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The forgotten role of mutual ownership within Australia’s leading private companies

Mutually owned businesses are ignored despite their importance.

Each year the Business Review Weekly (BRW) publishes its list of Australia’s Top 500 privately owned companies. This year the BRW highlighted the overall performance of these firms in what had been an otherwise tough year for business.

According to the BRW the Top 500 privately owned firms for 2013 contributed around $290 billion, of the net GDP of around $1.5 trillion, to the national economy and experienced revenue growth of around 8%. However, these firms comprised only 2.5% of the total 2.2 million businesses operating across Australia.

Phil Ruthven, writing in the BRW, noted that the largest firms were superannuation funds which also experienced the greatest growth in annual turnover. However, private firms were found across a wide range of sectors including manufacturing, retailing, consulting, building and construction.

Although the success of these privately owned businesses is worthy of mention, what was ignored or omitted from the reporting was recognition of the role of mutually owned businesses. This became clear following an analysis of the data provided by the BRW IBIS World research. This has been reported in an industry white paper titled: “Mutual Ownership within Australia’s Top 500 Private Companies”.

Mutually owned businesses amongst the best performers

A mutually owned business is one in which its members own the enterprise. In such firms the members either have decision making power over the organisation, or have it managed on their behalf by a Board they elect.

Such businesses include the co-operatives, credit unions and mutual enterprises that can be found across a wide range of industries. Because they exist for the benefit of their members they generally aim to keep prices fair. Most also display a much higher level of corporate democracy in their governance than is typical from investor owned businesses.

Although these mutually owned businesses made up only 12.4% of the total 500 firms in the BRW list, they represented 70% of the top 20 companies by annual turnover and reported an annual average turnover in FY2012/13 of around $1.85 billion. Their annual average growth in turnover over the previous year was 48%.

As illustrated in the following graph, the performance of these mutually owned businesses was significantly higher than their investor owned counterparts. Those firms reported an average annual turnover of $395 million and an average growth rate in annual turnover of 4%.

Mutually owned businesses reported higher than average performance. Mazzarol 2013

What is a mutually owned business?

Defining mutually owned businesses is difficult due to the complex nature of how many are structured. For example, in 2012 it was estimated that there were 1,700 co-operative and mutually owned businesses in Australia. The top 100 largest of these businesses have combined annual revenue of over $17 billion.

However, these statistics do not include the industry superannuation funds, of which there are around 47. These businesses are member based organisations that are designed to benefit their members rather than shareholders. Many of the most significant businesses listed by the BRW were industry super funds.

For example, 70% of the top 20 privately owned companies listed by the BRW were mutually owned businesses. Of these the top 5 were industry super funds. These businesses had significantly higher annual turnover figures than many of the other businesses listed.

The top 5 companies on the BRW top 500 list were all industry super funds. They included:

  1. Australian Super (annual turnover $24.91 billion)
  2. First State Super (annual turnover $11 billion)
  3. Unisuper (annual turnover $8.51 billion)
  4. Retail Employees Super Trust (annual turnover $7.54 billion)
  5. Sunsuper Super Fund (annual turnover $6.94 billion).

These mutually owned super funds are not usually counted in the official statistics issued for the co-operative and mutual businesses. However, they are more appropriately placed within that sector due to their member focused and mutually owned business model.

Leaving out the mutually owned business sector

A frustration that is usually expressed by those within the co-operatives and mutual enterprise sector is the tendency for the media and governments to overlook or ignore their importance to the national economy. The BRW made no recognition of the role played by these mutually owned businesses in its reporting of the Top 500 list.

An examination of the IBIS World and BRW list found several leading co-operative and mutual enterprises that had been left out. These included several major firms such as the WA-based but nation-wide automotive trades co-operative Capricorn Society (annual turnover $1.03 billion). There was also the New South Wales Dairy Farmers’ Milk Co-operative Ltd (annual turnover $502.94 million), and the Victorian customer owned bankmecu (annual turnover $90.03 million).

This lack of recognition was noted by Melina Morrison, CEO of the newly formed Business Council of Co-operatives and Mutuals (BCCM). Established in July 2013, the BCCM aims to be a national voice for the mutually owned business sector.

According to Morrison:

The BRW list is emblematic of a wider issue for mutually owned businesses; demonstrated stability, resilience, sustainability and profitability on the one hand, on the other, a tin ear for the sector’s stellar performance.”

In overlooking the role played by the mutually owned business sector Morrison believes that media and government organisations are missing the significant contribution that such firms make to the economy and the broader community:

It’s obvious that co-operative, member and mutually owned businesses are out there, performing well for their owners, sustaining the communities they operate in, including providing secure and reliable employment”, _says Morrison,“ but we just don’t know what to do with this information in the broader context of arguing that there is a valuable contribution being made to the national economy through the existence of these business types - indeed there is an argument that there’s room to grow the share of GDP delivered by member and mutual businesses, given they are less subject to market volatility._”

Mutual ownership leads to enhanced economic and social outcomes

This ability for the co-operative and mutual enterprise to provide stability to the economy and a greater fairness to the community is a key feature of what has made mutually owned businesses important throughout their long history. The co-operative and mutual enterprise business model has been used successfully across a wide range of industries and around the world. It is also recognised as having a major role to play in fostering economic self-determination for millions of people in developing economies.

According to Morrison the mutually owned business sector is not fully appreciated within the Australian community. Further, she suggests that these businesses can help to maintain a more diverse economy.

“Based on results like these, the BCCM has a strong case to argue for greater business diversity in the Australian economy and recognition and support for the growth of the co-operative and mutual sector”, says Morrison.

More work to do

However, the BCCM has a lot of work to do. For example, a study undertaken in 2012 by the Australia Institute found that nearly eight in ten Australians are members of a mutually owned business.

Despite this only 16% of respondents were aware that they were members of a co-operative or mutual enterprise. As many as 42% reported not being members when they were, and 42% were uncertain of their membership of such businesses.

This suggests that while the media and government may overlook or misunderstand the mutually owned business sector, the sector itself has much to answer for.

There is a tendency for many of these co-operatives and mutual enterprises to play down their mutuality and not seek to engage their membership. Yet this mutuality is what defines these businesses and is a point of difference that they should champion.

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