Control by the members

Models used by the modern mutuals

John Lewis staff have a stake in the company
John Lewis staff have a stake in the company

When ministers were talking up their plans for converting public services into mutuals in the months after the election, the phrase "the John Lewis model" was frequently used - a reference to the way the department store's staff have a stake in the company and receive a share of the profits. The Daily Mail even conjured up the idea of "the John Lewis state".

In fact, this profit-sharing model has not been popular with the mutuals under development in the government's pathfinder programme. The most common model used so far by public sector spin-outs is that of a community interest company with an unlimited membership. Most have given membership to all staff, and those with a well-defined customer base have extended it to service users too.

Under this model, the day-to-day running of the company is usually delegated to the directors, but the ultimate control and responsibility for major policy and other decisions rests with the members. The general meeting of the company's members is its ultimate decision-making body, and members have statutory rights to call such meetings.

The members can, for example, appoint and dismiss directors, delegate powers to the directors, approve major transactions and change the constitution of the company. They can also declare dividends, although most CICs involved in mutualisation will not pay dividends.

Another reason why the community interest company is an attractive model for spin-outs is that it comes with a built-in asset lock that makes it difficult for the company to sell the business to the private sector - a major concern for local authorities and NHS bodies allowing staff and assets to be transferred to a new body. CICs also have their own dedicated regulator.

Other models are also based on control of a body by its members, who can be either staff, customers or the general public, or a mixture of all three. Spin-outs have also used community benefit societies (formerly known as industrial and provident societies), charities and companies limited by guarantee with legal restrictions written into their founding documents.

All of these forms allow membership and voting rights for all staff, and also permit the provision of an asset lock that makes the business difficult to sell for private profit.

See Editorial

Read how the first spin-outs have fared

Find out what Julian Le Grand has to say

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