How accountable are large mutuals?

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I find myself wring about “mutuals” again. Not this time because of some pronouncement supporting mutuals and co-ops – usually from a political leader – but because of a report in the business section of the Sunday Telegraph:

“The Coventry Building Society, the country’s third largest mutual, is in merger talks with its smaller rival, the Stroud & Swindon.”

So what I hear you ask. Why the concern? It’s pretty simple really. Because no one individual can have a greater interest in the society than another there is no mechanism to balance the activities of management – other than at a general meeting. This contrasts directly with the traded company where markets give a clear signal to management and individuals can build up levels of ownership sufficient to influence decision-making.

At the local level, mutual organisations a pretty accountable to their members. As a member of Cullingworth Conservative Club, I feel able to influence (should I wish to) the decision-making of the management. A management who are unpaid and elected from the ordinary membership. In a multi-million pound turnover building society such influence is diluted across the entire membership – so long a management does not directly act to reduce the value of members’ savings those members will not challenge the decisions of management.

Put simply, the management are insufficiently accountable for a business that (in the case of the Coventry Building Society) has assets of £18.4 billion. The primary outcome of this lack in accountability is that management will act in their own interests rather than in the interests of the mutual owners of the business. Increasing the size of the business through merger is clearly in the interests of management – larger organisations have more and better paid managers – but it is open to question whether increases in scale are of any direct benefit to the majority of members since there is little likelihood of such a merger either reducing mortgage rates or increasing savings rates.

So while building society mergers do provide great headlines - “Yorkshire agrees takeover of Chelsea” – they do cast doubt on the mutual model and the degree to which management can, and probably do, act in their own interests rather than in the interests of the actual owners of the business.


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