Will a Nationwide customer’s boardroom challenge shake up UK corporate governance?

In July 2016, in a canalside conference centre in central Birmingham, Theresa May took the stage for a speech that would formally launch her Tory leadership bid.

The home secretary of six years was seen as a safe pair of hands, including by the business community still reeling from the shock result of the Brexit referendum. What business had not banked on, though, was a social reform platform that would see May pledge to rein in corporate Britain and give workers and consumers seats on company boards.

“If we are going to have an economy that works for everyone, we are going to need to give people more control of their lives,” she said. “And that means cutting out all the political platitudes about “stakeholder societies” – and doing something radical.”

It was a gamble. But while it borrowed from left-leaning models used by other EU states, it echoed the kind of anti-establishment rhetoric that had fuelled the pro-Brexit vote and ultimately led to David Cameron’s resignation as prime minister weeks earlier.

Days later, May took Cameron’s job. But her dreams of boardroom reform were scuppered, having quickly bowed to powerful business groups keen to kill off the radical reforms. Meagre changes followed instead, allowing listed companies to do as little as assign one of its existing board members to engage with workers, or, simply explain why they failed to do so.

But now, a decade on from May’s speech, one of the UK’s biggest lenders is facing a customer boardroom that could shake up the status quo and revive the debate over corporate democracy.

Nationwide building society will, on 15 July, have one of its customers up for a boardroom seat at its annual general meeting (AGM). It is a significant moment, including for 45-year-old James Sherwin-Smith, who has been a vocal advocate for overhauling the governance of the 142-year-old building society.

Building societies – which are owned by their members – remain one of the only UK sectors that legally gives its customers the right to nominate peers for boardroom elections. But that does not mean it is common, or easy, to make the cut.

Sherwin-Smith has spent the better part of two years gathering more than 250 peer nominations from scratch, given member details were withheld, owing to data rules. Signatures only qualified if nominators’ balances or loans stayed above a certain level – £100 or £200 in most cases – over the preceding two years. “I didn’t expect the process to be easy, but I also didn’t expect that securing the necessary nominations would be quite this hard,” Sherwin-Smith said.

But that was just the first step. “Getting 250 people to nominate you is no small hurdle,” said Andrew Johnston, a professor of company law and corporate governance at Warwick University. He believes Nationwide will be weighing its options carefully. “I suspect they don’t want him on the board because he’s going to just ask lots of awkward questions about stuff that they want to do.”

There are now no member-nominated directors sitting on any of the UK’s 42 building society boards, according to the Building Societies Association (BSA), and only three member-supported candidates have been elected to Nationwide’s board in living memory.

That includes Paul Twyman, whose retirement in 2002 marked the last time a member-nominated director held a boardroom seat in Nationwide or any UK building society.

That has meant that while Nationwide’s listed banking rivals including Barclays, Lloyds and NatWest have to answer to shareholders, Nationwide does not have to answer many intrusive questions, apart from those posed by regulators – or members – at its virtual-only AGMs. Nationwide said it engaged with members through a 6,500-member talkback panel as evidence of engagement, though some critics claim this is more of a market research panel.

“The managers of the mutual are insulated from outside pressure,” Johnston said. “Is it good or bad? The answer is always: it depends.”

“If they’re not being held accountable to anybody, then they could be abusing their position or the quality of their decisions could be poor, and they’re just not having to justify themselves. So it creates a danger of groupthink.”

In 2016, business lobby groups such as the Confederation of British Industry (CBI) were careful in making public arguments against May’s boardroom reforms. However, they did raise some specific concerns, including around corporate confidentiality and that it would be difficult to find someone who properly represented workers or customers.

Gareth Thomas, the chair of the all-party parliamentary group for mutuals, said he was wary about giving unseasoned members a seat on the board of the UK’s second largest mortgage lender, with about £368bn worth of assets. Specifically, he fears they might try to upend the mutual model and profit from the payoffs that follow. “If you don’t have thresholds for the bigger institutions then you risk opening the door to those who want to demutualise,” he said.

The BSA chief executive, Sara Harrison, agreed that lenders like Nationwide needed to be cautious when accepting members into the fold. “It’s right that members have the ability to apply to be on board … But it doesn’t follow that just being a member alone, or a customer alone, is sufficient to be on the board, because there are skills, there’s expertise, there is experience that will be needed … in order for that board to be able to deliver for its customers.”

“I am against demutualisation, in common with the stated position of the Nationwide board,” said Sherwin-Smith. “As to complexity, building societies rely on their members to accept the accounts, appoint auditors, vote on remuneration reports and policy, and elect directors. To suggest that they are incapable of standing for election to the board that serves their interests is offensive.”

The former Oliver Wyman consultant has undoubtedly ruffled some feathers, having held Nationwide’s feet to the fire for not holding a member vote over its £2.9bn takeover of Virgin Money in 2024, and again for failing to hold a binding vote on a 43% pay rise for its chief executive, Debbie Crosbie last year that pushed her maximum pay package to £7m. In short, Sherwin-Smith is concerned that the building society’s rapid growth has compromised its democratic roots, leaving members with a much smaller say in its operations.

Nationwide has yet to answer some questions about the election process. It said Sherwin-Smith would need a simple majority of more than 50% to be elected, like other directors. However, the society did not confirm whether he would need to get more votes than, and unseat, an existing board member. It also said the remuneration committee had yet to decide whether Sherwin-Smith might be paid.

The board is also deciding whether to officially recommend Sherwin-Smith’s election to members. A refusal to do so would significantly hinder his chances, given the board gives members a “quick vote” option that backs all board recommendations with one click.

Monica Franco-Santos, a senior academic specialising in corporate governance at the Cranfield School of Management, said this could be used to sway member votes. “A one-click endorsement of the board’s preferences is likely to make ratification the default, and that is a powerful control mechanism,” she said.

Nationwide said that it had used the quick vote model for more than 20 years and that the vast majority of members said they “understand the choice that it gives them and they value the convenience it provides”.

“Nationwide may not have shareholders, but it does have strong membership involvement,” the mutual added. “Every director is elected each year by the society’s membership, and they are under a duty to act in the interests of the society and its current and future members. More people are choosing Nationwide than ever before and it has had market-leading customer satisfaction for 14 years.”