Land Reform Act Part 2 Guidance
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Benefits of New MutualsCommunity ownershipThe first most obvious benefit of the new mutual model is that it gives to the community the ownership and control of the organisation from which it is receiving the public service. The definition of community will vary according to the service involved, but in each case, the effect will be to give local control, and thereby to ensure that local interests are considered. Whilst hard decisions will still be required, when they are taken they will be based upon the interests of those whose lives and livelihoods will be affected. DemocracyMembership is open to any person in receipt of the services. All members have the opportunity to participate democratically in the organisation. This means the right to attend and speak at meetings, to vote on resolutions and in elections of board members, the right to receive certain information about the business, and the right to participate in the democratic structures in the organisation. Ultimately this includes the right to seek nomination for election to the board. Because membership is open to any person in receipt of the services, there is no financial barrier excluding those who cannot afford membership. This effectively means that those running such organisations are accountable to the community they are serving. CitizenshipThe ability to become a member, to receive information, attend and speak at meetings, to vote and to participate in democratic structures, all provide opportunities for individuals in a community to participate and have a role as a citizen within the community. Democratic organisations run for the benefit of the community enable individuals to influence and have a real sense of involvement in the life of their community. The encouragement of competition in the supply of products and services may have benefited consumers through providing choice and competitive pricing, but when it is extended into the provision of all services including those still perceived as public services, it has another effect. It leaves the consumer as simply that - a consumer, a person who simply chooses to buy or not to buy. The concept of citizenship and membership of a community is further eroded. Through organisations established to serve the community in a variety of ways (transport, utilities, social services, leisure and recreation) opportunities can be provided to encourage and develop participation by individuals who have an interest in the provision of such services. As the state both centrally and locally divests itself of responsibility for the provision of services, as the role of government changes and individuals see themselves as having decreasing impact through the casting of a vote, the encouragement of citizenship, social responsibility and the fight against exclusion all require the creation of opportunities for individuals to take part and have a meaningful role in their community. Employee participationThe opportunity exists for including employees within the constitutional structures of the organisation. This will be appropriate in cases where, for example, the success of the business and the nature of the service provided depend upon the commitment and dedication of the employees. In other cases, it may be appropriate to recognise within the constitution the fact that the provision of employment is itself of benefit to the community. Long term thinkingInvestor-owned companies and specifically the Stock Market have for many years been criticised for leading to short-term thinking. The focus on the best interests of the company - effectively share-price and profitability - together with executive reward schemes based on share options encourage decision-making, which brings tangible quick results. Investment for the long-term is clearly necessary and takes place, but once again, it will be commercial expediency, which determines the priority of spending. The boards and executives of new mutual organisations are freed from this disadvantage. They can and must take decisions based on what is in the interests of the organisation in serving its community. Those interests manifestly include both the longer-term interests of current members of the community, but also future generations. Arguably the most serious longer-term need which should be informing current commercial decision-making is the environmental one. The most graphic examples of the shortcomings of decision-making within a company structure can be seen in this context. Unless there is some specific statutory requirement, or an unarguable commercial reason compelling a company to choose the less environmentally damaging but more expensive option A, whatever they may want to do their legal duties will drive directors to choose the cheaper but more harmful option B. As stated above, there is no room for altruism in an investor-owned company. In a new mutual carrying on business for the benefit of the community, the directors would be at liberty (and may be legally obliged) to choose the less harmful but more expensive option A.
Opportunities for New MutualsInvestor-owned companies will continue to be the appropriate model for business ownership in the majority of instances. However, new mutual structures provide options that should be considered in a number of situations including the following, where a model designed to create wealth is less appropriate than one based on serving a community> Public or community services - Where the business is in the nature of a public or community service, such that continuity and quality are essential.
The presence of one or more of the above features would suggest that a new mutual option should be considered. Reference has already been made to utility companies. These businesses involve a number of features described above. A new mutual model had been developed for the water industry, and a mechanism for transition from investor to community ownership has been devised to meet the requirements of the Regulator. The current best value reviews being undertaken by local authorities are leading to the consideration of a number of alternative approaches to the provision of services. New mutual models are in the process of development for the provision of care for the elderly, and the provision of leisure facilities. Many services currently provided by local authorities display one or more of the features outlined above, or simply do not readily lend themselves to implementation through investor-owned companies (such as crematoria, cemeteries and parks). New mutual structures provide alternative options. New mutual solutions are also appropriate for consideration in relation to housing. Although housing associations provide a similar solution through the traditional housing association model, this model is not open and democratic. There is one area where new mutual structures are already being implemented. Supporters Direct is a Government backed organisation seeking to promote the interests of members of football clubs by combining their influence as shareholders. A football club is not only a community-based organisation; it also has an effective monopoly on the rights associated with the club concerned. It is an example of a business where it is arguably less appropriate for an investor-ownership model to be used rather than a community-ownership model. The change in the dynamic of decision-making caused by a different model could have significant results. To-date some 28 football clubs have created some form of Supporters Trust as a means of mutually holding shares in clubs since the formation of Supporters Direct. Other sports clubs could follow the lead taken by Supporters Direct in relation to football. Other alternatives to investor-owned companies are used in a number of situations referred to above. The traditional housing association model has already been mentioned. The company limited by guarantee is also used commonly described as a not-for-profit organisation. A company limited by guarantee (CLG) differs from an investor-owned company in that it does not generally have a share capital (no new CLG can be registered with a share capital since the Companies Act of 1980), and the liability of members is limited to the amount guaranteed in the memorandum of association (commonly £1). The main distinction between the company limited by guarantee and the new mutual models is that membership of a company limited by guarantee is not open. Members tend to be selected by the directors. This model is commonly used in a charitable context. Whilst it is appropriate in this area where those responsible for running a charitable organisation wish to select appropriate members in the interests of maintaining the original charitable intentions, it is less appropriate for a business which is not trading for charitable purposes. This is particularly the case where openness and accountability are important, and where the risk of accusations of cronyism exists. To enable those responsible for running the business to choose members clearly introduces a serious structural flaw.
The Future is in Your HandsThe investor-owned company has been the dominant corporate structure in the United Kingdom in the last two centuries. It reached its zenith in the years of Margaret Thatcher's government (1980s and early 1990s) with the privatisation programme, which brought very large businesses out of state-ownership and into investor-ownership, and was intended to lead to widespread share-ownership. Investor-owned companies have no place in their structure for customers, employees, and both of those groups are at a disadvantage in the key decision-making process in company boardrooms. In spite of the efforts of regulators, recent events are demonstrating that the company model does not work in certain applications, when put to the test. The legal duty of directors to act in the best interests of the company, and effectively its investors, means that safety, environmental concerns and other long-term issues including the interests of future generations do not receive and will never receive the priority they need if the interests of the community are to be properly protected. New mutual models are already available in some areas and being developed in others. These models provide real alternatives for those considering options for delivery of services. Not only do these models address the weakness of the decision-making process in the traditional company structure, they provide many benefits in their own right including:
The opportunities that these models create now need to be seized by those in a position to decide the future ownership of some our most important assets. Further Information & ContactsCliff Mills has written widely on the institutional and legal aspects of mutual and social ownership. He is a partner at Cobbetts solicitors and can be contacted at www.cobbetts.co.uk This is an edited and abridged version of an article titled A lawyer's Perspective. The full article and other articles on new mutualism can be found in Ownership Matters - New mutual business models by Ian Hardgreaves, Cliff Mills and Jonathan Michie (March 2001). The booklet is priced at £5.00 plus p&p and is published by www.Mutuo.co.uk . Copies of the publication can be obtained from: Mutio.co.uk 77 Weston Street London SE1 3SD For further information on Mutuo visit: www.mutuo.co.uk |