Things have gone sour for one of the last mutual building societies, which faces a landmark agm next week, writes Paul Cullen.
Family spats are always bad, but it's often worse when things go wrong in a happy-clappy kind of clan. This is where the EBS building society finds itself, ahead of a David-versus-Goliath clash between the board and dissident director Ethna Tinney at an agm on Monday.
Tinney, an RTÉ producer who has sat on the board as an independent director since 2000, is seeking re-election against the wishes of her board colleagues. They say they she has lost their confidence because of her performance as a director but she says the row has more to do with her stand on corporate governance and directors' pay issues.
The EBS is one of the last of the mutual banks, a dwindling band of commercial associations owned by its members, in this case 280,000 savers and mortgage-holders. On the face of it, it's a collective enterprise devoted to delivering the best possible outcomes for its members. Even its name - it was originally the Educational Building Society - evokes a moral tone you wouldn't find in its upstart competitors; you feel George Bernard Shaw would have approved.
The maths are simple, and for many years they worked. EBS wasn't out to maximise profits like other companies, so any surplus could be ploughed back into higher interest rates on savings and lower mortgage rates. As a result, its offerings were usually the best around, and customers flocked to it, as much for its better rates as for the touchy-feely mutual experience.
But that was before serious competition arrived in the Irish banking market. Over the past decade, a succession of foreign banks have opened here or taken over local financial institutions, and most have slashed their mortgage rates or developed high-interest savings products in order to win market share. Thanks to intense competition, it's possible - in theory at least and before taxes are counted - to earn a higher rate on savings than you pay on a mortgage. The suspicion is that some financial service providers are treating the mortgage market as a loss leader to win and keep new custom.
Suddenly, EBS was no longer top dog. In mortgages, it's still a good performer in medium-term fixed mortgages - not that many customers are interested in these. Its standard variable rate, at 5 per cent, is at the lower end of the field and it's a virtual non-runner when it comes to the lowest rates for tracker mortgages, which are seen as the most competitive products available these days.
"EBS doesn't offer as good value as say National Irish Bank for new customers but it's still cheaper than the vast majority of mortgages out there," says Brendan Burgess of financial website askaboutmoney.com. "The reason we think they're dear is that they used to be the cheapest, plus the fact that they're a mutual and we feel that as a result they should have better offers."
IN SAVINGS, THEcontrast is even greater. EBS's instant access account offers rates as low as 0.5 per cent, compared with more than 4 per cent offered by the likes of Northern Rock. And it charges the highest penalty fees for its credit card, according to a survey published by the financial regulator last month.
The good news for the building society is that its customers, no less than the rest of Irish consumers, suffer from hefty doses of inertia. Although it has become much easier to switch mortgage providers in recent years, most of us still regard it as too bothersome to be worth doing.
At least until now. To judge from the chatter on various financial internet sites this week, quite a few EBS customers have been so appalled by the row between director Tinney and the board that they say they will move their business elsewhere.
"If I was on the board of EBS I don't know what I would do," Burgess comments. "They have been squeezed. Even if they cut costs, if there's no margin they're still stuck." The potentially ruinous publicity stemming from public rows and leaked memos prompted the company to run damage limitation advertisements this week urging customers not to be misled by "some stories you might read". But the genie is out of the bottle, and customers are asking questions that won't go away.
Principal among them is why chief executive Ted McGovern earns €654,000 a year, or why former board chairman Brian Joyce earned €95,000 last year, at a time of such under-performance. The non-executive directors, Tinney included, received €42,000 for attending 12 meetings a year.
In the current row, the board is claiming Tinney scored badly in an assessment by her colleagues. Tinney says the board's refusal to support her re-election is motivated by her opposition to a mooted deal between EBS and Rabobank (itself, ironically, a Dutch co-operative) and her concerns about executive pay.
MONDAY'S MEETING WILLbring a result of sorts to this dispute, but the wider issues will not go away. Since First National and the Irish Permanent demutualised some years ago, only EBS and the Irish Nationwide Building Society remain as mutual societies, and the latter is only biding its time to sell itself off to a suitable buyer. EBS talks about "evolving the customer-owned EBS mutual model" and creating a "distinctive member service experience" but the reality is that it is cutting costs and closing branches.
The flagship branch on Dublin's Westmoreland Street closed after Christmas and customers - myself included - were redirected to a far smaller outpost on Liffey Street, one of just two remaining branches in the city centre. Many inquiries are now dealt with by a call centre-type operation from EBS headquarters on Burlington Road, thus severing the traditional face-to-face link between the society and its customers.
With all the turmoil, it isn't surprising that staff are leaving too; only this week, a former senior EBS executive popped up as the chief financial officer of a new venture between An Post and Fortis, an international banking and insurance provider.
But as Burgess points out, EBS isn't the only organisation under pressure as a result of the huge changes in the sector. "The credit unions are facing exactly the same type of problem. Five or 10 years ago, there was no competition in the Irish market so an expensive lender could still appear cheap, but that's no longer the case." It's ironic, too, that organisations set up in a co-operative spirit, such as EBS and the credit unions, have proved so prone to internal disputes. And much worse, if you look at the experience of similar institutions abroad, such as the collapse of the Saving and Loans associations in the US in the 1980s or the near-collapse of the Equitable Life insurance company in the UK in 2000.
The current row also highlights the democratic deficit at the heart of Irish business. At least in the case of EBS, it's one person, one vote, even if only 10,000 out of 280,000 members usually exercise this privilege.
In most companies, the block votes of large shareholders, often pension funds, steamroll the objections of smaller, individual shareholders, as anyone who has attended recent agms of the large banks will attest to.
Yet EBS-style democracy is severely circumscribed. Staff have been ordered to toe the line on the Tinney issue and are actively encouraging customers to give the chairman their proxy votes to use at his discretion (in favour of the board). Even if the members wanted to demutualise, they couldn't; only the board can take that decision.