Despite all the jibes, our feelings are still mutual

Date: 20/09/2006

Bill Gaywood, chief executive of Liverpool-based healthcare insurance provider Medicash, believes there is an important role for the mutuals and other companies which survive without shareholders.

There’s a long roll call of major high street names with one thing in common. The Halifax, Abbey National, the Woolwich and Cheltenham & Gloucester – all are former mutuals which lost their independence and their mutuality over the last 15 years, and ended up as part of larger, shareholder-owned groups.

There are other building societies like the Alliance & Leicester which have remained independent but have decided to get rid of mutuality, believing the shareholder model to be more attractive.

With all these big names taking the demutualisation road, we at Medicash are often asked why we – and some others like the Nationwide – choose to remain independent, and ‘mutual’, without shareholders to answer to.

There was even reference in one article recently to those who tried to preserve building societies in the 1990s as ‘steam train enthusiasts’ and ‘hopeless romantics refusing to acknowledge that cuddly customer-owned institutions had no role in modern capitalism’.

We, like the Nationwide, t hink differently. We see our version of mutuality as a real benefit to our customers and our staff, and a model which will work for us for the foreseeable future.

The first point is that not having shareholders does not mean we are unprofessional. Far from it. We at Medicash run our company like any public limited company. We turn over £28m annually, and have achievable plans to boost that to £45 million by 2010. We made £2 million in the last financial year, and have a positive balance sheet of £24 million. We run an efficient operation, paying 1,000 claims every day to members all over the country (within a five-day pay-out target).

The Nationwide, a larger example, is the second-biggest home loans company in Britain and acknowledged to be an organisation with a strong customer focus, campaigning to keep cash machines free – among other initiatives.

And that is probably the crucial area where non-shareholder organisations can score, by truly putting the customer first.

Instead of having to put shareholder value at the top of the agenda, we can put our customers at the top of ours. As we don’t have to pay dividends, we can reinvest our surpluses in finding out what products and benefits our customers want and developing new products for them. We can invest in state of the art systems and service, and in meeting the stringent demands of our regulator, the FSA.

We can also choose to direct money to charity – something which Medicash and many other mutuals have done for many years. By our calculations, we have given the equivalent of £77.4 million to health related charities and the NHS since we were founded in 1871. We are giving another £270,000 to charity at a gala event on September 28, to mark our 135 years in business. Would this have happened had we been a shareholder-led company?

Indeed, the overall impact nationally on charities of the move away from mutuality has been enormous, and has led to the charities having to change the ways they raise funds, given that traditional mutual benefactors have found themselves with different priorities – the shareholders.

The support that has gone to charity over the last 100 years from the mutuals must run into billions, and this is a source of funding that is now drying up fast: the impetus to raise funds from new sources means that charities themselves have had to become more businesslike and more innovative.

some ways, it is the same for the mutuals. As they have become increasingly rare, they have had to survey the business terrain and adapt the way they run their organisations. To justify their existence, they have had to ensure they outperform the demutualised competition – otherwise, their customers will go elsewhere. They have had to become ultra-professional, without losing the customer and charity focus which distinguishes them.

Sometimes, standing out from the crowd can be a practical sign that you are doing something right – rather than being a ‘hopeless romantic’

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