Bigger and better co-ops and mutuals: Discussion paper

17 June 2022

The Bigger and better co-ops and mutuals: The opportunity for Federated CMEs in Australia discussion paper was launched at the 2022 BCCM CEO Summit. The paper, prepared by Mutuo’s Peter Hunt, asks how do we maintain our core business purpose, continue to serve our members, and yet compete with often much larger businesses with greater access to capital and scale?

Read the executive summary

In many parts of the world, federated co-operatives represent some of the largest and most successful mutual businesses, yet Australia has no large federal co-operatives or mutuals.

Nevertheless, the logic of greater business consolidation among co-operative and mutual enterprises (CMEs) in a number of industries, suggests that alongside merger activity, we should explore how co-operative federations could be developed to build larger CMEs, compete more strongly with other business and strengthen overall CME market share.

All co-operatives and mutuals were founded on the basis that more can be achieved together than individually. In the words of German co-operative pioneer, Friedrich Wilhelm Raiffeisen, “what one cannot do alone many can do together.” It is about enlightened self-interest, delivering equity through co-operation.

This quote is just as relevant today. Even though many businesses established as early co-operatives and mutuals might not be so easily recognisable, the business purpose remains just as relevant and their place in their markets just as important.

But times change and so do the requirements of those markets. Small, locally responsive businesses are not always able to compete in large and complex marketplaces.

The establishment of large investor-owned companies in many sectors inevitably presents a challenge for CMEs. How do we maintain our core business purpose, continue to serve our members, and yet compete with often much larger businesses with greater access to capital and scale?

There are plenty of examples of CMEs that have grown through their lives to match the scale of the competition. Too often, however, independence has been maintained at the expense of growth. Ultimately, the market share of the broader sector is the best way to judge success, and this equally well identifies those markets where CMEs are disadvantaged.

If growth is necessary to maintain a market position for CMEs, their continued relevance to their members relies on it. The answer lies in the sixth co-operative principle, which explicitly urges co-operation between co-operatives. This can take many forms, with its ultimate manifestation being the merger of two like-minded bodies.

As suggested in this paper, the answer to many of the regulatory and market challenges facing mutuals, is more co-operation. This could be a stronger focus on the mutual value proposition for individual businesses, mergers between mutuals, or the creation of new co-operative federations. There is no single answer, but the federation opportunity should be equally explored to emulate some of the largest and most successful mutual businesses in the world.

Though autonomy and independence remain very important to individual CMEs and this principle itself could underpin their raison d’être, taking the 6th principle literally has enabled some CMEs to come together to create the largest CMEs in the world.

Market leading, sector dominating businesses that have also remained true to their independent founders. By federating – compromising on independence in some areas to benefit their business purpose overall – these CMEs have shown how they can equal the scale of the competition.

In banking, agriculture and a whole range of other services, federated co-operatives have taken the co-operative idea to the next level,  delivering much greater value for their members than any of the constituent parts could have achieved individually.

We might look jealously at the success of Credit Agricole, Desjardins, DZ bank, Federated Co-operative or others. But their success is not accidental, it is designed and executed in a way that remains available to all CMEs.

Unlike many countries, Australia has no tradition of this type of co-operative federation. There have been some examples but not many, and none that survive today. It is curious that this is the case when it is clear that in a number of areas, Australian CMEs and their members, could benefit greatly from coming together in this way. Indeed, in sectors such as banking and PHI, mutuals have worked together through special service groups and there are strong mutual industry peak bodies.

Australia is remarkable for its strong independent co-operatively owned businesses. Self-describing as co-operative, mutual or customer owned, we see them today as the co-operative and mutual enterprise sector.

In many ways descended from British co-operative traditions, they have developed their own brand of co-operative-ism.

As in other countries, Australia has suffered greatly from waves of demutualisation, first in agriculture and then in insurance and banking. We can describe the survivors as certainly the fittest of the co-operative and mutual tradition, and they are concentrated notably in a number of industries: agriculture, motoring clubs, banking, private health insurance plus individual industry leaders in other services.

What they have in common is that they exist in business sectors where there are some sizeable, alongside a larger number of smaller mutual businesses. The responsibility for market growth falls disproportionately on the larger co-operatives and mutuals which are able only to influence their own destiny.

They also face the same existential threat. The more successful they are, the more of a target they are for demutualisers, who wish to access the legacy assets of these businesses, despite not having contributed to them.

These factors have become facts of life, but they can be challenged. Perhaps what has been missing in Australia all along is the sense of ‘movement’ that has been successfully embedded in other countries.

Read the Bigger and better co-ops and mutuals: The opportunity for Federated CMEs in Australia discussion paper.

Find out more

• Time is right for co-operatives with ESG in focus, says Melina Morrison, The Australian, 13 June 2022.
• Demutualisation is bad for members, for competition and choice and for market stability, Peter Hunt, 21 April 2021