Britain needs to improve the way its businesses are owned in order to create higher long term economic growth, declares the Ownership Commission today.  Government should act to ensure that all types of business, from the PLC to family, co-operative and employee owned firms, are able to play their part in creating wealth and a strong economy.  The Commission, chaired by Will Hutton, has examined every form of business ownership over the last two years. Today, at an event in London, it launches the first ever report of its type with Business Secretary Rt. Hon. Dr Vince Cable MP.

The report calls for:

•  Greater plurality in corporate ownership
•  Better stewardship of companies
•  Greater engagement of employees and shareholders

Click here to read the report in full or visit The Ownership Commission website here.

Greater plurality in corporate ownership

UK business is dominated by the PLC as the default form of business organisation. Yet private companies, family controlled companies, employee owned firms and mutuals provide more opportunity to deliver different business models, promote more resilience in the wider economy, allow investors and savers more avenues in which to invest and give consumers more choice.

Better stewardship of companies

Shareholders, trustees, investment management companies and directors should have the definition of their fiduciary obligations widened to include better stewardship, and for this to be better enforced by closer links between the ultimate owners and managers.

Greater engagement of employees and shareholders

Engagement of employees, shareholders and other business stakeholders with management is proven to increase the performance and accountability of businesses.

Speaking ahead of the launch of the Commission Report, its Chair Will Hutton said:

“The financial crisis and the protracted problems in its wake has opened up the debate about how well our economy is owned, run and managed. Good ownership is indissolubly linked to good capitalism. The golden thread running through all our proposals is that the route to good ownership is better to connect citizens either through the institutions that invest in their behalf or as individual shareholders or as consumers and workers with their companies.

The heart of good ownership is engagement and stewardship expressed through as many ownership forms as possible. Britain will have a better performing and more resilient economy the more seriously it can develop better ownership – as important for the public as the private sector. We offer this report as our contribution to a vital national debate.”

CBI Chairman, Sir Roger Carr said:

“The Commission has proved an excellent forum for an objective review of the strengths and limitations of a wide range of ownership models. It is hoped that the recommendations will make a valuable contribution to both their effectiveness and stewardship in assisting growth in the United Kingdom.”

Co-operative Group CEO, Peter Marks said:

“The financial crisis has shown us how important it is that the businesses we rely on for growth, employment and wealth generation are well managed. We have also seen how differently owned firms responded to the risks and challenges of the economic turmoil. This report shows how we can learn from this and ensure that UK business is better placed to build a prosperous future.”

John Lewis Partnership Chairman, Charlie Mayfield said:

“At JLP we seek to balance the interests of our Partners (employees), our customers and our suppliers to achieve long term commercial success. The Ownership Commission’s report brings together vital evidence that supports the importance of “good ownership” in its various forms and sets out the rationale for appropriate intervention with proposals that have far-reaching implications for the UK’s corporate culture and performance. In particular, I welcome the call for Government to promote a greater plurality of ownership and I see employee owned businesses playing a key role within that agenda.”

Rt. Hon. Tessa Jowell MP, on whose initiative in government the Commission was founded said:

“The distinguished panel have set out the definitive argument for why ownership matters, for economic success, shareholder activism and decent capitalism. I hope its proposals will be received with widespread support and action.”

Background

The financial crisis has forced governments in Britain and elsewhere to revisit the way our businesses are owned.

The Ownership Commission was established in 2010 to review the state of ownership in the UK, to examine the extent to which it supports or inhibits successful, long-term value creation by business in all its ownership guises. This involves assessing the governance and ownership of Public Limited Companies (PLCs) as well as considering the contribution of non-PLC forms, including family ownership, mutuals, co-operatives and employee ownership.

With a membership drawn from a cross section of senior business leaders and commentators, the Commission has undertaken research, interviewed witnesses and conducted study visits to North America and Asia.

The Commission members are:

Will Hutton (Chair) – Principal, Hertford College, Oxford
Glyn Barker – Chairman designate of Irwin Mitchell and a director of The Berkeley Group Holdings plc
Sir Roger Carr – President of the CBI, Chairman of Centrica plc
Lady Sylvia Jay – Chairman, L’Oréal UK & Ireland
Peter Marks – Group Chief Executive, The Co-operative Group
Charlie Mayfield – Chairman, John Lewis Partnership
Colin Melvin – CEO, Hermes Equity Ownership Services
Professor Jonathan Michie – President, Kellogg College, Oxford
Paul Mullins – European Chief Executive, DC Advisory Partners
Oliver Nyumbu – Chief Executive, Caret UK
Ruth Sunderland – Associate City Editor, Daily Mail

Click here to read the report in full or visit The Ownership Commission website here.

Mutuo Chief Executive, Peter Hunt said:

“This will greatly increase choice on the high street for consumers that are looking to do business with a customer focused and owned bank.  It will increase corporate diversity in the financial services sector and help to challenge the banking monoculture that led to the financial crisis.”

The result, viewed dispassionately, has been a great deal of confusion and comparatively little concrete change. The debate has been largely theoretical and, because each form of mutual has its own passionate advocates, it has not led to any shared understanding even on what a mutual is. In illustrating the benefits of mutuality, the Cabinet Office has pointed mainly to employee owned enterprises but the biggest examples of public service mutuals – NHS Foundation Trusts and co-operative schools – give wider ownership and offer service users a voice. Whilst the debate has been going on local authorities, faced with an imperative to reduce cost, have been achieving this by the tried and tested method of large scale redundancies; in some services, this has significantly compromised the chances of establishing a new enterprise before the idea has even been considered.

Three principles have informed the development of the Mutual Business Detector:

• If mutuals are to play a part in the delivery of public services, there is a need to make and implement decisions quickly

• Councils do not have the resources to carry out sweeping, large-scale options appraisals

• There needs to be a focus on practice rather than theory – the question is not whether mutuals are a good thing but whether a particular service in a particular place will operate effectively as a mutual

The Group accepts that the Coalition Government has been in power for just over a year and so there are limitations to how easily one can gauge their success in promoting mutuality over such a limited period of time.  However, from the evidence given to the Inquiry, it is clear that the Government has not yet developed a clear strategy to promote mutuals.

The Inquiry found that the Government appears to have concentrated its policy efforts on encouraging the development of new mutuals to provide public services rather than to support the existing financial mutual sector.

The Inquiry was convinced that the existing mutual sector would like to help the Government to deliver its policy agenda, but in return it would require continuing practical help and support from the Government to maintain and enhance existing mutual businesses.

Members heard that building societies had benefited over the last twelve months from a positive working relationship with HM Treasury and FSA officials, which it is hoped will yield positive results on the search for new capital instruments.

At the same time, mutual insurers and friendly societies have reported that they face serious threats to their future as a result of the FSA’s attitude to their sector, and HM Treasury’s apparent unwillingness to engage with them.

Evidence from both the FSA and HM Treasury witnesses has done nothing to contradict the impression that insufficient support is being provided to this crucial part of the mutual sector.

The All-Party Group takes note of the Government’s initiatives so far, but is not convinced that the Government has so far been able to articulate a clear vision for promoting mutuals.

This Group has therefore concluded that:

• HM Treasury appears to have taken a reactive stance to the mutual sector – beginning to deal with important issues such as building society capital, but little else of substance.

And  recommends that:

• It is imperative that the Coalition urgently adopts a comprehensive policy strategy to implement its Coalition Agreement commitment to promote mutuals.

• HM Treasury should act as a strong advocate for mutual businesses, in particular in its dealings with the Financial Services Authority and subsequent new regulatory authorities.

• HM Treasury should pro-actively promote the interests of financial mutuals within Government, and ensure that balance is given to understanding and promoting mutuals across all Government departments

Mutuals Yearbook 2011

The current economic and political imperative is to promote ways of organising finance, risk, public service and enterprise, that are both dynamic and responsible at the same time. For a while, ‘social enterprise’ appeared to offer a third way, between state and market; today, we’re told that it is the ‘Big Society’.

Regulators and policy-makers are seeking principles via which to distinguish the ‘socially useful’ parts of the private sector, from those which seek only to inflate private earnings as fast as possible. Mutualism adds much-needed clarity to all of this, by offering well understood, viable organisational structures, that are entirely alien to both Whitehall and the deal-makers in the City.

The organisations and sectors described in this report all share an ethos, that treats profit as a possible side-effect of co-operation and worthwhile service delivery, but never the purpose. Now that Britain has painfully discovered that money cannot be magically turned into more money, without hard work, long-term commitment and good management in between. There is a pressing need to learn from, expand and add to these mutuals, in both public and private sectors.

Social Housing: Made Mutual

Over recent months, RBH has been working with tenants and employees to develop a new ownership and governance model for the future of council housing in Rochdale.

The vision is based on co-ownership, with tenants and employees as members, to build into the fabric of the organisation a sense of shared priorities and working together.

This concept emerged from the deliberations of an Investment and Involvement Commission set up by Rochdale Metropolitan Borough Council in 2009 to examine the future options for the Council’s housing stock. The final recommendation of the Commission was to transfer the housing stock, which is currently owned by the Council and managed by RBH as an arms-length management organisation, to a new mutual model co-owned by tenants and employees. It saw this as the best way to secure long-term financial sustainability and to give tenants and employees a stronger sense of ownership in providing high quality housing service for the future. The transfer is subject to the approval of the tenants in a ballot and final Council and Ministerial consent.

This approach is put forward as a new form of public ownership. It is a community benefit society (industrial and provident society) with a legal commitment to public purpose, and retention of any surplus for the benefit of the community. Through democratic governance arrangements involving tenants, employees, the Council and other key local interests, those responsible for delivering services are directly accountable to those most affected by them.

This new co-operative or collaborative approach, which is consistent with the co-regulatory approach followed by the Tenant Services Authority, has the potential to break down binary or dualistic relationships, and to get people, bodies and agencies working together much more effectively for the benefit of the community. It also forms a new basis for collaborative working with the Council itself. It is a model which other ALMOs may be interested in exploring. For the reasons discussed below, it may also be a model which existing housing associations would like to explore.

NHS community services are undergoing a seachange. These fundamental services which rarely attract the headlines – including health visiting, midwives, rehabilitation, community and specialist nursing, therapies such as speech and language, physiotherapy and podiatry – account for about 10% of NHS expenditure.

As part of the Coalition Government’s plans to create the “largest social enterprise sector in the world”, a significant number of community health service providers are being separated out from Primary Care Trusts and established as independent social enterprises.

Four of these new providers, which are featured in this publication, have been set up as member-based organisations, with democratic governance, and a professional board of executive and non-executive directors. As independent trading organisations, they need to operate in a business-efficient way and to make a profit (income exceeding expenditure) in order to survive; but they exist to provide services for the public benefit, not to trade for private benefit.

Although they are no longer state-owned and controlled, they are constitutionally and culturally committed to providing services for the public benefit, according to traditional NHS values and principles. They are led by people who are convinced that this is the way to secure the long-term future of NHS services.

These new organisations are not yet well-known or understood; but they are examples of the future of public ownership.

It features:

- Nationally renowned speakers in plenary sessions
- Specialist break-out sessions to appeal to all interests
 
The Mutuals’ Forum is a once in a year opportunity for senior executives and elected representatives to meet to discuss the main issues facing mutuals, and to hear from Government representatives about how they intend to work with the sector.
 
The Mutuals Forum is now open for booking, click here for more information.