Public Services: Made Mutual By Cliff Mills
About Mutuo 1
Public Services: Made Mutual
Since 2001, Mutuo has worked to promote new mutuals. This has led to renewed growth in the mutual sector, with public sector mutuals established in health, housing and education and new community based businesses ranging from football to childcare. • Mutuo operates as a not-for-profit Society, committed to: • Campaigning for a better understanding of the benefits of mutual businesses • Conducting and publishing policy research on issues of importance to the mutual sector • Developing innovative new mutual businesses for the delivery of public services
“Our objective is to highlight where high quality mutuals can combine business efficiency with accountability to customers, staff and other stakeholders�
Preface Public Services: Made Mutual
2
This publication is the first in
these services will be able to
basis for proper accountability to
what will be a series of pamphlets
survive in an era of reduced
the tax-payer. Imaginative mutual
looking at the potential for new
funding, in which case there will
solutions are to be welcomed in
mutual organisations providing a
be questions over the business
the public sector, and can with
range of services to the public.
basis for these arrangements. At
care, offer greater engagement
the same time, there are questions
and co-operation between
Our objective is to highlight
about what the changes will
providers and users.
where high quality mutuals can
mean for the quality of services
combine business efficiency with
to the public and the levels of
We hope that through this series,
accountability to customers, staff
engagement among staff.
we will assist in sharing experience
and other stakeholders.
and expertise that may be adopted It is not easy to establish
in similar projects. Our aim is that
Mutuo is interested in exploring
successful mutuals. New business
established mutuals will be able
ways that former state and
disciplines and a culture of
to share their understanding of
municipal providers can achieve
engagement with stakeholders
member dynamics and mutuality
greater public satisfaction in
must be adopted and built into
with new entrants to the sector.
services that have higher degrees
the governance structures of
of employee, user and wider
these new mutuals. Government
stakeholder engagement. In
must therefore be clear about
Peter Hunt
particular, can the state achieve
the purpose of new mutuals that
Chief Executive
greater accountability for the
are spun out of state providers,
Mutuo
taxpayer in public services by
and the governance structures
fostering a greater sense of
adopted must reflect this primary
ownership?
purpose.
The new Coalition Government’s
To retain an ethic of customer/
Big Society agenda has heralded a
public service, the role of users
rapid growth of mutual business-
must be built into these new
like providers, created from
providers. Where employees
state and municipal bodies. The
are the key stakeholders, proper
immediate question is whether
competition must provide the
The role of Mutual organisations in providing public services Introduction and summary 3
Public Services: Made Mutual
Co-operative and mutual organisations have a major
individuals within communities routinely and normally
role to play in providing public services and renewing
worked together for collective common benefit. It
modern society.
provided some of the mechanisms by which power was shared locally, and by which citizens were
The Coalition’s programme for government sets out
engaged in the essential services they needed. It
a vision of what the new government is setting out to
played a central role in creating the institutions, the
achieve. There are three main themes
culture and society of the UK prior to the emergence of the welfare state. Mutuality was part of the DNA of
• moving away from big government, centralisation and top-down control
the welfare state, and informed what is often today characterised as the public sector ethos.
• redistributing power away from the centre to councils, communities and people in their homes • helping people to come together, empowering citizens to work together within communities to create a Big Society The first two are effectively two sides of the same coin: centrally-driven big government can only be cut down if power is relocated elsewhere – away from the centre. The third theme, however, is essential to ensure that pursuing the first two is not simply an exercise in rearranging furniture. Big government and bureaucracy are only really reduced if individual people themselves regain – or reclaim – power over their own lives. It is our argument that mutual and co-operative ideas have a major part to play in delivering these themes
The second half of the 20th century is a very different story. Mutuality was side-lined in the post-war years, particularly in the 1980s and 90s. The basic ideas seemed to have become irrelevant in an individualistic and consumerist age. Mutuality declined. However, the ideas survived. They were not broken, just out of tune with the contemporary culture. Today, those ideas seem to be finding new resonance. As the search for a new model of public service provision continues and concerns about traditional business models grow, mutuality and co-operation have acquired a new relevance. In fact, in the last ten years mutuality in the UK has been through a substantial period of transformation and renewal.
and the overall vision. Indeed we do not believe that the vision can be delivered without such ideas.
Many new mutuals have been established to provide public services in health, education and community
Traditional mutuality, between the mid 19th and mid
services. Over 1.5 million users and employees have
20th centuries, established the context in which
joined these organisations as members.
“Many new mutuals have been established to provide public services in health, education and community services. Over 1.5 million users and employees have joined these organisations as members. ”
Public Services: Made Mutual
4
There has been significant
state to stand back from service
lives are, in truth, at the heart
progress in developing
delivery, and from bureaucratic
of the traditions and structures
an understanding of what
regulation.
of co-operation and mutuality.
membership can achieve, new
It is also reassuring that there
ideas about delivering competent
For those of us who have spent
are now in existence large and
governance within the context
much of the last decade engaged
successful modern institutions,
of a representative democratic
in this renewal of mutuality, the
based upon a heritage of pro-
structure, as well as progress
core themes of the Coalition’s
active citizenship, which captured
in new mechanisms to secure a
programme for government have
individual self-interest and by
commitment to the public good.
a familiar ring to them; but there
channelling it through collective
Mutuality has been re-emerging to
are some big differences. They
self-help produced economically
meet the needs of a very different
are being openly put forward as
sustainable mutuals.
age, and it is no accident that it
convention-challenging, radical
featured in the manifestos of all
reform, which have been put at
We do not claim that those
three leading parties.
the heart of the programme for
traditions and structures now
government. So these ideas are not
have all the answers to today’s
Modern mutuality is needed
incidental or merely aspirational:
questions. But we would argue
today to provide the mechanisms
they are the opening paragraphs of
that those traditional institutions
through which citizens in
the Coalition’s statement of intent,
and the new mutual organisations
communities can participate and
of its vision. Furthermore, they now
described below are a good place
have a say – as users and staff – in
define the ground upon which the
to start; and that the hard work
the provision of essential services.
Coalition is built, and by which it is
and thinking about forms of co-
It is needed to help the drive for
likely to be judged.
operative and mutual ownership
increased business efficiency based on local accountability. It is
undertaken over recent years This means that the stakes are high.
needed to provide an alternative
are now available to assist in implementing the Coalition’s
business model to traditional
However, it is also reassuring
companies, a mechanism for
to find that the three themes
trading in the community or public
of reducing big government,
Cliff Mills
interest, rather than for private
redistributing power and enabling
Mutuo
interest. It is needed to enable the
people to take control of their
October 2010
programme.
“In the public domain, there is a crisis of cost and funding�
1
Context
5
Public Services: Made Mutual
Our proposition is that mutuality has a significant
The commissioner-provider split has other potential
part to play in the work of the Coalition. What is the
benefits. It provides the basis to enable the state to
context for this?
withdraw from the direct costs and the political and financial risks of the ownership of provision. It creates
Broadly, it is contained within two over-arching and
the possibility of expensive asset-heavy services lifted
unfolding stories, in what we usually call the public
out of public sector borrowing. It helps to remove
and private domains.
the risk of political inference in the delivery of vital services, which must be operated for the public benefit.
Public domain In the public domain, there is a crisis of cost and
But there are two big questions at the heart of this
funding. The post-war settlement, making basic
unfolding story:
provision for the health, welfare and well-being of
1. Whilst pursuing efficiency and value for money
all citizens through central taxation, has become
is critical, it does not provide a solution. The
problematic and needs to be rethought. The
growing costs of provision and the rising
growing cost of provision, the rising expectations
expectations of service-users are unsustainable
of individuals, and the difficulty for democratically
on the current basis. The current financial
elected politicians of telling the electorate that they
position has to be addressed, and there are now
have to pay more or receive less has resulted in
great concerns about likely drastic measures
decades of managerial initiatives to secure better
having an impact on those least able to help
value, greater efficiency, and more for less; but it can’t
themselves. But what can the politicians do?
go on for ever.
2. Assuming that the state continues to withdraw from the ownership of provision, what is the
The separation of commissioning and provision (one
future model for the ownership of public service
such managerial initiative) continues to be seen as a
providers? Perhaps the biggest challenge at the
key part of securing value and efficiency. It clearly
heart of this question is this: what will be the
provides a mechanism for doing so, but the act of
driver of efficiency in public service provision?
separation does not of itself guarantee the outcome.
We mean here not just lowest cost, but efficiency
Managers doing things differently need to do that.
in the longer-term public interest.
Where that does not happen, there is no mechanism for citizens, as taxpayers or users of public services,
These two issues are fundamental drivers of the need
to make sure that it does happen.
for change, and this is the public sector context for
Public Services: Made Mutual
6
the Coalition’s priorities: moving
of years now, but it is not just
away from big government,
a lack of biodiversity which is
centralisation and top-down
leading people to call for different
control; redistributing power
business models. The diminution
away from the centre to councils,
of natural resources, the need to
communities and people in their
cut carbon emissions, the desire
homes; helping people to come
to address social inequality and
together, empowering citizens to
the growing gap between rich
work together within communities
and poor – these are all raising
to create a Big Society.
questions about the traditional way of doing and funding business.
Private domain In the private domain, the
The emergence in the last
problems we face are shared by
decade or so of corporate social
other nations. The collapse of the
responsibility, and a burgeoning
banking sector has not only left
sector of new businesses bearing
a financial problem in its wake;
the title “social enterprise”
it has confirmed a more serious
are evidence that something is
structural problem. Privately-
happening, though financial results
owned banks do not act in the
still remain the normal measure of
public interest. Whilst traditional
success, and the FTSE share index
private investor-ownership has
continues to be recognised as the
been the engine of economic
gauge of the health of UK business.
growth, it has its draw-backs, particularly when it dominates to
Financial security and a level of
the point where there is no real
prosperity clearly play a part
biodiversity of ownership and
in achieving human happiness,
business models.
but home, work, leisure and
The pursuit of private gain
community all play a part. We
has successfully provided an
don’t need researchers to tell
investment incentive for hundreds
us that there is more to life than
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Public Services: Made Mutual
work and endless pursuit of more; that a more unequal
It is clear that employees, customers and users,
society is a less happy one; and that stillness and human
suppliers, local residents and a wide range of other
relationships have a vital place. We certainly should be
parties frequently have a legitimate interest, and
looking at the cause of the recent economic crises and
need to be taken into account, in a whole range of
improving regulation where appropriate. But we should
activities. Public consultation, or passing reference
also recognise that traditional business models have
in board minutes that certain interests have been
taken a battering, and there is an appetite for looking at
taken into account do not necessarily constitute an
different approaches.
adequate participation of those wider interests in key decision-making. We are hide-bound by an inherited
Public and private
structural exclusivity. Sovereign control by investors,
Lastly in looking at the broad context, there is a
or the state (or some unelected proxy for the state)
common theme that is emerging in both the public
may make life easier for managers, but they pose
and the private domains. This is the recognition of
challenges of fairness and personal significance in a
the legitimacy of a wider range of interests or voices.
modern democracy.
Both state-ownership and private investor-ownership can justifiably be accused of a narrowness of outlook.
How can mutuality help?
“The starting point is to understand where traditional mutuality came from.”
2
The heritage of traditional mutuality
Public Services: Made Mutual
8
The starting point is to
then they could establish what
society served their interests as
understand where traditional
in today’s language we would
owners and customers.
mutuality came from.
call a sustainable business. As customers, they could establish a
Such businesses were
This is a story about market
business, which they owned and
fundamentally different from
failure. In the late eighteenth and
controlled, to deliver the goods
traditional businesses. Normally,
early nineteenth centuries, many
and services they wanted.
a business is established where
people could not get access to
a promoter sees an opportunity
basic goods and services at a fair
It would only work if they
(a gap in the market) to provide
price. Food, healthcare, protection
committed themselves to trading
goods or services and thereby
against sickness or death of the
with their local provider. If they
to generate a financial return.
bread-winner, finance to own their
did, then the business could
Mutual businesses were not
homes – access to things which
survive. If they were dissatisfied
established on this basis. They
we today take for granted was
in some respects with what was
were established simply to provide
either simply not available, or not
on offer, as owners of the business
a service. They needed to be
available at a fair price or on what
(members) it was for them to
profitable (income must exceed
we would regard as acceptable
raise those concerns and get
expenditure) and invest for the
terms. There was practically
the business to improve. Whilst
future; but generating a surplus
no consumer protection, no
walking away from the business
or profit was not their reason
financial regulation, no employee
was an option, the business
for existence. Their reason for
protection, and no protection of
would not survive and continue
existence was to provide a service
the environment.
to provide local services unless
where otherwise there would be
the loyalty of customers was
none, and the community would
For the vast majority of people,
maintained. Where there was
suffer as a result.
the only solution to this was self-
effectively no alternative supplier,
help: if they wanted access to
this was clearly not an outcome
The different types of traditional
something, then they needed to
that people wanted. So it was
mutual business (co-operative
work out the solution themselves.
normal for members to use their
societies, building societies,
The self-help solution they found
membership rights – their voice
friendly societies, mutual insurers)
was this: if they pooled their
and their representative structures
operated in different ways, but the
need, within communities, for
– to drive improvement and
underlying reason for existence –
particular goods and services,
change, to make sure that their
self-help – was the common theme.
“Founded upon principles of equality and democracy, and requiring the interaction between people (co-operation) working together to meet their collective needs”
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Public Services: Made Mutual
Perhaps the best known was the co-operative
upon society at large. I knew that my weekly payment
model, where customers bought goods at the local
into the mutual fund brought some protection for
shop, and at the end of the year might receive a
my family against my loss of income caused by an
dividend based on what they had bought during the
accident at work, but they also protected my sick
year (the co-op “divi”). This was not a distribution
neighbour, and the widow down the street.
of profit in modern terms; it was a post facto price adjustment. The shop had to fix a price at which
So the mutual heritage was much more than a
to sell goods, and that price would be a mark-up
sustainable business model. It was also a model for
on the wholesale price paid, to take account of
human relationships, for society: consequently it
overheads and provisions in the usual way. But if
inculcated a different culture. But fundamentally –
at the end of the year the business had generated a
and this is where it is becoming relevant for us again
greater surplus than needed for the business, then
today – it was a different model of ownership and
it had charged too much, and the surplus should be
governance.
returned to customers in proportion to what they had paid.
A mutual society was “owned” by its members. The modern western mind generally has a narrow
Traditional mutuality emerged as a response to social
understanding of “ownership”, denoting a right
and economic need. It was the response of people
over something which can be sold for money. The
with often desperate needs to find a solution for
ownership of a traditional mutual society was not
themselves and others in their community. It was
something which could be sold for money. The
based on self-interest (the need to provide for me and
members owned their society, in the sense that
my family), not philanthropy or charity; but the genius
ultimate constitutional control belonged to them: it
of mutuality was that it captured that self-interest,
was for them to agree any change to the constitution,
and by channelling it through collective self-help, was
to what their society was permitted to do (objects)
able to produce an economically sustainable business.
or how it was governed. Nobody else “owned” their society – there was no other group, such as investor
This was not just an economically sustainable way of
shareholders behind the scenes. But they could not
doing business. Founded upon principles of equality
sell their membership for money. Indeed the very
and democracy, and requiring the interaction between
act of doing so would be a destruction of the mutual
people (co-operation) working together to meet their
covenant between the members, what we have come
collective needs, it had a much more profound effect
to call “demutualisation”.
1
Public Services: Made Mutual
Ownership by members resulted
10
affairs of the society. Such a
1
This is what has happened to many building societies since
the 1980s, where the membership has usually been persuaded
in very different governance
manager, who may become the
arrangements from those of
chief officer of a substantial work-
company, resulting in a windfall profit to the members at the
traditional business. All members
force in a successful society, was
time, but the destruction of the mutual bond.
were treated equally, and every
not a member of the board or
member had one vote, in spite
committee: lacking any electoral
of varying amounts of capital
mandate from the members, a
contribution and varying amounts
manager remained the servant of
of trade. Members elected
the elected committee.
representatives from amongst their number to form a board or
These were the essential
committee to have responsibility
characteristics of traditional
for overseeing the affairs of the
mutuality.
society on behalf of its members. Similar in many respects to the board of directors of a company, that board commonly had the power to appoint and employ a manager to run the day to day
by management to vote for conversion of their society into a
“By 1948, 14 million people were members of friendly societies as part of this self-help, bottom-up method of social provision.”
3
From traditional to modern mutuality
11
Public Services: Made Mutual
Traditional mutuality was a remarkable success story.
packages, the increased mobility of customers giving
By 1948, 14 million people were members of friendly
them even greater choice, and the undoubted decline
societies as part of this self-help, bottom-up method
in the quality of the offering by retail co-operatives all
of social provision. It is an irony that the creation of
contributed to the decline from over 30% in the mid
state provision played a big part in the demise of one
60s, to less than 5% in the new millennium.
part of the traditional movement, as many mutual and friendly societies were swept away to introduce
From dominance to decimation in less than half a
universal provision.
century, traditional mutuality took a battering. By the early twentieth century, it no longer made any sense
It was greed that did such damage to another
to people to join something to access basic goods and
part of the traditional mutual sector – the building societies. Although management argued at the time that their societies needed to convert into public limited companies in order to have access to the capital markets to be able to compete with high
services. The age of consumerism and individualism, limitless opportunities created by the internet, and much-increased prosperity as well made us all feel that we were in charge of our own destinies now. How that has all changed since September 2008.
street banks, the reality was that managers enjoyed substantial increases in remuneration, and members received windfall bonuses out of the reserves which had been built up over many previous generations.. With hindsight, it was a sad development. Ten of the largest building societies were demutualised, 2
accounting for over 70% of the sector’s assets.
The decline of the retail co-operative sector in the latter decades of the last century was due to more mundane factors; the growth of competition on the
The turning point for mutuality in fact began a number of years earlier. By the late 1990s, there were some in the utilities sector who felt that the recent reforms (transfer into PLC ownership with a state appointed regulator to protect the interests of the public) were merely transitional to some form of 3
modern mutuality. This was not to be . However, a few years later reform of the National Health Service led to the development of a new form of ownership.
high street and the rapid rise of PLC competitors, the inability to match their executive remuneration 2
By 2008, all ten had either lost their independence and been taken over by other banks, or
had failed and been taken into public ownership – see “Converting failed financial institutions into mutual organisations”: http://www.mutuo.co.uk/wp-content/shared/remutualisation.pdf 3
The creation of Glas Cymru as the owner of Welsh Water a step in that direction, though
without open membership
The creation of Foundation Trusts in 2003 was a highly significant development. Modelled on traditional co-operative and mutual organisations, they were a new kind of corporate entity known as a “public benefit corporation”, created via health legislation. Foundation Trusts have patients,
Public Services: Made Mutual
12
public and staff as members,
what it failed to do. In preparing
undertaken in the late 90s in
a representative body called
their forward plans, the board of
developing modern mutuality had
a board of governors (mainly
directors of a Foundation Trust
created a new membership model
elected by and from members,
was obliged to have regard to the 4
which was capable of addressing
and partly appointed by partner
views of the board of governors.
this. This work, and the founding
organisations), and they are run
Such a built-in structural right for
of Supporters Direct as a national
by a board of executive and non-
the local community to have a
body to facilitate the emergence of
executive directors.
say in local services was a radical
Supporters Trusts has resulted in
step forwards. The introduction
a thriving new mutual movement
It was an attempt to create a new
of open membership reconnected
of football fans in the majority
business structure for the ownership
local people with the ownership
of professional football clubs in
and delivery of public services,
and delivery of local services. It
the UK, in some cases leading to
but one that was separated from
was simply not possible to recreate
outright ownership of the club.
the state. To those familiar with
the individual economic link with
traditional co-operation, there
members, familiar in traditional
seemed to be a limited role for
mutuality, as healthcare is free at
Social housing was the next 5
area of the public sector in
members, and limited democratic
the point of delivery in the NHS.
which membership was being
control over management. Even
However, membership was still
introduced. The development of
though the Secretary of State
sufficiently interesting to attract
the Community Housing Mutual
for Health no longer remained
more than 1.5 million people.
model for the Welsh Assembly
responsible to Parliament for their
Government, and the subsequent
operation, the still state retained
At the time when Foundation
emergence of the Community
substantial control as commissioner,
Trusts were being created in
Gateway model, provided an
4
The power of the
board of governors
through determining the prices at
2002/3, the core principle at the
alternative approach for local
which Foundation Trusts sold their
heart of mutuality – ownership by
authorities considering the
executive directors
services (tariff), and indirectly as
members – was already coming
future ownership of housing
gives some teeth
the appointer of the regulator of
back into use. The improbable
stock. In traditional housing
Foundation Trusts.
context for this was football.
associations, there was no
5
The inability of fans to have an
democratic accountability of the
payment by results
However, the creation of
adequate say in the running
board to those living in the housing
Foundation Trusts was significant
of their club had long been a
stock they controlled. Through
for what it did, rather than for
source of grievance, and the work
the introduction of a new form of
to remove non-
to this Patient choice,
and individual budgets do have that potential.
“By creating a forum within the structure through which a number of different voices can be heard, new mutuals have broken new ground.”
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Public Services: Made Mutual
mutuality, a relationship of membership was added to
One of the main differences from the governance
that of tenant, creating the potential for a different
of PLCs and traditional mutuality has been the
dynamic when tenants were balloted on a proposed
introduction of a range of different interests within
stock transfer.
the organisational structure, such as the board of governors in a Foundation Trust. By creating a
Over the next few years, “new mutuals” emerged in
forum within the structure through which a number
a number of sectors including local authority leisure
of different voices can be heard, new mutuals have
services, Sure Start children’s centres, and out-of-
broken new ground. Such developments have not
hours GP services. All of these organisations were
just helped to break down the domination of a
characterised by member-ownership. In some it was
single interest-group, but they have also enabled
user and staff membership; with GP services it was
constructive partnership or co-operative working
just staff membership (GPs and other staff). All such
between different sectors and across traditional
organisations employed a professional executive, which
boundaries (e.g. health and local government, users
was appointed and could be removed by a representative
and staff, primary and secondary care). These are
board drawn from a variety of different interests.
significant developments the impact of which is not yet widely appreciated.
The latest sector to emerge using a new mutual form is the co-operative trust school movement. As the name
At the same time as the much more high-profile
suggests, this involves a co-operative style membership
developments of corporate governance in the PLC
organisation as a “trust” to own assets and appoint
sector (the Companies Act 2006, the Cadbury report,
governors, under the last government’s programme to
Higgs report, and the Combined Code), mutuality has
encourage all schools to become trust schools.
also been going through its own significant statutory evolution and change, via primary and secondary
This re-emergence of mutuality in a diverse range
legislation, and the emergence of a number of
of new sectors has witnessed not just the trialling
codes of governance. It has undergone change in
of a variety of different membership structures. It
order to provide better models for business today,
has also seen much experimentation and learning
and to rebuild and recreate new mechanisms for
about different approaches to governance, including
accountability.
directly-elected board members, professional nonexecutives, and two-tier governance such as the
So mutuality has evolved rapidly over the last ten
Foundation Trusts.
years. What has it achieved?
“It is important today for mutual organisations to be transparently different from organisations which exist and trade for a private benefit”
4
The achievements of ‘new mutuality’
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Public Services: Made Mutual
An overview of the emerging new mutual movement, and
Below a certain size and complexity of business,
how it has built upon traditional mutuality, would identify
this does not tend to be a significant issue, because
the following areas in which it has broken new ground in
the constitution normally provides for appointed
developing better and more accountable business models.
executives to manage the day to day business, thereby providing some assurance of commercial
Governance competence
competence. In such a structure, bigger strategic
An absolute priority, whatever the form of corporate
decisions are usually made on the advice of the
ownership, is governance competence – having the
appointed professional executives. Even in larger
right people in positions of responsibility so that
traditional mutual businesses, this issue is addressed
good decisions are made, and the business well
by a combination of elected board members and
managed. The subject of “corporate governance” has
professional non-executive directors (building
developed greatly since the Cadbury Report in 1991.
societies), or a tight definition of the role of the
No governance structure can guarantee the quality
elected board (retail co-operatives).
7
6
of decision-making and management , but if welldesigned, the governance structure should give some
However, from the perspective of those with no
assurance of quality, making success more likely and
experience of traditional mutuality, and particularly of
failure less likely.
those only familiar with a PLC model, the holding of significant office by individuals elected by and from an 8
If the performance of financial mutuals in the recent
open constituency of members can be problematic.
credit crisis is compared with that of PLCs, it could
Whatever your standpoint on this issue, there are two
be argued that the mutual model is more successful
unarguable truths at the heart of governance: (1) the
at managing risk. This may be due to a different
running of any business requires a degree of business
ownership structure an corporate purpose, resulting
competence, and the governance arrangements need
in a more risk-averse approach to business.
to make credible provision to give adequate assurance of such competence; and (2) the “competent” part of
6 7 8
An interesting feature of mutual governance is
business management must be located within governance
the holding of office by individuals who have been
arrangements which subject those managers to
elected, rather than appointed. How can governance
oversight and accountability. This balance between
competence be assured with such arrangements?
governance competence and accountability is crucial,
Enron, Lehmans and other high-profile corporate failures illustrate this The Co-operative Group has also now appointed professional non-executive directors Neither PLCs not traditional mutuals can claim to have the perfect answer. Corporate
disasters and scandal happen in spite of well-designed structures and codes of governance. Human beings are fallible.
and in the emergence of modern mutuality, important new ideas are emerging. Out of the Foundation Trust model there is emerging an approach to the governance of large new mutual businesses which has a board of appointed executive
Public Services: Made Mutual
16
and non-executive directors,
strategic level. The constitutions
community purpose. This may
and another body within the
tend to provide for a carefully
be demonstrable through their
governance which both plays a part
constructed balance of different
corporate form (public benefit
in the chain of accountability of the
voices at a representative level,
corporation, community benefit
board of directors, but also provides
comprising elected representatives
society), or their constitutional
a forum for a variety of different
of the membership constituencies,
commitment to community or
voices to be heard. This involves a
and appointed representatives
public benefit.
new approach to the accountability
from key sectors or organisations
of executive directors, in which
(usually public sector, or other
It is important today for mutual
the non-executive directors and
mutual/community benefit) whose
organisations to be transparently
the board of governors play an
support is critical to success.
different from organisations
9
which exist and trade for a
important role.
Public or community purpose Membership
Traditional mutuality emerged
A wider range of constituencies of
at a time before the existence
interest is emerging at member-
of modern public services. In
level. The traditional mutual
today’s context, traditional mutual
societies tended to be user-based
organisations are sometimes
10
only. However, most of the new
characterised or perceived as
mutual organisations have more
existing for the private benefit of
than one constituency of members
their members. This is misleading
– NHS Foundation Trusts (patients,
and inaccurate, and ignores
public and staff); leisure services
the fact that they have open
(users and staff); out-of-hours
membership, and exist for any who
primary care (GPs, other staff).
wish to access their services.
The exceptions are Supporters
Modern mutual organisations tend
Trusts which are vehicles for the
to have a more overtly public or
private benefit, because it is often that very difference which is their attractiveness or unique selling point to commissioners, customers, staff, funders, or other potential supporters. What next? So these are the achievements so far of the emerging new mutuality – in membership, representation, governance competence, and community purpose. Where is it going next?
fans; and social housing, where membership is currently limited to users (tenants).
9
See http://www.cobbetts.com/OurServices/healthcarelawuk/
WhatistheroleofthenonexecutivedirectorsofanNHSfoundationtrust
Representation
10
A wider range of interests is also
members, though they do not have their own constituency. Staff capture is prevented by quotas at
being represented at board or
It is right to point out that most of the large retail consumer co-operatives allow staff to become
board level. Also, a number of “worker co-operatives” have emerged from the 1960s onwards.
“Great strides have been made in developing the idea of membership, with a clearer focus on what it brings�
5
What next for new mutuality?
17
Public Services: Made Mutual
The first point to make is that the achievements to
committed to carrying on business in the public
date represent work-in-progress.
or community interest, and run by professionally competent executives who are held to account within
Great strides have been made in developing the idea
a representative structure which drives efficiency and
of membership, with a clearer focus on what it brings
success in the public interest.
(voice, information and representation), a better understanding of what motivates people to become
People need to have incentives if they are to change
a member and a more realistic picture of what it can
the way they behave, or to spend the time making
achieve. But we are still working to recapture the
constructive criticism to drive improvement. We are
crucial economic link between the member and their
starting to see the opportunity for such incentives to
organisation, which is the most powerful driver of
emerge, with such developments as personal budgets,
engagement and participation.
and the possibility of co-payment. Staff also need to be incentivised to drive improvement; sharing in the
The representation of wider interests at strategic level
membership and representative structures is part of
(like the board of governors of a foundation trust) is
this, and benefiting directly when their organisation
a big step forwards; but it takes time before people
does well also needs to be developed further.
understand the nature of the role, how it can be used and what contribution it can make to the business. It
A membership-based model of ownership for public
also takes time for the partner organisations which
services is not just important to provide a viable
have a right to appoint representatives to understand
alternative to replace state-ownership. It is also
how they can use the new opportunity – to achieve a
important in order to meet the pressing need for
new way of collaborative working.
drastic cuts and reconfiguration of services. There is no doubt that dramatic changes delivered by a
Nevertheless, these developments, together with
state-owned and controlled service will meet fierce
the developments in governance competence and
resistance. The problem we face is that the public has
commitment to community purpose, provide a
become used to the availability of a level of services,
platform for addressing the main issues raised above
whilst being detached from the cost implications of
in the public and private domains.
delivering such services. However, whilst people are likely to be hostile to any change which amounts to a
Public domain
reduction of what they currently enjoy, many people
The new model for the ownership of public
are nevertheless realistic. It is clear that these are
services is becoming clear: organisations owned
economically challenging times, and public services need
by constituencies of users and staff, permanently
to respond. Having the opportunity to play some role,
Public Services: Made Mutual
18
even if limited, in making difficult
getting some lawyers to come up
nature, and that it is the only basis
changes is likely to be preferable to
with some clever new constitutions.
on which business can ever succeed.
having changes made by detached
Essentially, it involves coming
Traditional mutuality proved the
public sector managers.
up with a different way of doing
contrary, in times gone by.
business, a different way of funding Of course service-users and staff will
business, and a different way of
Can traditional mutuality be re-
resist change; but where change is
owning business. It involves coming
invented in a modern format to
unavoidable, service-users and staff
up with some alternative to the profit
meet today’s needs?
are in the best position to optimise
motive as the mechanism to drive
the rationalising or rationing of
business performance and renewal.
Yes it can be, and actually, it is. Work is continuing on the
resource in the wider public interest. As far as we are aware, the only
modernisation of co-operative
Private domain
“alternative business model” which
capital, to move away from the
Many people (including the
has worked on any scale over the
historic model. There needs
Coalition) over recent months have
last two hundred years is mutuality.
to be a wider understanding
expressed a desire for another
It is based upon the principle of
and appreciation of what can
business model.
providing goods and services for
be achieved using a different
all who need them, not the profit
business model, which is based
Traditional investor-ownership
motive (though it has an equal
on the provision of capital that
has been the corner-stone of the
imperative to be profitable); so it is
may generate some financial
UK’s and many other economies
a mechanism for providing services,
compensation for its use, but where
for nearly two hundred years. It
not for delivering a profit. There are
the main benefit is the availability
has been a story of continual
no investors in mutual organisations.
of a service which would otherwise not be available.
evolution, and that evolution has then informed the development of
Many people find this impossible to
our laws (both UK, EU and beyond),
understand. They cannot conceive
It is possible to provide incentives
of commercial practices, and of the
of a business which does not
to staff, within the context of
businesses and institutions which
exist in order to deliver a financial
mutuality, so that they are
make up our economy.
reward for somebody; they do not
rewarded for delivering improved
understand how such a business can
performance. It would be difficult
Finding “another business model” is
be funded. They assume, effectively,
to drive forward the necessary
a huge task. Contrary to what some
that the pursuit of private gain is
improvements in efficiency and
may think, it does not just involve
an essential ingredient of human
output without such incentives.
“Government can help to provide the means, but we as citizens must work together to achieve the end.”
6
New mutuality and the Coalition’s programme for government
19
Public Services: Made Mutual
As has been briefly described above, great strides
over recent decades. Mechanisms are needed,
have been made over the last ten years or so in
which modern mutuality can help to provide, which
modernising mutuality, improving its ability to provide
enable people to claim back responsibility for making
efficient modern forms of ownership and governance
decisions affecting their lives – even (or maybe
enabling it to play an increasing role in modern
especially) when such decisions are painful ones
society.
about reconfiguring essential services.
However the Coalition’s programme for government
We have never been interested in promoting mutuality
now sets a new agenda, and creates a new urgency for
for ideological or political reasons. Our only interest
driving the growth of modern mutuality.
is in something that works, something that provides a means of delivering goods and services, and is driven
What do we mean?
to do so efficiently and successfully by the serviceusers and staff who depend upon it.
In their foreword, David Cameron and Nick Clegg are aspiring to “completely recast the relationship
Modern mutuality needs to play a bigger part in the
between people and the state; citizens empowered;
efficient and successful delivery of goods and services
individual opportunity extended; communities coming
today. But modern mutuality also needs to be a
together to make lives better.” As described in the
means to the end of recreating a civic society in which
opening paragraphs above, these are the three
individuals want to take responsibility and control
basic themes which they articulate - reducing big
over such matters, rather than handing them over to
government, redistributing power and enabling people
others to decide in their behalf.
to take control of their lives. But how do you reduce big government and redistribute power back to people
Government can help to provide the means, but we as
in communities? What can you do to enable people to
citizens must work together to achieve the end.
take control of their lives? One clear way of doing so is by encouraging the creation of organisations which individuals in communities own and control, through which they can reclaim the power which has effectively been all too willingly surrendered by citizens to the state
Mutuo Mutuo brings together the different wings of the mutual sector to promote a better understanding of mutuals and to encourage mutual approaches to business and public policy. Through Mutuo, consumer co-operatives, building societies, mutual insurers and friendly societies and other mutuals work together to promote their shared interests to the Government, media and other decision makers. Since 2001, Mutuo has worked to promote new mutuals. This has led to renewed growth in the mutual sector, with public sector mutuals established in health, housing and education and new community based businesses ranging from football to childcare, with a total mutual sector now turning over ÂŁ95 billion each year.
www.mutuo.co.uk
0208 387 1259
Public Services: Made Mutual
Cliff Mills Cliff Mills is a practitioner in the law and governance of co-operative, mutual and membership based organisations. He has advised the UK’s leading co-operative retail societies for more than 15 years, played a significant part in the development of mutual society legislation, and established the constitution and governance of a substantial number of NHS Foundation Trusts.
He has worked extensively with Mutuo over the last decade in the development and application of mutual and co-operative models of ownership for public services. These have included healthcare, social housing, leisure services, education and children’s services, The aim has been to create robust models for large organisations which are trading for a public or community purpose, with an ownership and governance structure based on staff, user and local community membership.
As well as being Principal Associate with Mutuo, Cliff is a consultant with Capsticks Solicitors LLP and Cobbetts LLP.
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This pamphlet, or any part of it, may not be reproduced without permission of the publishers.
Published by Mutuo c/o Westminster Bridge Partnership Ltd Kinetic Centre Theobald Street Borehamwood WD6 4PJ Tel: 0208 387 1259 Fax: 0208 387 1264 www.mutuo.co.uk
ISBN 0-9544127-1-XX October 2010