UK Building Societies Research Articles

Job flexibility and work‐life balance pay dividends for Nationwide

Substantial benefits to both the organization and its employees have resulted from job‐flexibility and work‐life balance initiatives at UK building society Nationwide. In the organization’s latest employee‐opinion survey, more than three‐quarters agreed with the statement: “I am satisfied that Nationwide provides me with the opportunities to balance working arrangements with my personal life.” This figure has risen in each of the last three years.

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

This article is a case study in the evolution of corporate governance forms. It focuses on 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. We show that the Act brought about a rearrangement of property rights which destabilised the building society form. A wave of demutualisations followed in the 1990s. The main beneficiaries of change were corporate managers who used conversion to boost their earnings and status, and speculative investors (“carpetbaggers”) who profited from windfall gains. In return, there were losses to borrowers, in the form of higher costs of loans, and to communities, in the form of the closure of local branches. Far from exhibiting “evolution to efficiency”, the recent trajectory of the sector illustrates the welfare losses which can ensue when established corporate governance forms are undermined by “deregulatory” interventions.

Investigating the benefits of mutuality: A discussion of the demutualisation trend

The financial services industry is probably unique in having a substantial mutual sector coexisting with, and competing against, joint stock firms. The last few years have encompassed a wholesale transformation of the UK building society and life assurance markets, as the majority of mutual providers have elected to change their corporate form, through the process of demutualisation. This powerful trend towards wholesale proprietary structures has occurred in the context of a general consolidation across the financial services community. In the middle of the last century, there were 18,000 friendly societies; today there are barely 200, leaving many financial analysts questioning whether there remains any future for mutuality in the 21st century. This paper discusses the recent dramatic changes at mutual life assurers, in the context of their being customer-oriented rather than investor-oriented businesses, and concludes with a review of the controversy surrounding events at Equitable Life (EL).

Economies of scale in UK building societies: A re-appraisal using an entry/exit model

This study advances an entry/exit model to analyse the scale efficiency of UK building societies. We find that there are considerable divergences across building societies in levels of scale efficiency and also in technological change during the sample period 1992–1997. The paper also finds that scale economies and technological change estimates are dependent on whether the econometrician balances a panel data set or utilises the entry/exit model based on Dionne et al's (1998) specification. In general, scale economies in UK building societies are found to be more significant and more pervasive than in previous studies.

The Productivity Impact of IT Deployment: An Empirical Evaluation of ATM Introduction

The term ‘IT paradox’ has been widely used to describe the apparent failure of much economic research to discover significant productivity gains associated with IT investment. In part this has been ascribed to measurement problems associated with both IT inputs and with outputs in IT‐intensive industries. The current paper seeks to circumvent these difficulties by taking the ATM as a clearly defined embodied IT application and then using anaugmented production function approach to isolate its productivity effectsacross a sample of UK building societies, over the period of the ATM’sdiffusion. The paper finds no support for the ‘IT paradox’ and reports large robust and statistically significant productivity gains associated with ATM introduction.

A Post Deregulation Analysis of the Sources of Productivity Growth in UK Building Societies

In this study we employ a distance function approach to investigate sources of productivity growth in UK building societies in the post‐deregulation period 1989–93. Productivity growth is decomposed into technical change and change in efficiency, with the latter change also being decomposed into change in pure technical efficiency, change in scale efficiency and change in input congestion. As a scale‐inefficient society may be able to obtain size efficiency gains even when the attainment of scale efficiency is impractical, we also measure the change in size efficiency over the period. The finding of substantial productivity growth was largely due to progressive shifts in technology, with the relatively small improvements in efficiency being largely due to improvements in scale efficiency. A marked increase in the attainment of size efficiency over the period was also found.

Re-Engineering in the Face of a Merger: Soft Systems and Concurrent Dynamics

Business process re-engineering (BPR) was presented as the key to successful organizational transformation in the early 1990s. In this paper we examine a BPR initiative at a medium-sized UK building society in order to explore whether BPR succeeded or failed and to place BPR within the wider context of an organization facing a merger. The study describes the development of a novel BPR methodology which combines both hard and soft modelling approaches and reveals a degree of success in terms of process modelling and gaining consensus on process content and faults. However, two more far-reaching initiatives served to drain away support from the BPR effort: a parallel organizational analysis undertaken by an external consultancy and the hidden (although rumoured) merger talks with a larger partner. Therefore it is inappropriate to view BPR as an isolated, strategic initiative when, in practice, it may be one of several competing change activities vying for support within a changing organizational context. The paper concludes by presenting a model of concurrent dynamics which helps to explain why BPR lost momentum.

Re-engineering in the face of a merger: soft systems and concurrent dynamics

Business process re-engineering (BPR) was presented as the key to successful organizational transformation in the early 1990s. In this paper we examine a BPR initiative at a medium-sized UK building society in order to explore whether BPR succeeded or failed and to place BPR within the wider context of an organization facing a merger. The study describes the development of a novel BPR methodology which combines both hard and soft modelling approaches and reveals a degree of success in terms of process modelling and gaining consensus on process content and faults. However, two more far-reaching initiatives served to drain away support from the BPR effort: a parallel organizational analysis undertaken by an external consultancy and the hidden (although rumoured) merger talks with a larger partner. Therefore it is inappropriate to view BPR as an isolated, strategic initiative when, in practice, it may be one of several competing change activities vying for support within a changing organizational context. The paper concludes by presenting a model of concurrent dynamics which helps to explain why BPR lost momentum.

Strategies of Major UK Building Societies: 1987-1993 Review, Analysis and Implications

(2000). Strategies of Major UK Building Societies: 1987-1993 Review, Analysis and Implications. The Service Industries Journal: Vol. 20, No. 2, pp. 1-24.

A General Test of Competitive Conditions in the UK Building Society Mortgage Market: 1990-1996

A General Test of Competitive Conditions in the UK Building Society Mortgage Market: 1990-1996

The productivity effects of bank mergers: Evidence from the UK building societies

This paper presents an empirical investigation of the impact of acquisition activity on financial intermediary productivity. Specifically, it uses an augmented production function approach to investigate the impact of acquisition, after controls for input changes. The model is estimated on an unbalanced panel of 93 UK building societies over the period 1981–1993, using data on their core financial intermediation activities which, it is suggested are particularly appropriate for our purposes. In contrast to much of the existing merger literature, which for the most part uses financial performance data, our results DO indicate significant and substantial productivity gains following acquisition. These are consistent with an acquisitions process in which less efficient firms are acquired and reorganized. The post-merger gains appear to increase substantially in the post-deregulation period, when pressures to minimize cost are widely considered to have increased.

Corporate Reputation of UK Banks and Building Societies among Ethnic Minorities

A sample of 325 (mainly ethnic minority) members of the public in six locations in Greater London were questioned about their perceptions of the corporate images of banks, building societies, and ex-building societies that had recently converted themselves into banks. It emerged that interviewees commonly applied the ‘representativeness heuristic’ when interpreting the characteristics of various forms of banking institutions, ie, they organized and structured their cognitions into ‘schemas’ which were then used to process complex and voluminous information quickly and hence to draw inferences and make judgments after very little thought. Overall, the results confirm the findings of previous studies, which have concluded that building societies possess ‘warmer’ and friendlier images than banks. Crucially, most respondents continued to ascribe these positive images to ex-building societies which had abandoned mutual status in order to become banking organizations.

The consequences of deregulation: A comparison of the experiences of UK building societies with those of US Savings and Loan Associations

It has been estimated that deregulation of US S&Ls will cost the US taxpayer £500bn in terms of the compensation paid out for the resulting scandals and failures. In contrast, the deregulation of UK building societies, although initially followed by a series of scandals and losses of £1bn., eventually resulted in substantially increased profitability. The social effects in the UK have been quite different to those in the US. As a result of the increased importance placed on profitability as opposed to mutuality, many homeowners have had their properties repossessed, and investors been mis-soId unsuitable investments. However, UK building societies, by a mixture of good luck and judgement, have avoided the principal regulatory pitfalls, which beset the S&Ls in terms of bankruptcies and fraud. This paper seeks to explain these different post-deregulation experiences. It extends to the UK the looting model of Akerlof and Romer (1993) and the managerial diversion model of Nichols (1972) which went so far to explain and anticipate, respectively, the US experience.

Economies of Cost in the UK Building Society Industry

In recent years the UK building society industry has seen increases in the competitive nature of financial services,especially from other non mutual intermediaries. The decreasein the availability of retail deposits, a traditional source of fundsfor building societies, has led many to consider. merging operations. It is the aim of this paper to determine whether there were eficiencies in merging by considering economies of costs in the industry. We discuss the averuge cost structure of the industry and estimate a cost equation that has no a prior theory regarding the underlying cost structure of societies. This equation allows a comparison with previous research of the industry that have followed specific modelling methodo1ogies.

Management Accounting Information Systems in UK Building Societies

A significant feature of the UK economy over the past decade hasbeen the growth in the financial services sector: Little has been written on the nature and content of accounting information systems in the financial services sector: To remedy, this deficiency a postal survey and interviews were undertaken to provide information on the nature and scope of management accounting information systems within UK building societies. This paper reports on the survey and interview findings relating to the role of branch and product profitability analysis for making strategic decisions, the evaluation of branch managerial performance, transfer pricing, budgeting and the monitoring of competitor performance.

The representativeness heuristic as a determinant of public perceptions of banking organisations

Three hundred and sixty‐seven members of the general public were interviewed in Surrey and Greater London in an attempt to ascertain whether they employed the representativeness heuristic when interpreting the corporate personas of UK building societies and banks. The representativeness heuristic is a simple decision‐making rule whereby an individual draws inferences about an organisation according to how closely it is perceived to resemble other organisations regarded as typical of a particular group (‘banks’ for example). It emerged that many respondents did indeed apply the representativeness heuristic in this context, resulting in their ignoring or paying little attention to a specific item of objectively useful information. The findings of previous research which concluded that building societies have ‘warmer’ and friendlier images than conventional banks are generally supported. An important observation was that building societies which in recent years have converted themselves into banking PLCs are still regarded by large numbers of people as possessing the same image attributes as unconverted building societies.

Diversification into Estate Agency: Entry Strategies by UK Building Societies 1987–1992

What can be learned from the troubled experiences of building societies' acquisitions of estate agencies?

The measurement of productive efficiency in UK building societies

This study applies data envelopment analysis (DEA) to 1992 accounting data for 57 UK building societies. DEA allows productive efficiency to be measured without specifying a functional form and without imposing any behavioural assumptions, which is particularly useful in a sector distinguished by mutual ownership. The paper sets out a number of possible objectives for the organizations and measures their relative efficiency under each specific definition. Considerable variation results from the alternate objective functions tested. Decomposing total efficiency into scale and technical components suggests that there is no optimal size of operation for building societies, but rather that specialization allows a variety of activities and organizational structures to exist within the sector

MUTUALITY, PERFORMANCE AND EXECUTIVE COMPENSATION†

ABSTRACTSThe determinants of CEO compensation within the UK Building Society sector are investigated. Using an unbalanced panel data set for the period 1986–90, we find only weak support for the existence of a positive link between performance and CEO remuneration. In contrast we find age to be an important determinant of CEO pay increases. This finding reinforces the oft noted potential for inefficiencies in mutuals. Given that alternative market based control systems are absent, our results suggests that there is a lack of any mechanism to align owner and manager interests in the UK building societies.

UK building society diversification into estate agency 1987–1992: a case study of risk minimization and experimental strategies

The entry of building societies 1 1The primary purpose of a UK building society is to generate futids from individual rncrlibers for lending on owncroccupied residential property. Societics hold approsi~nately 47% of personal sector liquid assets and 62% of balances outstanding on loans for house purchase. into estate agency 2 2The traditional role of the estate agent is to act as an intermediary in negotiating the sale of dotnestic property. The agents acts 011 behalf of and is remunerated by the vendor. post-dated that of other financial institutions and represented the main thrust of initial diversification activity under the Building Societies Act, 1986. The move, by all but one of the largest 13 societies during 1987–1992, involved a departure from core activities and entry into an alien industry in terms of culture, practice and structure. This paper traces these developments, highlights the pitfalls in the diversification process and provides an evaluation of the risk minimization and experimentation strategies employed by building societies. While the data relates specifically to building societies the analysis has broader appeal both within financial services and across other industry sectors.