Mutuals and co-operatives: valuing their benefits

Even though there is no Australian legal definition of what is a "mutual" (they are typically bodies where members have identical shareholding and equal voting rights), their characteristics are well understood.

In the Guardian article Our Mutual Friends, Professor Jonathan Michie argues that co-ops and mutuals are on the way back in Britain despite recent privatisation and demutualisation.

A key quote:

Would it matter if the remaining co-ops and mutuals turned into private companies or companies listed on the stock exchange (plcs)? One way of judging that is to consider whether the managers of such organisations behave differently because of their ownership structure. A … survey we carried out, of managers within the sector, found that the organisational form clearly does influence behaviour and decision-making. That is due not just to the organisations being owned by the members rather than shareholders, but also to the different organisational culture that this fosters.

Managers of plcs are made aware that they owe a legal duty to shareholders. In co-ops and mutuals, managers are equally aware that they owe a duty to the members and to the principles that underpin the mutual and cooperative movement, including "concern for community".

Co-ops and mutuals behave differently in three crucial ways. First, concern for community translates into higher charitable giving, both in cash and in kind. Second, business decisions give a greater weight to community interests, for example by keeping branches open in rural areas. Third, management decisions give a greater weight to the interests of members, prioritising quality of service over profits.

He argues that the value of mutuals is not recorded in standard economic data. For example:

If a private company boosts profits, this may be recorded as a greater contribution to
national income; if a co-op or mutual decides to forgo such opportunities, and concentrates on quality of service, the benefit to the economy may go unrecorded.

Recently, Treasury argued that it was too difficult to define mutuals or to create special rules for them (in this case, for the purpose of new rules for convening shareholder meetings). A "one size fits all" approach to regulation could result in the loss of a special type of organisation, to the detriment of the community.

Print Friendly, PDF & Email

Your Compliance Support Plan

We understand you need a cost-effective way to keep up to date with regulatory changes. Talk to us about our fixed price plans.