Mutual organization
This article needs additional citations for verification. (December 2009) |
A mutual organization, also mutual society or simply mutual, is an
A mutual exists with the purpose of raising funds from its membership or customers (collectively called its members), which can then be used to provide common services to all members of the organization or society. A mutual is therefore owned by, and run for the benefit of, its members – it has no external shareholders to pay in the form of dividends, and as such does not usually seek to maximize and make large profits or capital gains. Mutuals exist for the members to benefit from the services they provide and often do not pay income tax.[1]
Surplus revenue made will usually be re-invested in the mutual to sustain or grow the organization, though some mutuals operate a dividend scheme similar to a cooperative.[2]
Background
The primary form of financial business set up as a mutual company in the United States has been mutual insurance. Some insurance companies are set up as stock companies and then mutualized, their ownership passing to their policy owners. In mutual insurance companies, what would have been profits are instead rebated to the clients in the form of dividend distributions, reduced future premiums or paid up additions to the policy value.
This is a competitive advantage to such companies—the idea of owning a piece of the company could be more attractive to some potential clients than the idea of being a source of profits for investors. In the typical stock company, profits go to shareholders. In contrast, a mutual manages the company in the best interests of the customers. Furthermore, a mutual company is able to focus on a longer horizon than a typical company. Some mutual insurance companies make this claim explicitly.[3]
In more general terms, mutual organizations are able to minimize the principal–agent problem by removing one stakeholder, the investor-owner, in favor of one of the other stakeholders, usually the customer, who becomes both user and joint owner of the business.[4]
However, the mutual form of ownership also has disadvantages. One example is that mutual companies have no shares to sell and hence no access to
At one time,[
Many savings and loan associations were also mutual companies, owned by their depositors.
As a form of corporate ownership the mutual has fallen out of favor in the U.S. since the 1980s. Savings and loan industry
The Mutual of Omaha Insurance Company has also investigated demutualization, even though its form of ownership is embedded in its name. It is noted that other formerly mutual companies such as Washington Mutual, a former savings and loan association, have been allowed to demutualize and yet retain their names.
The approximate
Modern mutuality
Various types of financial institutions around the world are mutuals, and examples include:
- Mutual building societies
- Nationwide Building Society – United Kingdom
- Coventry Building Society – United Kingdom
- Nelson Building Society – New Zealand
- Mutual banks and mutual savings banks
- Greater Bank – Australia
- SBS Bank – New Zealand
- Mutual healthcare providers
- Benenden Healthcare Society– United Kingdom
- Mutual insurance companies
- Shepherds Friendly Society – United Kingdom
- Protection and indemnity insurance
Some mutual financial institutions offer services very similar to (if not the same as) those of a
Conversion
Mutualization or mutualisation is the process by which a
Demutualization or demutualisation is the reverse process, whereby a mutual may convert itself to a joint-stock company. This process became increasingly common in the 1980s as a result of deregulation. In the United States, conversion may be full, to a public company, or in many states, partial, to a mutual holding company.
See also
- Consumer cooperative
- Cooperative
- Corporatization
- Employee ownership
- Market socialism
- Mutualism (economic theory)
- Mutualism (movement)
- Producer cooperative
References
- ISBN 978-0-8080-8930-8.
- ^ "Nationwide Fairer Share | Nationwide". www.nationwide.co.uk. Retrieved 2024-03-17.
- ^ "Mutuality". Company Overview. Retrieved 19 August 2012.
- ISBN 0415241308.
- ^ [1]. Dictionary.com
External links
- Are mutuals an endangered species? — Swiss RE article on the result of demutualization activity.
- Mutual insurance in the 21st century: back to the future? – Swiss RE
- Report on the near collapse of the Equitable Life Assurance Society (Commissioned by the UK House of Commons, 2001)