Are Mutuals Fit for Purpose?

Mutuals and co-ops once passed me by as an idea. The only co-ops I really knew about for a long time were vegetarian wholefood joints staffed by pony-tailed graduates and Christians. These places seemed desperately worthwhile - and very low on consumer-values such as atmosphere, service and range.

So I put co-ops into the 'nice but ineffective box' in my mind. The recent push for more mutuals has prompted me to look again at this format. To this end, I have read two superb books in the last month. One is 'Spedan's Partnenership' by Peter Cox, all about the rise of John Lewis. The other is David Erdal's book about Loch Fyne Oysters, which was taken into employee ownership following the death of one of its founders.

Both books helped to smash some of my misconceptions about employee-ownership. Firstly, these firms do not have group decision-making on all issues. Votes are not taken on which cleaning firm to use or even on many key management decisions. Expertise is respected in all areas - including management.

What's different though are three things. The first is accountability -and therefore culture. In an employee owned firm, the senior team reports back to the shareholders - who are also employees. This creates a very different dynamic inside a firm to one in which managers report to external owners. Managers are there by consent of the managed.

Secondly, employees are more involved in decision-making than in a typical firm. The culture of the all-powerful CEO is not typical to employee-owned firms - and the default position is that everyone's ideas have value.

The third is motivation. In an employee owned firm, everyone has 'skin in the game'. This creates a healthy peer-pressure to perform and deliver. There is now mounting evidence that employee-owned firms are more productive and resilient than their privately owned counterparts.

There's all sorts of info in both books about how employee ownership structures can be created, even when the firm starts out private. The most popular is for shares to be taken into a trust for employees rather than given out individually. But Loch Fyne does both, as they believe it makes ownership more tangible. Erdal's book is a touching, convincing account of how this works in practice.

What does all this mean for public services? Perhaps the strongest message I got is that for the magic of employee ownership to work, it is vital that employee ownership is as near-total as possible. Many of the mutuals setting up are only part-employee owned, the rest spread among users, other stakeholders etc. In the view of these writers, and mounting evidence from people like the Office of Public Management (itself a mutual) is that any dilution of ownership also dilutes the benefits too.

This week I attended a gathering of the 'Pathfinder' Mutuals at the Cabinet Office. All are finding their way in a public services environment in which they are, in different ways, an anomoly, often struggling to fit. These are the Early Adapters which others will watch and follow. What stands out is their determination to succeed in a tough environment. Ownership is undoubtedly part of the magic-mix which keeps these excellent people in the game, despite the odds.

All power to them.