Mutuals have a long history in the UK, where the first mutual societies were founded in the Victorian era. One of the oldest mutuals is Liverpool Victoria, which was set up in 1843 to provide penny policies to the poorest to help them bury their loved ones with dignity.
Members of Liverpool Victoria, which trades as LV=, have recently rejected a £530million takeover by US private equity firm Bain Capital. To find out more about the attempt to demutualise the business, Ann Apps interviewed Peter Hunt, Managing Partner at Mutuo, a British advocacy organisation and think tank that advocates for mutuals and cooperatives. The interview was facilitated by the International Cooperative Alliance’s Cooperative Law Committee (ICA-CLC)
Ms Apps is a Lecturer at the University of Newcastle’s Law School in Australia, and she is actively engaged in the promotion of cooperative education in the Australian tertiary sector. She is also a member of ICA-CLC.
Peter Hunt has been active in the cooperative movement since 1994, when he joined the Co-operative Party as an administrative officer. He then worked as a regional organiser and Secretary General for the Party until 2008. While there he set up Muto in 2001 to work across all types of cooperatives and mutuals, and to work with all different political parties.
“Mutuo was established to try to do the same kind of work, to improve the business environment for co-ops and mutuals, but do that on the basis of working with everybody who was interested in that,” he told Mr Apps.
Since then Mutuo has focused on legislation, regulation and policy on a cross-party basis. Mr Hunt left the party in 2008 to work fulltime for Mutuo.
He described mutuals as member owned organisations who shared a common identity.
“Co-ops and mutuals are the same in this very important respect, in that they exist to bring people together to be able to solve problems. It might be to provide the service that they want, but to do it focused on that service rather than on building capital value, which is the reason that companies are established.”
The identity is also an important element when it comes to protecting this mutual status, argued Mr Hunt. He explained that while a company aims to build capital value for investors, a mutual aims to serve its members. He argued that often demutualisations failed to deliver a strong independent business. “Demutualisation should be thought through very carefully before it's proposed.”
Mr Hunt talked about Liverpool Victoria (LV=), the second biggest mutual insurer in the United Kingdom with 1.2 million members, which was recently in discussions with private equity firm Bain Capital. Of the 15% of members who voted, 69% were cast in favour; this was below the required threshold of 75%, thus the sale was prevented.
Mr Hunt argued that the sale of LV=’s general insurance business, followed by the appointment of a new Chair of the board, the conversion of the friendly society to a company limited by guarantee in 2019, and the appointment of a new chief executive from outside the mutual sector, had paved the way for putting the business up for sale.
“So if we now look at mutuals in many countries, certainly in Australia, they have high thresholds in their constitutions, that if you're going to demutualise, you have to have three quarters vote in favour of it on the 50% turnout. That's typical, in some places it’s even higher than that. The friendly society law can't be changed in the UK, you can change the rule, but then you have to have the same threshold to change the rule. So it effectively stops demutualisation occurring.
“However, if you convert to a company, you can apply to a court for a scheme of arrangement to override the constitutional settlement. That was the intention of LV=.”
During this time Mutuo led a campaign to prevent LV=’s demutualisation, with the support of the UK’s All Party Parliamentary Group for Mutuals. The group conducted an inquiry into the proposed demutualisation and held six sessions – calling evidence from witnesses from different cooperative and mutual businesses, from their business leaders, and from LV=.
“The fundamental finding of the inquiry was that there's no way, given the information that so far has come into the public domain, that members would have a clue what was in their interests, because they're only being fed very partial information, very limited information,” said Mr Hunt. “And so that needed to be expanded upon.”
Mutuo also organised a letter writing campaign, sent a petition to regulators, held parliamentary debates, and found lawyers to prepare a legal challenge. The campaign was also joined by the Co-operative Party and Co-operatives UK.
“It was an enormous effort,” said Mr Hunt. “This monoculture, this draining monoculture of economists, of educationalists, of lawyers, of politicians, that there's only one way of doing things, is what we're challenging. So it's a massive task.”
He added that the movement towards people understanding sustainable business and making purchasing decisions and investment decisions based on that sustainability was an opportunity for cooperatives and mutuals.
“There's nothing more sustainable than the cooperative. So if you have the correct organisation in the cooperative, if you have the correct communication in the cooperative, then you've got a real opportunity to take advantage of all of that,” he said.
Referring to some of the lessons learnt in the process of campaigning against the demutualisation of LV=, Mr Hunt said a key takeaway had been the importance of having majorities built into constitutions (i.e. statutes and bylaws).
“We should not permit those super majorities to be undermined by some clever legal route,” he added. Another lesson was that mutuals need to constantly demonstrate the member value in their engagement.
“What is membership all about? And what is the value of all of that? Because members will fiercely protect their membership when they know what it's worth. But if they're disengaged, if they're not communicated with, if the whole thing looks just like any other public limited company, then they’re just gonna treat it like that.”
The full interview transcript is available here.
Watch the full interview here.
Merger talks between LV= and Royal London ceased in February with the former saying it intended to continue as an independent mutual. In a blog post Martin Shaw, the CEO of the Association of Financial Mutuals, said it was “encouraging that members do recognise the value of being part of a mutual”. He added that a revitalised, independent LV= had the potential to succeed, in the protection market in particular.” He also warned that LV= needed to “be realistic about its growth options and needs to decide where its priorities for spending will be” and find a solution for its dwindling membership. Read his full comment piece here.
