The Gazette 1986

INCORPORATED LAW SOCIETY OF IRELAND GAZETTE Vol. No. 80 No. 5 JUNE 1986

Building Societies Under Scrutiny

T he recent publication of the Government's 'Discussion Document on Building Societies' is welcomed. It had been a matter of concern that the earlier report of the Interdepartmental Committee's enquiry which had been announced with such a flourish had not been published. Much of the Discussion Document is naturally concerned with the function and methods of operation of building societies and contains many valuable proposals. The increase in management expenses which is documented gives cause for concern while other practices such as redemption fees and tiered interest rates come under deserved scrutiny. The self-perpetuating oligarchical nature of building society boards of directors is also referred to. In this context and in the context of recent developments in co- operative societies, all of which operate under similar legal controls, the question of monitoring the performance of their executives clearly arises. The recent report of the Restrictive Practices Commission on Insurance and Valuation Reports for Building Societies also contains some criticisms of the way in which the building societies act and the individual societies' rules encourage the perpetuation of control by virtually self-chosen boards of directors. The absence of any statutory provision requiring the maintenance of any register of members makes it extremely difficult for any member, seeking to canvass the membership either for support for election to the board or for motions at general meetings, to identify the electorate. Rules which permit retiring board members to be automatically renominated but for new candidates to have substantial numbers of nominators should not be permitted. It must, however, be doubtful whether such changes alone will provide the necessary independent supervision which is desirable. There are no institutional shareholders whose possible intervention hangs over the heads of boards of public

companies. Independent non-executive directors might provide a partial solution but recent Irish experience casts doubt on this. Perhaps the best solution might be an independent supervisory board, such as exists in German Company law, with real authority over the activities of the executive board. However, it is the section of the Discussion Document dealing with conveyancing and lending practice which makes the document of most interest to the legal profes- sions. Apart from a reference to the "introduction of a standard form of contract" which suggests that the information of the Committee which compiled the document is years out of date, the recital of the arguments in relation to the "third solicitor" are unsatisfactory. There is no reference to the Law Society having recommended that lending institutions should accept the certificate of the purchasers' solicitors as to title, nor is there reference to the principal argument made in favour of that "certifying" practice, namely that it has operated satisfactorily in England, Wales and Scotland and Northern Ireland for many years. The suggestion that the problem could be dealt with by means of building societies' solicitors acting for the purchaser is curious in a report which is otherwise critical of "monopolistic" practices. The Committee appears not to appreciate that a principal factor in the appointment of firms to panels is not just their legal expertise but their ability to provide funds for investment in the societies. It is disappointing that the work of the Committee established by the Minister for the Environment on delays and costs in house purchase transactions has been itself delayed. It is to be hoped that the publication of this Discussion Document will galvanize that Committee into its report which hopefully will support the position already taken by the Law Society on certificates of title. •

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