The age of the mutual?

13th November 2012

(This article first appeared in the CBI magazine, Business Voice in November 2012)

Mutuals and co-operatives are back in vogue and increasingly form part of mainstream business thinking. So what role can they play in improving public trust in business and offering alternatives for public-service delivery? By Jason Hesse

Britain’s first mutuals and co-operatives were established in the early 19th century as a response to several instances of market failure: workers couldn’t afford to buy their own homes, so building societies stepped in; they couldn’t buy decent-quality food, so the first co-operative shops were formed.

Against the backdrop of an arguably even wider market failure – the financial crisis, declining public trust in business and government austerity measures – are we set for a new age of the mutual? A Business Voice roundtable, hosted with Benenden Healthcare Society, brought together some of the UK’s mutual leaders to find some answers.

“Mutuals are a force for good,” insisted Marc Bell, strategy and marketing director at Benenden Healthcare Society, the mutual not-for-profit friendly society with more than 900,000 members. “When policy-makers and business leaders are battling a global downturn, the mutual model can play an even bigger part in assisting with a solution to these challenges – particularly in helping to transform services that support public infrastructure. The mutualisation of risk has a long tradition and makes a distinct contribution to both public and privately operated services in the UK.”

Co-operatives and mutuals can fill the gaps created by global economic challenges, said Shaun Tarbuck, chief executive of the International Co-operative and Mutual Insurance Federation: “The crisis has actually reinforced the relevance of the co-operative response to today’s needs.”

Mutuals bring diversity to the business landscape – something which should be encouraged to buffer the economy from future shocks, argued Adrian Coles, director general of the Building Societies Association: “If you’ve got a range of different types of institutions with different corporate structures, you’ll be able to deal with the pressures of the economy in different, more resilient ways. This can ensure the economy isn’t as volatile as it might otherwise be.” Coles observed that, of all the building society demutualisations in the 1990s, not one remains today as an independent entity.

“The financial crisis has made people think about different business models,” said Peter Hunt, chief executive of mutuals association Mutuo. Hunt, interestingly, challenged the conventional notion of “UK plc”, saying: “Everyone talks about plcs because they are the norm, but the plc model is not the be-all-and-end-all.”

Customer service

Despite mutuals’ core values of trust, mutual benefit and ownership, the model needs to evolve, said Martin Shaw, chief executive of the Association of Financial Mutuals (AFM). Now is the time for a “back to the future” approach, he said. “If this isn’t the age of the mutual, we need to ask what’s stopping it from being so.” A recent AFM survey of 2,000 people found that “trust” was the prime reason that consumers use mutuals, Shaw added. “When we asked if they trust plcs, the answer was a resounding ‘no’, which is probably a sentiment of the times. When we then asked if they trust mutuals, it was a very positive score. But this score was even stronger when we asked members of mutuals; people are starting to understand that mutuals are a force for good.”

Because they are owned by customers, mutuals are designed to serve them. “In a bank, you’re serving a customer in order to deliver a dividend to a shareholder. Staff in building societies are selling to their owners,” argued Coles. “Being a mutual doesn’t guarantee success, but we have come out on top by focusing on the customer – the owner of the business.”

Andy Caton, corporate development director at Yorkshire Building Society, said that his organisation “enthusiastically supports” the idea of both profit maximisation and share ownership. “As a financial institution, one of our priorities is long-term sustainability. We’re not about aggressive market share, but it’s important to keep growing.” Yorkshire Building Society has made a decision to play a community role, he added. “We’ve placed big strategic bets on branch access – we are not withdrawing from local communities.”

Co-operative Energy (part of the Midcounties Co-operative) is placing its bets on renewable energy, believing that consumers will be attracted by this commitment. The organisation’s priority, says general manager Ramsey Dunning, is always to put customers first. “If I were running the organisation like a plc, I would be driving for more aggressive growth and higher risk. I’d be pushing prices up to increase margins, and cutting down on service levels,” he said. “Our ambition is to provide what the customer wants and to look at that first.” It’s a powerful position within the ongoing and lively debate about whether the UK’s energy suppliers must offer customers the lowest available tariff.

“People are starting to wise up to the importance of an organisation’s culture in how it operates and treats its customers,” said Alan Oliver, head of external affairs at Nationwide Building Society. “In a mutual, you have to put your members first. There is no desperate need for employees to maximise profit at any cost, so we don’t have to squeeze every last bit of value from every customer relationship. And when you’re like that, people come back. They trust you.”

With £200bn of assets on its books, Nationwide is proof that the mutual model can work on a large scale. Oliver explained: “We’re Britain’s third-biggest mortgage lender and represent half of the assets owned by all of the UK’s building societies. The Nationwide has a relationship with one in four UK households. We have the ability to compete with the big five high-street banks. We’ve shown that we can do that as a mutual.” Other thriving mutuals include Liverpool Victoria, which has been transformed in recent years from an outdated brand to the UK’s third-largest motor insurer.

Public-sector role

So how can mutuals play a bigger role in the economy and society? Government has a clear role to play – and the mutual sector’s resilience during the financial crisis has helped it rise up the Whitehall agenda.

In fact, the government is itself helping to set up and grow mutuals, under the guidance of Rannia Leontaridi, director of the mutuals programme at the Cabinet Office, who oversees a £10m fund offering them professional support. “Our focus is public service mutualisation – supporting public sector employees to become more entrepreneurial, spinning out and setting up mutuals to deliver public sector services,” Leontaridi explained.

Already, 63 public-sector mutual bodies deliver services worth £1bn, noted Andy Bagnall, head of public service reform at the CBI. “There is resilience in diversity and we believe that a diverse market for providing public services is the best outcome,” he said. “The competitive process drives innovation and efficiencies, so clearly we’re interested in public-sector mutuals. In the current political situation, mutuals are one way to open up diversity of public service provision. But we have to be careful not to replace the public-private debate with a public-mutual or private-mutual debate.”

Mutuo’s Hunt agreed that the debate must not be binary: “It is no longer a situation where either services are provided by the state or they’re sold off to the private sector,” he said. “The government’s objective is to make public service providers more efficient without privatising them. It should be congratulated for its approach to mutuality – this is the first government to boldly go and say that mutuals are a good thing.”

An updated version of the open public services white paper was published in March. But the rise of mutuals is not solely dependent on government action, said Campbell McDonald, director of public sector practice at Baxi Partnership: “Our challenge is to communicate the benefits of mutuality in a way that is easier for people to understand.”

Martin Shaw agreed: “We have the tools, but we’re not good enough at teaching our customers and the public about the value we offer. Mutuals only have a secure future if we build on our strengths and find a cohesive way to grow in the future. We have a history of not listening to the past and focusing on the ‘here and now’.”

Do you need scale?

Do mutuals need scale (as per the Nationwide) to compete on a level playing field with private organisations? The Benenden Healthcare Society, for example, recently widened its membership eligibility, from its traditional public- and third-sector base, to anybody in the UK aged 16 or over, in order to bring its service to a wider market.

“Size doesn’t guarantee success,” said Coles of the Building Societies Association. “What guarantees success is a proper strategy, delivering the products to your customers in an economic way.” Yorkshire Building Society’s Caton added: “The bigger you get, the harder it is, because the business becomes more complex.”

For the Nationwide Building Society, scale means that it’s more in the “regulatory crosshairs”, said Oliver. “For the larger mutuals, like ourselves, there are many more important regulatory consequences because of our size. We’re the only mutual hit by the bank levy, for example, and we also have to contribute towards the Financial Services Compensation Scheme. Scale is definitely an issue.”

Stability and innovation

Mutuals can be seen to be playing catch-up with private-sector businesses when it comes to innovation. Does mutuals’ inherent long-term strategic approach mean that the sector can lack innovative “thrust”?

“Innovation is about customer needs,” argued Marc Bell of Benenden Healthcare Society. “In some areas, such as financial services, consumers want stability and security rather than cutting-edge innovation. Of course, all organisations must present their services in a way that appeals to their marketplace, but in sensitive areas such as healthcare and financial services, our duty is to offer products that represent value and stability.”

“So far, throughout the recession, building societies have been rewarded by sticking to the basics,” said Coles. “High-street banks were too big and complex and sometimes didn’t know what they were getting into.” Sometimes it’s good business to let others be the trailblazer.

For the Cabinet Office’s Leontaridi, innovation is “the bedrock” of public-service mutuals. “The mutualisation of the public sector and opening up public services depends on innovation. Innovation is helping to make public services more efficient,” she explained.

Yet Shaw argued that government innovation on mutuals had been too slow. To boost competition and diversity in banking business models, he would have preferred to see failed banks, such as Northern Rock, re-mutualised rather than sold back to the private sector (in this case, to Virgin Money). “We need to ensure that mutuals stay front of mind at government level,” he added.

This task, again, falls to the mutual sector itself. Shaw said: “The sector needs to present a unified voice behind the value of mutuality. We need to walk the walk and talk the talk and be accountable to our members and engage with them.”

“We are changing and innovating as a sector,” added Shaun Tarbuck of the International Co-operative and Mutual Insurance Federation. “But in order to live our values, we need to be efficient and professionally run. Creating a values-based culture has to come from the top of the organisation and leaders have to lead by example. Our leaders need to make tough decisions to enable the sector to show that not only do we believe that ‘it is our time’, but that we are making it our time.”

A co-operative coalition?

Since going into government, the coalition has become a cheerleader for mutuals and co-operatives. One of the key action points in the 2010 coalition agreement was to increase the number of mutuals and co-operatives in the economy. “There is a clear commitment to opening public services to new providers,” said Rannia Leontaridi, director of the Cabinet Office’s Mutuals Programme. “The government’s priority is growth, which we are working on by breaking down legislative and other barriers for mutuals. We want to see mutuals grow and diversify to deliver great value in public services. Cabinet Office minister Francis Maude is incredibly supportive of this work.”

A key measure for this was announced by the prime minister last January. David Cameron promised to introduce a Co-operatives Bill before the next election, which will make it easier to start up and run a co-operative. The bill will consolidate and simplify existing legislation.

“There are more than 12 million co-op members in the UK,” Cameron said at the time. “That’s more people than there are shareholders in the economy, making it a vital branch of popular capitalism.

“But right now there are too many barriers in the way. Seventeen separate and outdated pieces of legislation add cost and complexity.”


Andy Bagnall - Head of public services reform, CBI

Marc Bell- Strategy and marketing director, Benenden Healthcare Society

Andy Caton - Corporate development director, Yorkshire Building Society

Adrian Coles - Director-general, The Building Societies Association

Ramsey Dunning- Managing director, Co-operative Energy

Peter Hunt- Chief executive, Mutuo

Rannia Leontaridi- Director of mutuals programme, Cabinet Office

Campbell McDonald- Director of communications, Baxi Partnership

Alan Oliver- Head of external affairs, Nationwide Building Society

Martin Shaw- Chief executive, Association of Financial Mutuals

Shaun Tarbuck- CEO, International Co-operative and Mutual Insurance Federation



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