s.  Alongside risk appetite, it is this which underpins the distinct, long term perspective they take in leading their societies.

Much of the review was positive, but it also identified areas for continued debate and development.  Succession planning, coupled with the need for diversity will see boards seeking a steady flow of talent.  The available talent pools, particularly in areas such as risk management, strategic technology and treasury are comparatively small and it is an on-going challenge to recruit the right individuals.  This may not be aided by the two-speed approach to board level accountability proposed by the regulators.

Similarly, engaging society members in their capacity as owners rather than customers remains a work in progress.  The value in doing so and the investment to deliver improvement in this area has gone up sharply, with 57% of chief executives - who responded to a BSA survey² - reporting that they believe their members have a role in setting the strategic direction of their society.  This has risen from 16% in 2010.   Investment in this area is also up, with 76% of these chief executives saying that they had committed greater resource to member engagement in the past two years; 77% will commit greater resource in the next two years.  

At present this leaves much of the role undertaken by activist shareholders - where they exist in a PLC environment - to society boards; the regulator, particularly the Prudential Regulation Authority and in a different way the BSA³. 

Commenting, the author of the review, Jeff Morris, a partner at Odgers Berndtson said.  “It is apparent that the quality of governance in the sector has improved significantly.  There are challenges ahead, but this review is a valuable way point   The intrusive nature of current regulation, whilst one of the drivers for this positive change, does now risk blurring the distinction between non-executive and executive directors across financial institutions generally – a core plank of the UK Code.”

Robin Fieth, Chief Executive of the BSA said:  “Adherence to the UK Code is clearly strong across the whole sector.  However, it is in the very nature of corporate governance that the work will never be completed.  Circumstances change, best practice continues to develop, the bar goes up."

Read the most recent article written by Building Societies Association - Building Societies Association Comments on the MPC’s decision not to change the Bank Rate from 5.25%

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