People-Centred Businesses Also by Johnston Birchall
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People-Centred Businesses Also by Johnston Birchall BUILDING COMMUNITIES, THE CO-OPERATIVE WAY CO-OP: The People’s Business CO-OPERATIVES AND THE MILLENNIUM DEVELOPMENT GOALS DECENTRALISING PUBLIC SERVICE MANAGEMENT (with C Pollitt) REDISCOVERING THE COOPERATIVE ADVANTAGE: Poverty Reduction Through Self-help THE INTERNATIONAL CO-OPERATIVE MOVEMENT Also edited by Johnston Birchall HOUSING POLICY IN THE 1990s THE NEW MUTUALISM IN PUBLIC POLICY People-Centred Businesses Co-operatives, Mutuals and the Idea of Membership Johnston Birchall Professor of Social Policy, Stirling University © Johnston Birchall 2011 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2011 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-0-230-21718-8 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalogue record for this book is available from the Library of Congress 10987654321 20 19 18 17 16 15 14 13 12 11 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne For Bernadette This page intentionally left blank Contents List of Tables viii 1 People-Centred Businesses 1 2 Theorising the Rise and Fall of Member-owned Businesses 20 3 Consumer-owned Retail Businesses 43 4 Consumer-owned Insurance Providers 65 5 Consumer-ownership of Housing 90 6 Consumer-ownership in Public Services and Utilities 106 7 Consumer/Producer-owned Banks 126 8 Producer-owned and Employee-owned Businesses 154 9 The Peculiar History of ‘Member-owned’ Businesses in 179 Developing Countries 10 The Idea of Membership 205 Bibliography 211 Index 221 vii List of Tables 1.1 A suggested taxonomy of member-owned businesses 5 2.1 Some important questions 22 2.2 Theories that explain why co-operatives succeed or fail 32 2.3 Some periods in the life of a MOB sector 39 7.1 Differences between the Schulze-Delitzsch and Raiffeisen 138 systems 7.2 Credit union statistics, comparing the years 2000 and 148 2008 8.1 Proportion of employees who are owners, by whether 170 outside investors are also owners viii 1 People-Centred Businesses We are at the Treasury in Whitehall. I sit at a very large table with a group of chief executives discussing corporate governance. From where I am sitting I can see St James’s Park and, through a rear window, the roofs of several government ministries. I am among powerful people in a powerful place; they are the top people in the worlds of banking and insurance, and they have been invited by the government to share their views on how financial services com- panies should be governed. There is an air of expectation; civil servants sit to one side recording every nuance of our conversation. We discuss several issues to do with good governance, including the old controversy over whether the European tradition of having a supervisory board and a management board is superior to the British and American tradition of having just one unified board. We spend some time discussing the kinds of skills board members need in order to be effective. This is a few years before the global banking crisis, but we have a sharp discussion about risk and whether board members can assess the risks their managers are taking. We get on to the subject of executive and non-executive directors, the point at issue being how many of each a board should have if it is to be effective. The general opinion seems to be that there should be a balance, but some lean towards having more exec- utive directors on the board than non-executives. This means they want the managers of the company to be in control rather than the owners. I find this idea quite alarming, but say nothing. They take it in turns to describe how their own companies deal with this issue. The recently retired chief executive of a large life insur- ance company explains ‘In our company we have a tradition that ‘non-execs’ are in the majority on the board. I don’t know why’. 1 2 People-Centred Businesses Finally I find my voice. ‘That’s because you are a mutual; if the non- execs were not in a majority then you would cease to be member controlled. You see, in theory you are owned and controlled by your members, who are the customers. They vote the non-executives on to the board.’ I pause to let this sink in, and then sum up: ‘If non-execs were not in a majority you would no longer be a mutual’. He looks puzzled and says ‘I never thought of that’. The purpose of this book is to explain why that highly-paid and experi- enced executive missed such an obvious point about his own company, and to evaluate the importance of the point he had missed. There is a whole class of business organisation that is owned not by investors, or the public, or a particular entrepreneur, but by those who benefit directly from its activities: end-users or customers, other companies who supply to or are supplied by the business, or its employees. This is, to put it simply, a member-owned business, and it is quite distinct from an investor-owned business. The art of seeing Why did the former chief executive not see what was plainly in front of his eyes? To answer this question it is worth making a slight detour into this question of ‘seeing’. When we look at something the eyes are not the only organ that we use. Obviously, the brain interprets what we see and makes sense of it. Also, we do not see everything that comes into our vision but select what is important to us and, in a sense, choose to process that information rather than any number of other possible sensory perceptions. As humans, we complicate matters by using language, and we put labels on objects as part of a process of deciding what is important to us. For example, look at how an ornithologist will travel for hundreds of miles to catch a glimpse of a rare warbler that most of us would just see as a dull brown bird. Look at how a trained botanist will search for ages in a forest to find a rare orchid that we would just see as another wild flower. The process of naming changes how we see things. Why should an otherwise intelli- gent and experienced manager not have seen into the nature of the organisation he had been leading? – Because the label ‘mutual’ was not important to him. He had not been trained to see it, and had not been equipped with the precise kind of language needed to value what he saw. People-Centred Businesses 3 His ignorance would have been easier to excuse if it had been dis- played perhaps 15 years earlier, when hardly anyone could define a mutual. The demutualisation debate, which began in the early 1990s in the UK with the conversion of building societies to investor-owned companies, had the effect of sharpening business analysts’ vision; they began to ask what it was that was being destroyed, and whether some- thing valuable was being lost in the process (Drake and Llewellyn, 2001; Birchall, 2000). The idea of member-ownership also came into focus in a perverse way, when failings in governance came to light in the life mutual, Equitable Life, and policyholders began to appre- ciate that their membership of the company gave them strong rights to participate (Birchall, 2001). What are we looking at? So what is a member-owned business? What does it look like? How can we distinguish it from other forms of ownership? To save time, let us begin by labelling it an MOB, as opposed to an IOB which is an investor-owned business. The crucial distinction is between a business that is people-centred, and one that is money-centred. Henry Wolff put this well in a book he wrote in 1907 about co-operative banks. He said: The joint stock company is a union of money units, each of which carries a vote. The co-operative society is a union of persons. These persons do not, like the shareholders in a joint stock bank, join together to earn a profit out of others.