Personal finance: If societies are to fight carpetbaggers they must focus on their USP - value

IF THE squeals of delight emanating this week from many of the UK's building societies are correct, we are about to witness the end of

carpetbagging.

A Treasury select committee report, just published, makes recommendations designed to end the desperate battles against de-mutualisation - some won, others lost - endured in recent years by a succession of societies, including Nationwide and Bradford & Bingley.

A key proposal from the committee is to raise the threshold of borrowers required to back a formal conversion proposal from 50 to 75 per cent.

Other suggestions include using the law to raise the number of members needed to propose motions or special resolutions. Most societies currently require just 50 signatures from bona-fide members.

Adrian Coles, director-general at the Building Societies Association, was this week reported as being "delighted" with the select committee's report, as were other society chiefs.

If only real life were as simple. First, this stuff about 75 per cent majorities. As it happens, a classic example comes from Bradford & Bingley recently. There, the society found itself at the end of a 60:40 vote to seek flotation. Yet the majority among savers did not reach the required 75 per cent, while the majority of borrowers actually voted against the motion.

After the vote, building societies were heard muttering that, with that kind of result, the Bradford & Bingley board should have refused to concede defeat. After all, they would have been acting by the rules: right?

Wrong. Ignoring a majority vote, would have unleashed a tidal wave of anger among members, including many of those initially opposed to the flotation.

Borrowers have the most to lose from flotation - the cost of their monthly payments is bound to rise - and this could still put the skids under the proposed flotation of Bradford & Bingley. But all that would do is create the potential for internecine warfare between the society's borrowers and savers.

The most likely scenario is that a large financial institution would step in with a takeover offer which included guaranteed competitive mortgage rates for a limited period.

As for increasing the number of members needed to force a vote - not only does that risk looking undemocratic, it is unlikely to succeed. Members could still combine, probably by means of an Internet website or other media?

The reality is that using bureaucratic devices to prevent carpetbagging will not work. For societies to succeed in their continuing battle against carpetbagging and would-be takeover merchants, they need to concentrate on their unique selling proposition: delivering superior value to their members.

If they can't deliver on that - and that alone - they won't succeed, no matter what legal tricks they get up to.