The private equity threat to co-operatives and mutuals

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.

The lived experience of most demutualisations is that following conversion, board and executive management were quickly rewarded through increased remuneration and share options. The rationale for the conversion, that they needed additional capital to develop the business also fell away, as soon after, most business ceased to trade as independent entities as they were merged into larger consolidated groups. Of the few that remained independent, some saw their own spectacular collapses, as seen at Northern Rock in the UK and AMP in Australia.

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