Made for Mutual Banks

 
What are mutuals?
 

Mutuals are companies which are owned by their customers, or members. Profits are distributed pro rata to the amount of business which a member conducts with the mutual.
 
The UK’s Financial Conduct Authority has a Mutuals Public Register listing information for all the mutual societies registered, and these include co-operative societies, community benefit schemes, credit unions, building societies and friendly societies.
 
Insurance companies were one of the earliest examples of mutuals, where the mutuality was a form of risk sharing, geared to the amount contributed by an individual member.
 
A rare form of mutual is the John Lewis Partnership, established after the First World War, when John Spedan Lewis took over the business from his father, and put the employees of the company into a profit-sharing arrangement with the owners, describing them as ‘partners’. After the Second World War, he created a Deed of Settlement which transferred ownership into a Trust on behalf of the employees. A few years later, Ernest Butten, who founded a consultancy, PA Management Consultants, similarly put his business into a trust for the benefit of its staff.

Constitution of mutuals

 
The ownership of mutuals is in the hands of employees, but the interests of those ‘members’ is looked after by elected representatives, which, in the case of larger organisations leads to a hierarchy of committees, which elect the more senior ones, up to a ruling council or board. In this way, those members who take an interest in these things, out of a body of employees which may run into tens of thousands, will ultimately elect a ruling body of perhaps fifteen or twenty directors or councillors, in some cases many more. This group will have the responsibility of overseeing the board of executives who actually run the business.
 
In practice, the executive board will usually operate with a relatively free hand until something significant goes wrong, when the members may or may not be able to influence a course of recovery.
 

Issues facing mutuals
 

Three vulnerabilities can arise from this type of structure.
 
Firstly, the people who run the committees which elect the senior levels of committee members can be those with a particular personal or political interest rather than those of an independent mind. These elected representatives are, by their nature, politically committed people who are dedicated enough to attend sparsely attended meetings and vote for each other to represent the mutual organisation at local, district, regional and national level.

An example is the co-operative societies where the elected representatives are often the same the people who attend conferences where policies are adopted by the historically related Co-operative Party, which, itself, is historically related to the UK Labour Party. These are the people who commit financial support to MPs, paid out of the funds of the societies they represent. These are the people who have the ultimate say in the commercial policies adopted by the sometimes very big organisations on whose boards they sit. Do these policies and these views represent the interests of the members who own these consumer co-operatives?

Secondly, the ultimate decision-making can be in the hands of people with very limited qualifications for taking such decisions. In the case of one large society, the board consisted of a disparate group of men and women with backgrounds ranging from rural primary school headmaster to polytechnic lecturer via London Underground operatives, and chaired by a former communist party member. None of them had any experience or necessarily understanding of what was involved in running a multi-billion pound business.
 
Thirdly, the requirement that equity funding is provided only by members, is a potentially severe constraint, as it means that debt is the only additional source of funds for investment or working capital, beyond the surpluses generated by the business.
 

Reduce risk with purpose-built GRC software

TriLine GRC by Ansarada allows mutuals to streamline their end-to-end GRC framework into a dedicated and automated system so they can be confident they are meeting these challenges head on.

By mitigating the risks associated with manual or fragmented systems, our comprehensive GRC software offers a consistent and simplified approach to fulfilling all your governance, risk, and compliance requirements through the power of digitization, automation, and intelligent reporting.

The ideal GRC software for mutual banks is one that provides with absolute transparency and control over information through user-friendly dashboards. It incorporates integrated modules that can be effortlessly customized to align with your organization's unique needs.