mutuo-yearbook-2009
Download the 2009 Mutuals Yearbook

Media reports have shown a recent surge in interest providing public services through mutuals. This article outlines the opportunity for policy makers.

What is a mutual?

Mutuals are businesses that are run in the interests of, and owned by, their members. In many cases, such as in traditional co-operatives and building societies, these will be beneficial owners.

But in recent years, many mutuals have been established on the basis of ‘community ownership,’ which means that individuals receive no personal benefit as a member, but are effectively stewards for their defined community. No profits are distributed and the organisation is focussed on serving its customers.

It is the latter type of mutual that is appropriate for providing public services.

Some types of employee owned firms are also called mutuals and their dynamics are different from user facing mutuals. Such organisations may be appropriate for providing public services in contested environments, where they are in competition with the private sector.

However, it is important to seek to build organisations that take advantage of the best features of all mutuals, including a strong culture of engagement with staff.

What makes mutuals different?

It all comes down to governance. Basically, mutuals are designed to be businesses first and foremost. They share many governance features with private sector firms in that they have a professional executive to run the organisation. The executives in turn report to a board of executives and non-executive directors.

Mutuals diverge from this private sector model by being ultimately accountable to their users (funders through tax payments), rather than to investor shareholders, whose interest is financial.

Instead of seeking a profitable return for their investment, the users are interested in, and motivated by, the efficiency and quality of the service being provided.

Mutuals will empower their members to participate in the governance structure in various ways – typically by having a special governing tier that has real power, connected to the Board structure.

Typically the power may be one of appointment to the Board, or it may be over the strategy of the business. Without meaningful powers, membership governance will be weak. People will join such a mutual if they have an interest in the service it provides, and membership is taken seriously.

Yet, membership is not just about participation in elections. A successful mutual will adopt a culture of engagement with its members and value their opinions on service range and quality. It will facilitate a range of opportunities for members to contribute on such matters.

Where mutuals may be appropriate

Mutuals are appropriate where there is a need for a business-like approach to delivering a service, allied with a need to make it ultimately accountable to the community which it serves, and pays for it through taxation.

Community based mutuals are particularly suited where there is no real competition to the public sector providers – such as in schools or hospitals, where the competition that does exist is also funded by the taxpayer.

The most significant example is NHS Foundation Trusts, which are health businesses, working under the NHS brand, but independently accountable to their own community. In these mutuals, the membership is a proxy for the wider community of users.

Co-operative trust schools and social housing mutuals are other examples.

Employee led mutuals are appropriate in contested environments, where service providers rely on contracts with public procurers.

Start up vs conversion

It is possible to start up a new mutual from scratch, with a clear intention to provide public services. However, this is a difficult route and faces the same problems as any new business. (Access to capital, market access, expertise etc.) This has been a significant barrier to employee led mutuals entering the market.

The most successful and large scale new mutuals in public services have been conversions of established state or municipal service providers.

This is because the business and the market already exists and there is leadership from the existing executive management.

Realistically, only conversions are likely to make any significant impact in the provision of public services in the short or medium term. Start ups will require many years to reach the same level of impact.

Making conversions work

Conversions are about much more than adopting a new corporate status.

If we look at the experience of NHS Foundation Trusts, these organisations have had to change radically to succeed. Driven by a strong and empowered regulator, these bodies have had to become competent businesses in a very short time scale. In practical terms, they have often needed to recruit new executives (particularly with business experience such as finance directors) and have seen a significant churn of non-executive directors.

Ultimately, a new business culture is needed that is far from the public sector model and often requires new people. It is certainly a challenge to long held attitudes and ways of working.

At the same time, significant external support was provided to the first foundation trusts, who received financial support to buy in advice from outside the traditional NHS. This helped them to understand and succeed with new and different governance structures. Subsequent waves of conversions received no such support and have struggled in governance terms as a consequence. The lesson is that converting organisations need support.

This support cannot be provided by Government, because the simple fact is that the required skills do not exist in the public sector. This is a useful lesson for the various departments providing support to social enterprises. It is clearly a service that requires external expertise.

Summary

• Public sector mutuals are businesses that are accountable to their users
• Members own them on behalf of the user community
• Mutuals are particularly suited to proving public services in non-contested environments
• The most likely route to creating successful mutuals is through conversion rather than start up
• New skills and cultures need to be adopted to make a conversion succeed
• The government should support conversions by sourcing external advice and support
• A strong and empowered regulator can be a good catalyst to the success of conversions

Copyright Mutuo 2009

http://www.flickr.com/photos/dominicspics/1381505612/

A report published for the Building Societies Association (BSA) reveals a strong case for converting failed banks into mutual organisations and urges the Government to consider seriously returning Northern Rock to the mutual sector.

The report, written by the Centre for Mutual and Employee-owned Business at the University of Oxford, concludes that there are three economic arguments for a mutual sector of critical mass as part of a mixed financial system: bio-diversity, risk appetite and competition.

Bio-diversity

The more diversified is a financial system in terms of ownership and governance structures and portfolio make-up, the better it is able to weather the strains produced by the normal business cycle.

Mutuals, which are not owned by investing institutions, can counter-balance the short-termist pressure of the City. Mutuals also play their part in reducing the concentration of financial sector resources and employment in the City, dispersing wealth and welfare to regional and local economies.

Risk appetite

Mutuals tend to adopt a lower risk profile both because their objective is safety and fair pricing for members, not profit extraction for shareholders, and their main source of capital is that generated within the business, which is not easily replaced.

Competition

Keeping a reformed Northern Rock independent of the big banks is good for competition. As a mutual committed to its core business, a remutualised Northern Rock will help the Government to meet its policy objective of supporting competition and diversity through the maintenance of a strong mutually-owned financial sector.

Repaying the taxpayer

In any exit process the Government needs to realise the optimum value for the taxpayer. A re-launched and re-mutualised Northern Rock can pay for the taxpayer stake over time. A deferred payment profile can give the optimum outcome, both returning the full value to the taxpayer but also achieving other public policy goals.

Commenting on the report,

Jonathan Michie, Professor of Innovation and Knowledge Exchange at the University of Oxford and primary author of the report, said:

‘We must not allow the UK’s financial services sector to return to the ‘business as usual’ model that has proved so costly to the economy and public finances. Already we are seeing a return to the bonus culture. This is fuelled by profits boosted by the increased market power of banks. It is vital that the banks face competition from mutual building societies. That would also reduce the risk of the credit crunch being repeated. Remutualising Northern Rock would thus deliver to consumers and taxpayers.’

Adrian Coles, Director-General of the Building Societies Association, said:

‘The Government has said that financial mutuals can provide a robust alternative to financial services companies in the future – what better way to demonstrate this than to considering returning Northern Rock to the mutual sector?

Given that remutualisation would strengthen competition and create a more diversified financial sector, it could be expected to generate an advantage to the taxpayer over the long run in excess of the immediate benefit of any capital proceeds in the short run.’

To download the report click below:
remutualisation

Introduction

From the publication of MP’s allowances to the election of the new speaker today - it is indeed a busy time. Events of interest this week are listed below including first and foremost an updated list of all government ministers.

Update of Government Ministers

http://www.parliament.uk/mpslordsandoffices/government_and_opposition/hmg.cfm

This Week in Parliament

Monday 22nd June

House of Commons, Main Chamber, 2.30pm Election of a New Speaker

Tuesday 23rd June

House of Commons,12.30pm - 1pm

Regulation of the insurance industry – Mr Tom Harris MP (Labour), Westminster Hall

House of Commons, 10.30am

Finance Bill Committee
Committee Room 10, Palace of Westminster

House of Commons, 9.45am, Treasury
Banking Crisis: Public Regulation
The Thatcher Room, Portcullis House

Wednesday 24th June

House of Commons, 2.30pm Treasury Select Committee
(i) May 2009 Inflation Report (ii) Banking Crisis: Regulation and Supervision
The Wilson Room, Portcullis House

House of Commons, 3.30pm Public Accounts

Reducing Healthcare Associated Infections in Hospitals in England

House of Lords, Grand Committee, Orders and Regulations

Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009 Amendments to Law (Resolution of Dunfermline Building Society) (No. 2) Order 2009 Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009 – Lord Davies of Oldham

House of Lords Select Committee, 4.30pm EU Sub-Committee E: Law and Institutions

Recognition and enforcement of judgments in civil and commercial matters
Committee Room 2A, Palace of Westminster

Thursday 25th June

House of Commons, 9am Finance Bill Committee
To consider the Bill, & 1.00pm
Committee Room 10, Palace of Westminster

House of Lords, Main Chamber, Debate, Role of the NHS - Lord Walton of Detchant

Last Weeks Debates

Tuesday 16th June

Banks: Closures

David Evenett MP (Conservative) asked the Treasury how many bank branches have been closed in the last six months by banks in which the Government has purchased a shareholding in the last two years http://www.publications.parliament.uk/pa/cm200809/cmhansrd/cm090616/text/90616w0022.htm#column_243W

Wednesday 17th June

Bradford and Bingley

Alan Meale MP (Labour) asked the Treasury on what date Ministers in his Department asked departmental officials to draft proposals to take the Bradford and Bingley Building Society into public ownership

http://www.publications.parliament.uk/pa/cm200809/cmhansrd/cm090617/text/90617w0010.htm#column_323W

Friday 19th June

Child Trust Fund: Milton Keynes

Mark Lancaster MP (Conservative) the Treasury how many child trust vouchers have been issued to residents in Milton Keynes North East constituency
http://www.publications.parliament.uk/pa/cm200809/cmhansrd/cm090619/text/90619w0010.htm

The Group is committed to supporting mutuality in building societies and financial mutuals. The Group has an active programme and in the last two years has had frontbenchers from the three main political parties address its members. Kitty Ussher MP, formerly Economic Secretary to the Treasury; Mark Hoban MP, Shadow Minister for the Treasury and the Rt Hon Vince Cable MP, Shadow Chancellor, have all appeared before the Group. The Financial Services Authority also comes to speak to the Group regularly.

The Group has undertaken two Short Inquiries. In 2004, the Group carried out a successful Short Inquiry into the contribution mutual businesses make to the economy and society. In 2005, the Group looked at how well consumers had been well served by demutualisation. As a result, a further Inquiry into these questions was undertaken and in March 2006, the Group published its findings in a report entitled ‘Windfalls or Shortfalls? The true cost of demutualisation’.

Officers

Chairman: Adrian Bailey MP (Labour/Co-op, West Bromwich West)

Vice Chairmen:
Sir John Butterfill MP (Conservative, Bournemouth West)
Sir Nicholas Winterton MP (Conservative, Macclesfield)
Baroness Maddock (Liberal Democrat)
Rt Hon Lord Naseby (Conservative)
Joan Walley MP (Labour, Stoke-on-Trent North)

Hon. Treasurer: Kelvin Hopkins MP (Labour, Luton North)
Hon. Secretary: Sarah McCarthy-Fry MP (Labour/Co-op, Portsmouth North)

Matthew Ball is Administrative Secretary to the Group. m.ball@mutuo.co.uk

The All Party Group on Employee Ownership was formed in June 2007 in response to growing interest in the role of a sector in which businesses substantially or majority owned by their own employees have achieved combined turnover of at least £20-25 billion annually.

The All Party Group consists of 80 Members from both Houses of Parliament. The purpose of the group is to examine the contribution of the co-owned business sector to the UK economy.

In 2008, the Group launched a Short Inquiry into the sector’s performance and contribution to the UK economy, given the implications of the sector’s scale and growth for policy makers; businesses who might wish to adopt this ownership model, finance it or advise on it; the field of business education and research; and employee owned companies themselves. In May 2008, the Group published its findings in a report entitled ‘Share Value – How employee ownership is changing the face of business’.

Officers

Chair: Vacant

Vice Chairmen:
Mark Field MP (Conservative, Cities of London and Westminster)
David Howarth MP (Liberal Democrat, Cambridge)
Treasurer: Lord Best (Crossbencher)
Secretary: Jeremy Wright MP (Conservative, Rugby and Kenilworth)

Matthew Ball is Administrative Secretary to the Group. m.ball@mutuo.co.uk

Download their report here: nhs-ft-review

Mutuals are organisations that are owned by, and run for the benefit of, their current and future members.

Mutuals take many forms and operate in a wide range of business and social environments. Most people recognise mutuals through one or more of the long established building societies, co-operatives, friendly societies and mutual insurers. But the sector encompasses many more types of organisations – some large and well established like housing associations, clubs and employee owned businesses to smaller, specialist bodies such as credit unions, football supporter trusts and community mutuals.

In recent years, many new mutuals have sprung from the public sector – new independent organisations providing public services, such as NHS Foundation Trusts, Leisure Trusts, Co-operative schools and community mutual surestart schemes.

Then there are the wide range of membership organisations that fulfil important roles in the culture and society of our nation – all operating in the interest of their members, providing services and enriching peoples’ lives.

The last ten years have seen a transformation of the UK mutual sector. Financial mutuals head the way in providing market leading products through building societies, friendly societies and mutual insurers. Consumer co-operatives are dynamic and growing, increasing their market share and driving standards of social responsibility. Employee owned businesses make a thriving contribution to the UK economy.

New Mutuals continue to be established across an exciting range of sectors – most recently in health care and education. Government has boosted the sector with new legislation and policy initiatives that have sustained these developments, all with the positive support of Opposition parties.

What all of these membership based organisations share is a common heritage and ethos – to serve their members and work in the wider interests of society.

Peter has been Chief Executive of Mutuo since 2001, which he founded as the first cross mutual sector body to promote mutual governance to opinion formers and decision makers.

Peter has fifteen years’ experience in the mutual sector, working with co-operatives, mutuals and employee owned businesses.

In 1999, he was a co-founder and secretary of Supporters Direct, the football supporters’ initiative, which has gone on to establish over 100 supporters’ trusts at professional football clubs.

In 2002 and 2003, he led the Parliamentary team which piloted three Private Members Bills through Parliament, updating Mutual Society law and encouraging democratic employee ownership. In 2007, he added the Building Societies (Funding) and Mutuals Societies (Transfers) Act to this tally.

Since 2004, he has worked closely on a number of public sector structural reforms, including NHS Foundation Trusts, advising both Government and Trust Boards on the adoption of new membership structures.

He recently led the Mutuo teams in major constitutional and governance reviews by the Co-operative Group and Nominet.