The Private Equity Threat to Co-operatives and Mutuals

Summary

Demutualisation occurs when a co-operative or mutual converts into a proprietary company.

The main justification given for demutualisation has been a lack of capital or scale that is not available to the business in its mutual form. Demutualisation inevitably alters a business’s corporate purpose. It will no longer be committed to delivering the best value to members and instead will join the majority of businesses as one that is focussed on delivering value to its investor shareholders.

The impact of demutualisations in the past has been to the detriment of members, particularly over the longer term. The requirement to service shareholder capital is a drain on business and means that there will be less money for members to benefit from. Short term payments for loss of membership rights are soon recouped through higher costs and lower benefits in a proprietary firm.

Beyond its own members, demutualisation also effects the wider industry and competition and choice. For markets to work for the benefit of all requires that the various corporate models each enjoy the necessary critical mass, defined as the degree of market share necessary to enable that model to operate successfully and thus to provide real competitive pressure on the other players within the market.