THE £1.5bn rescue of the Co-op Bank is widely seen as a blow to the mutual model. Junior bondholders will be bailed in, and (although already a public limited company (PLC)) Co-op Bank shares will trade on the stock market for the first time.
Given this apparent failure of the mutual model, it may be strange to question whether the PLC is itself still relevant for the twenty-first century. The PLC has been a hugely successful part of the economy for over 150 years. But in a critique I’ve published with the economist Paul Ormerod, we suggest we should allow other forms of organisation to compete against it. It’s time to move the debate beyond the mutual and the PLC. While we accept the creation and destruction of companies as essential to the workings of capitalism, our attitudes to the structures of these companies has not kept up.
The financial crisis highlighted a number of shortcomings with the PLC. Potential divergences of interest between management and shareholders are well-understood, and we have recently seen this become a significant issue – particularly over executive pay.
To resolve these issues, the standard government approach would be to tinker with the Companies Act. But in our report, which builds on groundbreaking new theory, we argue that new structures should be allowed to emerge, creating a marketplace for organisational types. Entrepreneurs need a wider choice of corporate governance forms for their startups.
The critical point is that the joint stock company model was designed for an industrial era, and shareholders may now wish to consider alternatives. One example is the Community Interest Company, which is finding its footing in the UK. Other alternatives include the triple-bottom line company, which is explicitly pro-social, pro-environmental, and at least financially viable. Many worry about the impact of companies on society, so a structure for organisations whose aims were not just about making money may help us distinguish between them and firms motivated solely by profit.
The German-style multi-stakeholder governance structure is another possibility. This would see workforce representatives put on supervisory boards. Owners may choose this to mitigate against the power of executive directors or to institutionalise collaboration within the firm. The interaction of multiple stakeholders is essential for creativity, so collaboration may be in a company’s best interests.
We could even see company forms designed exclusively for banks. Some argue that the limited liability nature of PLCs contributed to the financial crisis. We propose an alternative, which could explicitly recognise the unique role banks play in (and the unique risk they pose to) the UK economy.
Legislation should be focused on allowing new, competing forms of organisation to emerge and evolve, rather than sticking solely to outdated forms designed when the economy was thought of as stationary. Entrepreneurs continuously come up with new ways of working and adapting as the economy evolves. These sectors are inherently innovative. The government should be too.
Greg Fisher is managing director of Synthesis IPS, and co-author with Paul Ormerod of Beyond the PLC (Civitas).