Media reports have shown a recent surge in interest providing public services through mutuals. This article outlines the opportunity for policy makers.
What is a mutual?
Mutuals are businesses that are run in the interests of, and owned by, their members. In many cases, such as in traditional co-operatives and building societies, these will be beneficial owners.
But in recent years, many mutuals have been established on the basis of ‘community ownership,’ which means that individuals receive no personal benefit as a member, but are effectively stewards for their defined community. No profits are distributed and the organisation is focussed on serving its customers.
It is the latter type of mutual that is appropriate for providing public services.
Some types of employee owned firms are also called mutuals and their dynamics are different from user facing mutuals. Such organisations may be appropriate for providing public services in contested environments, where they are in competition with the private sector.
However, it is important to seek to build organisations that take advantage of the best features of all mutuals, including a strong culture of engagement with staff.
What makes mutuals different?
It all comes down to governance. Basically, mutuals are designed to be businesses first and foremost. They share many governance features with private sector firms in that they have a professional executive to run the organisation. The executives in turn report to a board of executives and non-executive directors.
Mutuals diverge from this private sector model by being ultimately accountable to their users (funders through tax payments), rather than to investor shareholders, whose interest is financial.
Instead of seeking a profitable return for their investment, the users are interested in, and motivated by, the efficiency and quality of the service being provided.
Mutuals will empower their members to participate in the governance structure in various ways – typically by having a special governing tier that has real power, connected to the Board structure.
Typically the power may be one of appointment to the Board, or it may be over the strategy of the business. Without meaningful powers, membership governance will be weak. People will join such a mutual if they have an interest in the service it provides, and membership is taken seriously.
Yet, membership is not just about participation in elections. A successful mutual will adopt a culture of engagement with its members and value their opinions on service range and quality. It will facilitate a range of opportunities for members to contribute on such matters.
Where mutuals may be appropriate
Mutuals are appropriate where there is a need for a business-like approach to delivering a service, allied with a need to make it ultimately accountable to the community which it serves, and pays for it through taxation.
Community based mutuals are particularly suited where there is no real competition to the public sector providers – such as in schools or hospitals, where the competition that does exist is also funded by the taxpayer.
The most significant example is NHS Foundation Trusts, which are health businesses, working under the NHS brand, but independently accountable to their own community. In these mutuals, the membership is a proxy for the wider community of users.
Co-operative trust schools and social housing mutuals are other examples.
Employee led mutuals are appropriate in contested environments, where service providers rely on contracts with public procurers.
Start up vs conversion
It is possible to start up a new mutual from scratch, with a clear intention to provide public services. However, this is a difficult route and faces the same problems as any new business. (Access to capital, market access, expertise etc.) This has been a significant barrier to employee led mutuals entering the market.
The most successful and large scale new mutuals in public services have been conversions of established state or municipal service providers.
This is because the business and the market already exists and there is leadership from the existing executive management.
Realistically, only conversions are likely to make any significant impact in the provision of public services in the short or medium term. Start ups will require many years to reach the same level of impact.
Making conversions work
Conversions are about much more than adopting a new corporate status.
If we look at the experience of NHS Foundation Trusts, these organisations have had to change radically to succeed. Driven by a strong and empowered regulator, these bodies have had to become competent businesses in a very short time scale. In practical terms, they have often needed to recruit new executives (particularly with business experience such as finance directors) and have seen a significant churn of non-executive directors.
Ultimately, a new business culture is needed that is far from the public sector model and often requires new people. It is certainly a challenge to long held attitudes and ways of working.
At the same time, significant external support was provided to the first foundation trusts, who received financial support to buy in advice from outside the traditional NHS. This helped them to understand and succeed with new and different governance structures. Subsequent waves of conversions received no such support and have struggled in governance terms as a consequence. The lesson is that converting organisations need support.
This support cannot be provided by Government, because the simple fact is that the required skills do not exist in the public sector. This is a useful lesson for the various departments providing support to social enterprises. It is clearly a service that requires external expertise.
Summary
• Public sector mutuals are businesses that are accountable to their users
• Members own them on behalf of the user community
• Mutuals are particularly suited to proving public services in non-contested environments
• The most likely route to creating successful mutuals is through conversion rather than start up
• New skills and cultures need to be adopted to make a conversion succeed
• The government should support conversions by sourcing external advice and support
• A strong and empowered regulator can be a good catalyst to the success of conversions
Copyright Mutuo 2009