Why employee ownership? - Mutuals and employee ownership: what is it?

Mutuals

Mutual organisations exist for the principal purpose of delivering a benefit to their members. Those members can be employees, customers, other key stakeholders, or some combination of all three.

Though some mutuals are profit-making enterprises, the pursuit of profit is never their sole purpose. The organisation will offer shared ownership, and the structure will provide mechanisms of democratic accountability and governance that ensure members have varying degrees of control over the organisation’s direction and decision-making.

Mutual organisations can range from building societies and friendly societies to mutual insurers and credit unions, and beyond. Many housing associations are mutually owned organisations, while NHS Foundation Trusts are often bracketed as mutuals given their shared governance arrangements. Combined revenues for this sector total around £90 billion annually (Mutuals Yearbook, Mutuo, 2009).

The mutuals spectrum tends to run from purely employee owned organisations at one end (the best example of which often cited as the John Lewis Partnership) through fully consumer owned co-operatives at the other (whose best example is often cited as the Co-op Group).

In between these two, lie all manner of hybrid models. It is an often under-played strength of the mutual approach that the model can be tailored to each unique set of stakeholders and circumstances to create a organisation that is fit for purpose.

While a number of mutual organisations fall under the government’s definition of social enterprise i.e. they have a social purpose and principally reinvest their surpluses into the organisation or toward wider community goals it is worth being clear that mutuals are not by definition social enterprises.

Employee ownership

Employee owned organisations fall under the label of mutuals and currently contribute about £25bn annually to the UK economy, roughly 2% of GDP (Mutuals Yearbook, Mutuo, 2009).

There is no single model that defines employee ownership. Instead, there are a range of separate elements that come together to characterise an employee owned organisation.

It is worth noting that while there are a significant number of companies that involve some element of ownership by employees, such as through share options, this is often not what is meant by being ‘employee owned’.

For an organisation to be considered employee owned in a meaningful way by the UK’s Employee Ownership Association, it must cross a threshold which is based on an informed calculation that measures the percentage of employees benefiting from ownership and the percentage of the business owned by those employees.