What and why mutuals? Mutuals are a form of company organization within which all of those working in the company are shareholders and where there are no external shareholders. Mutuals that operate as production and service companies generally operate on the basis just described. However, retail or consumer mutuals extend share holding to the consumers and the mutual company is in essence a service company producing services for retail clients. These retail mutuals can also serve customers who are not members but anyone can join a retail mutual and begin to benefit from being a shareholder. Benefits Compared with plcs which have external shareholders, mutuals can be very competitive as a result of decisions on dividend payments becoming a trade-off between remaining competitive or raising bonuses or dividends paid to employee-shareholders. In particularly competitive sectors mutuals can combine compensatory wages with a competitive position. On the other hand, plcs often face pressure from external shareholders to maintain an acceptable level of dividend pay out because this is the only source of funds for shareholders and/or the only reason they are shareholders. As a result of wages being an accountancy cost item, plcs tend to attempt to minimize wage rises while maintaining the real value of dividends (shareholder value). This conflict can be avoided in the case of mutuals. Economics The economic advantage of mutuals in terms of operational costs relates to the absence of external shareholders. This can result in an overall reduction of cash flow leakage that is equivalent to a reduction in costs of between 12%-18% depending upon the companies compared. In the end, cost comparisons need to be based on practice according to the organization structures, the sectors served, the technologies and techniques applied. Economic growth In the economy as a whole some 80% of economic growth is the result of learning from repetitive applications of tasks and techniques to build up experience and raising of competence as a result of cumulative learning (tacit knowledge) also broader experience on what works and what does not, builds up information and data and a deeper appreciation (explicit knowledge) of importance to the management of the affairs of the organization. Because mutual "employees" are shareholders their motivation towards shared learning and accumulation of tacit and explicit knowledge is normally far greater than people doing a 9-to-5 job with no participation in corporate profits. Therefore the likelihood of competitive growth coming from mutuals is higher in comparison with other corporate structures. Competitivity The impact of the accumulation of tacit and explicit knowledge is more efficient operations based on the learning curve. Combining the costs advantage of not having external shareholders with the higher motivation to collaborate in refining techniques, the performance of operations can increase significantly placing mutuals in a strong position within competitive markets. Incomes During the last 30 years and in particular during the last decade, income disparity in the United Kingdom has increased. Profits as a percentage of GNP have increased and wages as a percentage of GNP have decreased. Because well operated mutuals possess several operational advantages including lower costs and competitivity, their ability to pay higher wages is enhanced. Policy Because under normal circumstances macroeconomic policies are not succeeding in lowering income disparity an expansion in mutual organizations can go some way towards helping raise wages more in line with productivity of those employed in mutual organizations. Therefore a rational government policy would be to encourage the formation of mutuals. Investment Investments made by mutuals using fund accumulated from savings, even under current low interest rates, tend to be directed towards productivity enhancing and cost reduction investments so as to be able to raise the competitive advantage of the company in terms of output unit prices as well as raising the ability to raise wages and dividends. Even with low interest rates it is advantageous for mutuals to avoid loans and debt because of the higher cost on investment involved. Slower steady growth based on own equity can ensure a steady evolution in growth and incomes. | ||||
THE GEORGE BOODLE FOUNDATION LIMITED London |
