By Paul Fitzgerald, Deputy Director, ACCORD

Australia has led the way internationally in the speed and scale of demutualisations. An underlying belief of the proponents of demutualisation has been that the mutual form is inherently less efficient than a traditional company structure. In particular, the complexity of raising capital for co-operatives is the most cited reason for demutualisation. However, recent research undertaken by the Association des Assureurs Cooperatifs et Mutuels Europeens has refuted this claim.

The study of 97 companies in 11 countries within the European market shows that mutuals outperform stockholder companies in greater claims payments, lower costs and better overall financial performance.

Mutuality was shown to have a significant value by creating a circle of mutual benefit focusing primarily on customer value resulting in good performance, which in turn strengthens and promotes the mutual idea.

Whilst it is methodologically difficult to compare an organisation’s performance post and pre-demutualisation, ACCORD has commenced work to compare the stated aims of proponents of demutualisation with the actual outcome.

Of major interest is the role played by boards and management in promoting the concept of demutualisation.

ACCORD is currently examining the performance of 10 co-operatives that have recently demutualised in NSW. By comparing their mandatory prospectus pre-demutualisation with their current status, we aim to measure the real as against rhetorical results and impacts of the process.

The ICMIF Report makes interesting reading, in this regard, as it demonstrates that most co-operatives seeking to demutualise in order to inject new capital into their organisation, have usually fallen prey to a takeover once they have become stockholding entities. The report concludes that the arguments for demutualisation are not so much based on hard facts, but more often on the ideology of demutualisation.

Unless the notion of mutual ownership is understood and valued by the membership, demutualisation of co-operatives will continue in Australia. Over-emphasis on customership, as against ownership, has for many members destroyed a key differentiating feature between co-ops and other corporate entities.

The process of accepting demutualisation as inevitable is driven by diverse, but intersecting influences. They include management and board self interest, regulatory encumbrances inherent in the co-operative form, the dominance of private equity owned corporations, the existence of a technically articulate advisory industry, generally biased against co-operatives, lack of financial literacy among board members and a failure by many co-operatives to invest in member education.

Unless the members value mutuality, it is inevitable that the number of Australian co-operatives demutualising will continue to rise. A small sector comprising 2,800 organisations may be reduced to significantly less than this in the not too distant future.