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Mutuality and Corporate Governance: The Evolution of UK Building Societies Following Deregulation

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  • J.Cook
  • S.Deakin
  • A.Hughes
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    Abstract

    This paper studies the effects of deregulation following the UK Building Societies Act 1986, which opened the way for competition between building societies and commercial banks and introduced a procedure for the demutualisation of a building society. it is argued that the Act brought about a rearrangement of property rights which destabilised the building society form. A wave of demutualisations followed in the 1990's. the beneficiaries of change included corporate managers whose earnings and status were enhanced following conversion, and speculative investors who profitted from windfall gains. These were set against losses to borrowers, in the form of higher costs of loans, and to communities, in the form of reduced diversity of services. There is no guarentee that the recent trajectory of the sector is one of evolution to efficiency. Rather, its experience illustrates the often enexpected consequences for corporate governance of changes in regulation and property rights.

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    File URL: http://www.cbr.cam.ac.uk/pdf/WP205.pdf
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    Bibliographic Info

    Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp205.

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    Date of creation: Jun 2001
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    Handle: RePEc:cbr:cbrwps:wp205

    Note: PRO-2
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    Web page: http://www.cbr.cam.ac.uk/

    Related research

    Keywords: corporate governance; deregulation; mutuality; property rights; building societies; demutualisation; path dependence.;

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    References

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    1. Barry Howcroft, 1999. "Mutuality versus Public Company - the Debate in Europe and the USA," Corporate Governance: An International Review, Wiley Blackwell, vol. 7(2), pages 167-177, 04.
    2. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-49, June.
    3. David T LLEWELLYN & Mark J HOLMES, 1991. "In Defence Of Mutuality: A Redress To An Emerging Conventional Wisdom," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 62(3), pages 319-354, 07.
    4. Patricia Born & William M. Gentry & W. Kip Viscusi & Richard J. Zeckhauser, 1998. "Organizational Form and Insurance Company Performance: Stocks versus Mutuals," NBER Chapters, in: The Economics of Property-Casualty Insurance, pages 167-192 National Bureau of Economic Research, Inc.
    5. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," Harvard Institute of Economic Research Working Papers 1816, Harvard - Institute of Economic Research.
    6. J. David Cummins & Mary A. Weiss & Hongmin Zi, 1998. "Organizational form and efficiency: an analysis of stock and mutual property-liability insurers," Working Papers 98-19, Federal Reserve Bank of Philadelphia.
    7. Thompson, Steve, 1997. "Takeover activity among financial mutuals: An analysis of target characteristics," Journal of Banking & Finance, Elsevier, vol. 21(1), pages 37-53, January.
    8. Howard Jarman, 1998. "Building Societies: Some Suggestions for Reform," The Service Industries Journal, Taylor & Francis Journals, vol. 18(2), pages 161-176, April.
    9. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    10. Ingham, Hilary & Thompson, Steve, 1995. "Mutuality, Performance and Executive Compensation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 295-308, August.
    11. Lamm-Tennant, Joan & Starks, Laura T, 1993. "Stock versus Mutual Ownership Structures: The Risk Implications," The Journal of Business, University of Chicago Press, vol. 66(1), pages 29-46, January.
    12. Zingales, Luigi, 1998. "Corporate Governance," CEPR Discussion Papers 1806, C.E.P.R. Discussion Papers.
    13. Mayers, David & Shivdasani, Anil & Smith, Clifford W, Jr, 1997. "Board Composition and Corporate Control: Evidence from the Insurance Industry," The Journal of Business, University of Chicago Press, vol. 70(1), pages 33-62, January.
    14. Hilary Ingham & Steve Thompson, 1994. "Paying for performance: Efficiency wages and mutuality," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 279-289, July/Augu.
    15. J. David Cummins & Mary A. Weiss & Hongmin Zi, 1999. "Organizational Form and Efficiency: The Coexistence of Stock and Mutual Property-Liability Insurers," Management Science, INFORMS, vol. 45(9), pages 1254-1269, September.
    16. Kevin Amess & Barry Howcroft, 2001. "Corporate Governance Structures and the Comparative Advantage of Credit Unions," Corporate Governance: An International Review, Wiley Blackwell, vol. 9(1), pages 59-65, 01.
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    Cited by:
    1. Jean-Noël Ory & Mireille Jaeger & Emmanuelle Gurtner, 2006. "La banque à forme coopérative peut-elle soutenir durablement la compétition avec la banque SA?," Revue Finance Contrôle Stratégie, revues.org, vol. 9(2), pages 121-157, June.

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