Nationwide Building Society has faced criticism over its governance practices after members were denied a vote on the £2.9bn acquisition of Virgin Money and had only an advisory say on the chief executive’s £7m pay package. The society, which prides itself on being member-owned and different from banks, has been accused of falling short of democratic standards.
The purchase of Virgin Money last year did not require a vote under the 1986 Building Societies Act, but critics argue that such a significant transaction should have been put to members. Nationwide’s explanation was that the law does not mandate a vote and that the City takeover code would be breached if extra conditions were imposed. The gap in regulations has been highlighted as a concern.
At the annual meeting, members voted on the remuneration report, but the poll was advisory only. The board can ignore any rebellion, which may discourage turnout. Despite 95% of votes being cast in favour of the pay rise for chief executive Debbie Crosbie, the lack of a binding vote has been questioned. Nationwide argued that the increase was necessary to close the competitive gap with banks like NatWest and Lloyds.
Additionally, members who wish to stand for election to the board must obtain 250 nominations, a hurdle that has been described as difficult to overcome. James Sherwin-Smith, a would-be volunteer, failed to secure the required number, partly due to data protection and signature requirements. Chair Kevin Parry offered no commitment to change the rules, stating that ‘them’s the rules’ in response to questions.
While Nationwide is currently performing well financially, the governance issues may become more pressing if circumstances worsen. Observers note that shareholders in banks receive binding votes on major takeovers and executive pay, whereas building society members do not. Calls have been made for an overhaul of governance to ensure that members, as true owners, have a meaningful voice.
