VOTE now! Proposed take over of Virgin Money - Nationwide members should be given a vote

Section62

SonOfPearl said:

The merits or otherwise of Nationwide's product offerings are irrelevant to the matter at hand. Others here have patiently explained (in this thread and the previous similar one) why a member vote on the issue is highly unlikely to be possible let alone desirable. Being a mutual organisation does not mean the members (including me) are entitled to second guess complicated business decisions such as these. Any such vote would be utterly pointless. 

Applying that strange logic surely means that individual shareholders in Virgin Money UK PLC should equally be barred from taking part in their vote on the basis it is a "complicated business decision" that they shouldn't be second guessing?

It is a fairly fundamental principle of democratic processes that everyone gets to vote, regardless of whether they fully understand what they are voting for.  Nobody seriously suggests people should be barred from voting in General Elections if they don't understand the complicated process of running a country.

In reality it appears the legal framework mutual building societies operate within is arguably deficient in not giving the membership protection against the board making decisions contrary to the wishes of the membership at large*, other than by voting against re-election of the board members at a subsequent AGM, by which time it may be too late. (* I'm not suggesting this decision is contrary to the wishes of the membership at large, nobody knows this, we haven't been asked.).  The legislation is out of date.

The explanation (by a columnist in the Guardian) is persuasive about an approval vote taking place in the current circumstances, but overlooks the relatively straightforward solution of the Board first asking the membership for authority in principle to seek to acquire a business, doing so before reaching the stage where the Takeover Code applies.  This is a fundamental question of strategy.  Do members want Nationwide to grow the business by xx%, or do they want something else? (Such as better products)  Any idea that the Board knows best and the little people shouldn't get a say is one which should be alien to people who genuinely believe in mutuality.

After all, Nils Pratley (who the 'no voters' are praying in aid of their arguments) himself says "Should the members of Nationwide be allowed to vote on their building society’s £2.9bn acquisition of Virgin Money? Well, of course they should. The concept of mutual ownership can be fuzzy around the edges, but a deal that will expand the society’s assets by about a third is precisely the sort of transaction where the members should have the final say."

That the law doesn't allow them to have the final say doesn't mean the deal should go ahead without a vote - it means the Board's strategy should have allowed a vote at a time where it was both lawful to do so, and the vote would have a meaningful effect.

masonic

One votes in a General Election for representation by an MP who then votes on individual issues on behalf of constituents.

One votes in the AGM for representation by a board of Directors who then vote on individual issues on behalf of members.

That is how representative democracies work. There is nothing out of the ordinary about these arrangements. 

If members did not like this system, then they should have voted against the election/re-election of the directors at the last AGM. Between 96-97% of voters supported the motions. There's no reason to think if a motion about this issue was added to the AGM vote, it would have landed a particularly different result. But it could not have been made public until it was too late to vote upon.

dunstonh

I don't blame N/wide for not opening it up for a vote.    Most members are not going to have a clue about the benefits and its clear from the first post that is the case.

There is a strong business case for this as it gives N/wide access to markets that they are weak or non-existent in and with retail consumer banking profits expected to fall, they need alternative profitable areas to make up for it.  

Section62

masonic said:

One votes in a General Election for representation by an MP who then votes on individual issues on behalf of constituents.

One votes in the AGM for representation by a board of Directors who then vote on individual issues on behalf of members.

There is nothing out of the ordinary about these arrangements. If members did not like this system, then they should have voted against the election/re-election of the directors at the last AGM. Between 96-97% of voters supported the motions. There's no reason to think if a motion about this issue was added to the AGM vote, it would have landed a particularly different result.

In both the above cases the law and/or precedent also places limitations on the powers of the government/directors to make certain decisions.  Key decisions require reference back to Parliament on the one hand, and shareholders on the other.

Nationwide has done this in the past - asking members to vote in 2007 on whether to allocate 1% of pre-tax profits to charity.  The Board felt this needed a vote, but a strategy decision which will ultimately lead to us paying a premium to take over a PLC bank doesn't?

Nationwide's 90%+ approval votes on a turnout of around 3% should be another cause of concern to members.  It should be a cause embarrassment to the Board, rather than a feeling of endorsement.

Section62

dunstonh said:

I don't blame N/wide for not opening it up for a vote.    Most members are not going to have a clue about the benefits and its clear from the first post that is the case.

Wouldn't that then be a case of the Board failing to properly explain the benefits to the members?

dunstonh said:

There is a strong business case for this as it gives N/wide access to markets that they are weak or non-existent in and with retail consumer banking profits expected to fall, they need alternative profitable areas to make up for it.

This makes sense, but leaves open the question whether this is the best strategy, or the strategy the membership want to adopt.  Nationwide have already dabbled (expensively) into the field of business banking, so members may need convincing that senior management have the requisite to deliver this as an organic growth vs buying in the market share, but isn't that the kind of discussion shareholders in a PLC would normally get to influence (not necessarily by means of a vote)?

masonic

Section62 said:

masonic said:

One votes in a General Election for representation by an MP who then votes on individual issues on behalf of constituents.

One votes in the AGM for representation by a board of Directors who then vote on individual issues on behalf of members.

There is nothing out of the ordinary about these arrangements. If members did not like this system, then they should have voted against the election/re-election of the directors at the last AGM. Between 96-97% of voters supported the motions. There's no reason to think if a motion about this issue was added to the AGM vote, it would have landed a particularly different result.

In both the above cases the law and/or precedent also places limitations on the powers of the government/directors to make certain decisions.  Key decisions require reference back to Parliament on the one hand, and shareholders on the other.

Nationwide has done this in the past - asking members to vote in 2007 on whether to allocate 1% of pre-tax profits to charity.  The Board felt this needed a vote, but a strategy decision which will ultimately lead to us paying a premium to take over a PLC bank doesn't?

Nationwide's 90%+ approval votes on a turnout of around 3% should be another cause of concern to members.  It should be a cause embarrassment to the Board, rather than a feeling of endorsement.

Unless I'm missing something, nobody is arguing that the Nationwide board of directors does not have the power to proceed with this acquisition. If the board is able to exercise discretion on whether or not to ask members to vote on various issues, and there are examples of decisions it has made with and without doing so, then the decision to do so or not would be taken on a case by case basis.

It seems quite clear to me that a simple decision with a clear impact, such as donating a sum of money to charity, is something that most members could adequately comprehend and form a considered opinion about. Contrast that with a complex business transaction where the board is required to keep a large part of the information vital to informing a decision confidential. Those who are vehemently disagreeing with the board about the virtues of this transaction are doing so from a vacuum of information. It is not good business to have the least informed members of an organisation calling the shots.

You know the history of the society better than me. Does it normally put a motion to members when it has merged with or acquired other organisations in the past?

The 90%+ approval votes on an embarrassingly low turnout are another reason against holding a vote, even a non-binding one. You'd just get more of the same, and all members would have to bear the cost of the exercise.

Middle_of_the_Road

eskbanker said:

Middle_of_the_Road said:

97 signatures so far. Seems like there are people not happy with this proposal.
Vote or not, they will do as they please, but good to see members challenging this already bloated society.

So about 0.0006% of the society's members, about a week after the petition was started - it's not exactly storming the barricades, is it?

No, it's not, but as in most scenarios like this the majority of those that dislike the proposal feel their voice will have no influence on the outcome, so remain silent. I do doubt though, that around 16 million members are all in favour, but we'll never know as Nationwide hasn't asked.  
It will be interesting to see what the Nationwide response will be when the 500 vote threshold is reached. 

112 votes 0.0007%

26left

Thanks all for your comments.  Really interesting to read other people's perspectives - both similar and different to my own.

And thank you to all those that have signed the petition calling for a member vote.  I'm hoping more journalists will take notice and write about the topic so that we can reach people, and more people understand what's at stake.

I am passionate about the role of mutual and co-operatives in society and the positive impact they have, after studying the sector in my past. They serve as a really important check and balance against shareholder-owned businesses in their industry.

Money_Grabber13579 said:

Is there a concern that nationwide might offer worse products as a result of taking over virgin? Or be a weaker building society? 

In a word - Yes. I am concerned that this deal will have a significant impact on weakening Nationwide - and this will be bad for all UK consumers, regardless of who they choose to bank with.

My thinking is that if the deal goes through, this will be the impact:

• Reduces capital reserves (aka Common Equity Tier 1 capital, aka CET1%). Spending £2.9bn on the purchase, and I’d estimate a further £1bn+ on the post-transaction restructuring (rationalising down the people, places and IT), will significantly reduce Nationwide’s financial resources.  Less capital means less lending, and at higher prices, as you are less able to cope with financial stress. The Nationwide is 75% funded by (cheap) member capital. And as a mutual without shareholders, it is not possible to simply raise equity. The management of Nationwide is effectively gambling years of retained profits on this deal - and the combined group will be financially weaker if it goes ahead. Virgin Money started with the failure of Northern Rock that could survive the financial crisis in 2008.  Nationwide was fine.
• Less attention on improving products and services. Dealing with an integration of this size will eat up staff times and resources for years.  Nationwide management have admitted in the takeover document that they don’t have a plan, despite the magnitude of this transaction. Instead, they will conduct an 18 month review after the transaction closes. The follow up work will likely continue for years afterwards. That means less time improving the products and services on offer.  And it’s probably something that will require an army of consultants to deliver - who will add to the expense, make short term calls that aren’t necessarily what best for the business - and erode the mutual, customer-first culture.
• Worse outcomes for all consumers in the UK - regardless of who they bank with.  Nationwide is the last, large building society in the UK. Mutuals and co-operatives provide a really important check and balance in the industries they operate. They put their members - their customers - first.  For example, Nationwide is a lone voice in the UK in keeping its branch network intact. It is a major competitor in the mortgage market - partly by keeping prices low, but also in offering terms and conditions that keep the commercial banks honest.  They have offered some of the lowest price, 10 year fixed mortgages in history (I am lucky to have one) - and offer features that competitors have grudgingly had to copy over time e.g. allowing over payments, portability etc.

Hoenir

26left said:

Thanks all for your comments.  Really interesting to read other people's perspectives - both similar and different to my own.

And thank you to all those that have signed the petition calling for a member vote.  I'm hoping more journalists will take notice and write about the topic so that we can reach people, and more people understand what's at stake.

I am passionate about the role of mutual and co-operatives in society and the positive impact they have, after studying the sector in my past. They serve as a really important check and balance against shareholder-owned businesses in their industry.

Money_Grabber13579 said:

Is there a concern that nationwide might offer worse products as a result of taking over virgin? Or be a weaker building society? 

In a word - Yes. I am concerned that this deal will have a significant impact on weakening Nationwide - and this will be bad for all UK consumers, regardless of who they choose to bank with.

My thinking is that if the deal goes through, this will be the impact:

• Reduces capital reserves (aka Common Equity Tier 1 capital, aka CET1%). Spending £2.9bn on the purchase, and I’d estimate a further £1bn+ on the post-transaction restructuring (rationalising down the people, places and IT), will significantly reduce Nationwide’s financial resources.  Less capital means less lending, and at higher prices, as you are less able to cope with financial stress. The Nationwide is 75% funded by (cheap) member capital. And as a mutual without shareholders, it is not possible to simply raise equity. The management of Nationwide is effectively gambling years of retained profits on this deal - and the combined group will be financially weaker if it goes ahead. Virgin Money started with the failure of Northern Rock that could survive the financial crisis in 2008.  Nationwide was fine.
• Less attention on improving products and services. Dealing with an integration of this size will eat up staff times and resources for years.  Nationwide management have admitted in the takeover document that they don’t have a plan, despite the magnitude of this transaction. Instead, they will conduct an 18 month review after the transaction closes. The follow up work will likely continue for years afterwards. That means less time improving the products and services on offer.  And it’s probably something that will require an army of consultants to deliver - who will add to the expense, make short term calls that aren’t necessarily what best for the business - and erode the mutual, customer-first culture.
• Worse outcomes for all consumers in the UK - regardless of who they bank with.  Nationwide is the last, large building society in the UK. Mutuals and co-operatives provide a really important check and balance in the industries they operate. They put their members - their customers - first.  For example, Nationwide is a lone voice in the UK in keeping its branch network intact. It is a major competitor in the mortgage market - partly by keeping prices low, but also in offering terms and conditions that keep the commercial banks honest.  They have offered some of the lowest price, 10 year fixed mortgages in history (I am lucky to have one) - and offer features that competitors have grudgingly had to copy over time e.g. allowing over payments, portability etc.

I'd suggest you attend the AGM and address these points to the board directly. No doubt there's a raft of other considerations in their thinking. 

26left

Hoenir said:

I'd suggest you attend the AGM and address these points to the board directly. No doubt there's a raft of other considerations in their thinking. 

They haven't called an AGM - perhaps to avoid these types of questions.  I expect they will wait to call one until after the deal is completed. Turkeys don't vote for Christmas.

Hence the petition to call for a Special General Meeting before the deal completes.
https://www.change.org/p/give-nationwide-members-a-say-on-the-purchase-of-virgin-money