Making Mutuality Meaningful


Nov 2000

Financial Services and Markets Act should help to reform the governance of mutuals.

Financial Service Authority

Earlier this year, Kelda PLC owner of Yorkshire Water was considering converting part of its operation into a mutual.  Many people who had opposed the original privatisation of water under the Tories favoured the mutual option.  Given that New Labour was unlikely to take water back into public ownership, a non-profit making mutual seemed to be the next best option.  But what are mutuals anyway?  Who runs them?  How democratic are they really?  Mutuals are, by definition, member-based organisations.  People join together for mutual benefit usually financial but also social.  Mutuals come in all shapes and sizes.  Asset-rich building societies, mutual assurance societies, friendly societies and housing associations are all mutuals. So are community based bodies like credit unions, working menís clubs and even tiny allotment societies.  Until recently, many people had never heard of mutuals. Few had any idea what mutuality meant other than being an opportunity to get a windfall.  Few cared.  So does mutuality have a future?


Certainly City opinion is that it is finished.  Itís just a matter of time.  But is it?  We need to look at what happened.  Why did a sector which had been with us for over a hundred years nearly collapse?  Why did some societies convert whilst others didnít?  By the 1990s, the management of many large societies only paid lip service to mutuality. The societies were run like private companies and members were regarded as simply customers. Democratic control was notional.  However, where mutuality was still a part of the management culture, things were different.  Here opposition to conversion was the strongest.  A membership committed to the ideals and principles of mutuality was also crucial too.  The Nationwide (formerly the Co-operative Permanent)  Building Society illustrates the point.  Many of the older members joined because they saw it as part of the co-op.  Similarly many managers brought their belief in mutual values into the new society  The corporate ethos remained unchanged.  

One beneficial effect of demutualisation has been to spur the remaining mutuals into re-affirming their core principles.  They are no longer content to sit on large Ďfree assetsí but now ensure that the members both, borrowers and savers, get tangible financial benefits from their membership.  In their publicity too, they now promote the principles of mutuality in a way that they have not done for decades.  A good example of this is the Britannia Building Society. Itís also been good for business.  Nowadays the mutual building societies are reporting rapid growth.  The Nationwide apart, most of the remaining building societies are either medium sized or small.

Generally, there are no democratic deficits in community based organisations.  So does mutuality only work in small units?  The experience at the Nationwide, Standard Life and the John Lewis Partnership suggests that this is not necessarily the case.  It is more about involving the membership and caring for their needs.  Itís also about democracy.  How much say do the members have?  In the many of the larger mutuals, it is still very little ; only at the AGM.  By which time everything is cut and dried.  Between AGMs, there is often no way to meet other members to discuss policies or choose candidates for the board.

Some mutuals like BUPA even have an appointments committee made up of sitting directors to select new directors.  These will be voted in at the next AGM.  Another example of the lack of accountability to members was recently graphically illustrated at the Equitable Life (est 1765).  Guaranteed annuities had caused the Society to run into problems.  Without consultation, the Board decided to put the Society up for sale.  When a buyer is found, a special general meeting will be called to approve the deal. Realistically, all the members will be able do is to accept a fait accompli.  So much for democratic accountability!
In most friendly societies and co-ops, the democratic structures set up in Victorian times are still intact. However, very few members vote.  In common with many other voluntary organisations, apathy reigns.  In the co-op for example, many committee elections are uncontested or less than 1% of the members bother to vote..  Whilst making noises of concern about low turnouts, many co-ops do little about it.  Most members donít know when an election is taking place.  Few societies have postal voting.  But if you donít involve people, why should they participate.  The attitude amongst older members is often that Ďit will see me outí.  Friendly societies often resist change too.  Itís all very short-sighted.  If the mutuals want to survive, greater efforts are going to be needed to motivate the existing members and attract new ones, particularly the young. However itís not all gloom.  In the case of the co-op, changes may be on the way.  The new Co-op Commission could be the catalyst for change here.
Can the mutuals reform themselves or are they are like the trade unions of old;  incapable of reforming themselves?  In recent years, we have had piecemeal reforms of the building society law, industrial and provident society law, friendly society and credit union legislation.  What is needed is an over-arching review of the legislative and regulatory structure of the mutual sector.  We need to redefine what constitutes a mutual and its governance.  Housing associations, not-for-profit welfare organisations and bodies created by local government externalisation should be accountable to all their stakeholders.  
Internal democratic structures should be improved.  Obviously you canít make people participate.  But at least that they should know what their rights are.  Proper elections should be held which are seen to be at least as fair as those in trade unions.  Members need training so that they can exercise proper scrutiny.  This has happened with consumer co-ops for a while and will become compulsory for lay directors of financial mutuals under the new Financial Services and Markets Act.  But more needs to be done.  Training opportunities should be extended to the wider membership possibly by using the Internet and other remote learning methods.  Mutuality should be part of the Civics syllabus for schools.
In future, itís likely that the State will continue to withdraw from the direct provision of welfare and social housing. There will be more contracting out.  If the Housing Green Paper proposals are implemented, hundreds of thousands of council homes may be transferred to the mutual sector.  Most sheltered housing and retirement homes have already gone.  So how these sectors are governed is bound to become a keenly felt issue.  Labour must tackle this now.  The reform of the mutual sector and its governance should become a key policy for Labourís Second Term.

This article was published in the CHARTIST Nov/Dec 2000

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