General nature of mutual organisations
3. The main difference which our witnesses identified
between a mutual organisation and a company is that the latter
is expected to pay dividends to its shareholders, and therefore
has a smaller surplus to devote to the running of the business
or to use to improve its rates of interest paid to members. As
Mr Patrick Frazer, Executive Director of Davis International Banking
Consultants, pointed out, however, this distinction is not necessarily
valid: not all companies do pay dividends, and some mutual organisations
do distribute some profit-related bonus to their members.
We return to the effects on competitiveness and value for money
in our sections on building societies (paragraph 9) and life assurance
offices (paragraph 66).
4. The other main advantage claimed for mutuals is
that they are more likely to feel a close bond with their customers,
although this may arise because of a local base or because of
the type of service provided (e.g. individual savings and loans)
rather than because of mutuality as such. Mr Frazer said: "What
people see as special characteristics of mutuals in Britain are
often not characteristics of mutuality but characteristics due
to building society legislation or simply custom and practice".
Again, we return to this issue in the corresponding section on
building societies (paragraph 16).
6 P. Frazer, Op cit, p 9-10. Back