A new mutual covenant for a post crisis world

Resetting the relationship between business, society and government – and resulting themes for mutual boards

Good afternoon

Thank you Mark (Bogard) and congratulations on this, your first day as Chair of the BSA.

And thank you Charles (Randell) for joining us today and for sharing such important perspectives from the FCA.

How fantastic to be with you all after this last year – or at least to know that you are all out there!

Build Back Better has become a popular catch-phrase for how as a nation we want to emerge from this awful pandemic and the consequential disruption in our economy.  It is a phrase that has a great ring to it; something we would struggle to disagree with.  Let’s Build Back Worse doesn’t really resonate, does it?

Like so many great soundbites, Build Back Better will mean very different things to different people; to government; to various parts of the business community; to different parts of society.

It is clear that there are some genuinely good intentions – about creating a fairer, more balanced, greener society.  Coming through and out of this crisis period, the short term opportunists are also having a field day – and that is not all good.

Those of you who know me – and have had to endure my conference speeches, board presentations and roundtables – will know that I am a strong advocate of making our own future rather than sitting back and letting others control it for us – and then grumbling when we don’t much like what we get.

This has been core to the BSA’s purpose and strategy since its foundation in 1869.  What Ezra Naylor (one of Mark’s predecessors as BSA Chair) described in 1915 as the “earnest work for the improvement and protection of Building Societies[1],” today we call championing all our mutual members as being an essential part of the future of a thriving UK financial services sector.

I was struck by some of the comments and conclusions from the recent All Party Parliamentary Group for Mutuals investigation into the planned demutualisation of LV=[2].

The APPG’s report is highly critical of the LV= board’s lack of engagement and transparency with members (the current owners of the business).  In our long standing theme of excellence in mutual governance, we have observed that the co-operative and mutual principle of one member one vote is great for democracy, but makes it very difficult for members to hold boards to account in practice; and therefore places a significant responsibility on mutual and co-operative boards to hold themselves properly accountable to their membership.  So a clear message for all of us.

And an equally clear message from the APPG for our regulators that I think is worth drawing out on this day of the Conference where we are focusing on Outcomes Based Regulation:

  • That regulators have not reviewed previous demutualisations in financial services businesses.
  • Have not carried out an analysis of who gained and who lost from previous demutualisations and the extent to which the long-term future of the businesses had genuinely benefited.  This should be essential to informing policy.
  • APPG members were not convinced that the regulatory authorities understood, or were giving sufficient priority, to the significance of the part of their role that involves defending the immediate and long-term interests of the current owners of this mutual.
  • The current role of regulatory authorities appears to be not to take any view on the appropriate ownership structure of a business seeking to demutualise – despite the evident impact on consumer outcomes for the existing customer-owners.

And the APPG’s belief that the presumption should be that it is bad for customer-owned institutions to demutualise and the onus should be on proving that it is beneficial.

We have come a long way since the financial crisis in our mission to demonstrate the real benefits of a thriving mutual sector for competition, consumer choice and financial stability.

I would suggest, however, whatever you think about the rights and wrongs of the LV= board’s proposals, we still have a long way to go truly to embed mutual businesses at the heart of the future of UK financial services.

If outcomes based regulation means anything, it must be as much about promoting good as avoiding harm.  A truly rich diversity in the range of businesses and business models in financial services is a critical component of achieving great consumer outcomes.

We are hugely grateful for the support we already get from government, parliamentarians from across the political spectrum, and officials.  Likewise from our regulators.  But, in building a better future for Britain in financial services, we need more.

In turn, if Building Back Better truly means working towards a more balanced, fairer society, a greater focus on community and the creation of long term wealth and wellbeing, then I firmly believe that we in the mutual and co-operative sector should be leading the way in creating and implementing a new covenant between business, society and government.

A new covenant between business, society and government

This is an opportunity not to be missed.  At a time when we are re-defining Britain’s role in the world post Brexit, emerging from the worst pandemic in a century and the sharpest recession since 1709[3], now is a moment in our history where we have a collective opportunity and a collective responsibility to help re-shape the UK’s economy and society.

What do I mean?

I mean that we live and promote strongly the values of our purpose driven businesses that exist for the benefit of our members, our communities, and our society.  We continue to set the standards for fairness and great customer outcomes.  We actively reach out to those who most need the support of building societies and credit unions.  And we do so in ways that are sustainable for the long term; that enable us to make fair returns, not excessive profits; that build our future generations of members, advocates and fans.  Whilst fulfilling our obligations to support and bring our challenge and perspective to government and regulators; being proud of the employment and career opportunities we provide; and the tax contribution we make.

In short, as building societies and credit unions, we collectively need to spread “the magic of mutuality[4] far and wide – and dare I say loudly.

And how does that translate from words into actions?

Well, here are three themes that boards might like to start with:

Three resulting board themes

The role of mutuals in society – the case for workplace savings

Academics and management consultants have written extensively about confirmation bias in decision making.  When the stars seem to align, we should all challenge ourselves and each other about whether our brilliant ideas are really that brilliant or just flights of fancy.  For me, this has always been one of the key roles for high performing boards – a real openness to new thinking combined with tough and constructive challenge to test and improve the best ideas and initiatives.

So let me test one with you all now.  Let’s use the Wisdom of the Crowd[5].

22% of UK households went into the first period of lockdown last March with less than £100 in savings[6].  Research commissioned by Yorkshire Building Society in 2019[7] (thank you Mike!) found that 11 million people are non-savers, including 7.5 million workers; with tangible adverse impacts on mental health and productivity such that people with money worries are 7.6 times more likely not to finish daily tasks; 8.8 times more likely to have sleepless nights; and 5.7 times more likely to have troubled relationships at work.

The latest Financial Lives Survey[8] from the FCA, and their recently updated Guidance for Firms on the Fair Treatment of Vulnerable Customers[9] found that the pandemic has reversed the previously positive trend in vulnerability.  “Between March and October 2020 the number of adults with characteristics of vulnerability increased by 3.7 million to 27.7 million.”  None of us should be surprised.  All of us should be concerned.  And I would urge us all to be thinking about the part we can play in starting to bring that number back down again.

Many of you will recall that, with impeccable timing at the end of March last year, we were about to launch a major initiative on workplace savings, with the goal of getting one million workers saving regularly to improve their financial resilience and towards achieving their personal goals.

The more I think about this initiative, the more I think it should be at the heart of the building society offering, as it already is at the heart of what many credit unions do.

  • Regular saving is at the very foundation and centre of what building societies are about.  Right back in 1775, Richard Ketley started the first society by encouraging workers drinking in his pub to start a savings club rather than buy another round.
  • Coming out of this crisis, many households will be realising the wisdom of building up some savings for the future, so the opportunity is there to help them.
  • As we have said at previous BSA Conferences, the anticipated development of savings platforms with increasing algorithm driven decision making threatens both to reduce the connection individual savers have with deposit taking firms, and to make retail funding more volatile.
  • Workplace savings could act as a foil to both of these trends – and through targeting major local employers. help societies improve the age profile and demographic of their membership; and demonstrate a new commitment to their communities.

And we know that payroll saving works.  A two year project funded by the Money and Pensions Service and involving BSA member, Leeds Credit Union concluded that payroll saving is effective in encouraging positive savings behaviours and promoting financial resilience among lower to medium income workers earning between £17,500 and £25,000 a year, who typically managed to save £50-£70 a month[10].

Reducing vulnerability.  Increasing personal financial resilience through workplace savings.  Building new generations of members.  Perhaps even a key to the lifetime strategy for membership.  Social Purpose in action.    Led by mutuals, part of the new covenant between mutual business, society and government.  The Magic of Mutuality.

Diversity inclusion and equality

The BSA has been a proud signatory to the Women in Finance Charter since 2018 and we were pleased to report last year that we have achieved our target for improving the balance of our leadership team.  We are also the first to recognise that this is only a step in the journey to creating a more diverse BSA team – and that this is one of those journeys that should not end.

The same challenge faces all of us at this conference.  Many of you will remember the session that Simon Fanshawe led for us at the 2018 Conference on approaches to eliminating (or at least reducing) unconscious bias in recruitment.  He used the case study of the Boston Symphony Orchestra introducing blind auditions by putting a curtain between the player and the judging panel.  The real shocker for me was that this happened in 1952[11]!  And we are only now learning those lessons in our board, executive and staff recruitment processes.

Many building society and credit union boards have recognised the need to increase their own diversity. and we have seen some positive progress as part of the range of corporate governance reforms that have affected all boards since the financial crisis.

This is not, however, a job done.

Public expectations are rightly continuing to increase; regulators are rightly taking more interest; members too should be challenging you all, as the increasing body of evidence is that more diverse boards (in every sense of the word) arrive at better decisions and deliver better outcomes.

And this is not just about boards.  This is about how we recruit and develop our leadership teams and our entire workforces; and about how we tell the story authentically and transparently.

For today, and ahead of tomorrow’s panel session on workplace diversity, let me dwell on two questions:

Firstly about how and what we benchmark – on the old adage that what gets measured gets done.  For some of you this might be quite straightforward, for others it might require careful thinking.  When we are benchmarking diversity, are we using national data?  Or are we seeking to reflect the demographics of our local communities?  Or the demographic of our membership?  And are we conscious about how we define our local community?  Are we talking about the current demographic of our membership?  Or our target demographic?

Secondly about how we then achieve the change we want.  In this rapidly evolving arena, are we content to rely on direct external recruitment, recognising that we are likely to be facing a highly competitive market?  Or do we turbocharge the great tradition of our sector in growing and developing our own future leaders?

It would be remiss of me at this point not to emphasise the important role of the BSA’s MSc in Strategic Leadership for Financial Mutuals, run in partnership with the Loughborough University School of Business and Economics.  This amazing programme, now in its sixth year, is truly transformative.  Half of our students and alumni are women; half came onto the programme without a first degree.  Our classes are consistently among the highest performing in the Business School, regularly winning university prizes, at the same time as taking on more senior management and executive roles in their societies and credit unions.

Improving the diversity of our boards, leadership teams and entire workforces; broadening the communities and memberships we support and serve; improving financial resilience and widening the dream of home ownership.  Social Purpose in action.  Part of the new covenant between mutual business, society and government.  The Magic of Mutuality.

Net Zero 2050

One of my lasting impressions from a visit to the Building Research Establishment in Watford a couple of years ago (and a few of you will have been on that visit with us), was the carbon negative, energy positive house.  When average family homes use about 40 KWh of power a day, this one uses about 4 KWh and generates about 7KWh.

In the year that we have seen the largest drop in fossil fuel emissions ever recorded, and the largest relative fall since the second world war[12] (even pandemics have some silver linings) and as we look forward to the UK hosting COP26, I sense that many boards are still unsure about what they should be doing in practice, now.

How do we move from fine words and sentiments to making the UK’s commitment to Net Zero 2050 a reality?  Where do we draw our inspiration from?  As a lending community, how can we influence what builders build?  With 80% of the 2050 housing stock already built[13], how do we best help our members (both savers and borrowers) undertake the works that are going to be needed to reduce or eliminate their carbon footprints?  At the same time, how do we transform our own businesses to become at least carbon neutral?  And how do we develop our expertise in assessing and mitigating climate change related risks in our loan books?

We are going to be covering green finance and the essential contribution of housing tomorrow, so I don’t want to pre-empt those sessions.  Rather to encourage you all to give them your full attention, take the learnings back to your boardrooms, and continue to support the resumption of the great work of the BSA’s Green Finance Taskforce.

The climate change agenda is only going to grow.  It is one of the most important issues facing us and our future generations of members, and should therefore be one of our top priorities as the stewards and custodians of our inter-generational businesses.  This should be part of the new covenant between mutual business, society and government.  This should be part of the Magic of Mutuality.

Thank you

Before I finish, I want to say a few more thank yous.

Firstly to Mike Regnier for being a fantastic BSA Chair for the last two years.  I am not sure what you thought you were signing up for Mike, but I am pretty sure the last twelve months wasn’t what you were anticipating.

Mike has been a brilliant BSA Chair, calmly guiding us through these challenging times; always available with good humour and sound wisdom; always enthusiastic for the opportunities and encouraging us to be ambitious. 

Secondly to the whole of the BSA team, who have been outstanding in their advocacy and support for our members and our sector throughout the crisis; who have shown flexibility and commitment well beyond the call of duty; who have consistently demonstrated cool and sound judgement as issues and situations have unfolded; and above all, have cared for each other throughout the long periods of uncertainty and lockdown.

And can I just mention two individuals in particular.  We were supposed to be having Chris Lawrenson’s retirement party this time last year, marking over 29 years of unflinching service to the BSA and its members.  And at the end of this month we say goodbye to Brian Morris after almost 18 years with the BSA.  Thank you both for your dedication to the cause, your good humour and your amazing contributions to the team.

And thirdly, to all of you, our members, our associates, our sponsors and exhibitors, our regulators and officials, our fans and supporters.  Together we have tackled one of the greatest crises of our lifetimes; we have achieved outcomes that before the crisis would have seemed impossible, and a speeds that would have been thought foolhardy, if not ridiculous.  Thank you all.

Concluding remarks

As we emerge for this crisis we have a real opportunity for member owned mutals and cooperatives to play a significant role in shaping the new normal; in shaping what Building Back Better really means.

This is not a time for shrinking back from the challenges.  It is a time for seizing the opportunities to put building societies, credit unions and financial mutuals truly at the heart of future of UK financial services.

Exciting times ahead!


[1] A History of the Association 1869-1914, Mr E Naylor, Building Societies Association (London, 1915)

[2] Inquiry into the planned demutualisation of LV=, The All Party Parliamentary Group for Mutuals (London, April 2021)

[3] Overview of the November 2020 Economic and Fiscal Outlook, Office for Budget Responsibility (London, November 2020)

[4] 2021 Building Society Sector Analysis: a review of the strategic landscape for building societies, Whitecap Consulting (Manchester, 2021)

[5] The Wisdom of Crowds: why the many are smarter than the few, James Surowiecki (New York, 2005)

[6] Impacts of COVID-19 on Financial Wellbeing, Money and Pensions Service (London, June 2020)

[7] Using the Workplace to Get Britain Saving: being ambitious about saving, Yorkshire Building Society (Leeds, 2019)

[8] Financial Lives 2020 Survey: the impact of coronavirus, Financial Conduct Authority (London, 2021)

[9] FG21/1 Guidance for firms on the fair treatment of vulnerable customers, Financial Conduct Authority (London, 2021)

[10] Putting Ideas Into Action: making payroll savings work – how payroll savings schemes can help build financial resilience in lower-medium income workers, The Financial Inclusion Centre (London, 2021)

[11] Orchestrating Impartiality: The Impact of “Blind” Auditions on Female Musicians, Claudia Goldin and Cecilia Rouse in The American Economic Review (2000)

[13] Scaling up Retrofit 2050, The Institution of Engineering & Technology and Nottingham Trent University (London, 2020)