Ann Apps: Good morning, and hello, Peter – I should say good evening to you. I'm in Australia and Peter is in the UK. Thanks so much for agreeing to this interview. I'm looking forward to this conversation very, very much. But before we deep dive into the world of co-ops and mutuals, I was hoping that you'd give me a little bit of a background about yourself, and how you became involved in the co-op movement, the mutual movement, not just in the UK but also internationally – because I know you from the work that you've done in Australia.

Peter Hunt: Well, hi, and good morning to you and thank you very much for getting up to talk to me. I guess my story with the cooperative sector starts in my childhood when both my parents at some time or other worked for Leicester Co-operative in England. I guess it was always in my blood, it was part of the institution in my community and something that had always been part of my family. 

And so, I went to university, studied, and I'd never really thought about working in the cooperative sector, but I wanted to work in politics. And so the short version of the story is I got a job working for the Co-operative Party. I was the Party's administrative officer back in 1994. And it was a very exciting time because politics was changing in the UK at the time. We were just going through a boost. The Co-op Party, for those who don't know, is connected to the Labour Party in the UK, so it's a social democratic party. It's been going since 1918, and stands joint candidates with the Labour Party and at that time, there was a new leader of the Labour Party, Tony Blair, who people would have heard of, and there was great hope that he was going to win the election– and he did that, in 1997. 

And by that time, I was working. I changed jobs in the Co-op Party and I was working as a regional organiser and I got lucky, I guess. In 1998, when very young for the job – I was only 31 – but I got the job of General Secretary. I didn't realise it at the time, but I was probably in the best place at the best time for any General Secretary of the Co-operative Party. We then followed with a good 10 years or more of being in partnership in government, which gave us a great opportunity to press the case for co-ops and for all types of mutual organisations – and to do that with government ministers, with people who were friends and prepared to listen to us.

It was clear, though, at the time that we couldn't do that all on our own, and we wanted to work more broadly with the wider mutual sector. And so we established Mutuo – 20 years ago last month – and the idea behind Mutuo was to do the same work as the Co-op Party, but to do it across all types of cooperatives and mutuals, and to work with all different political parties, because we did have supporters in different traditions. There were social democrats, as I said, but there are also Conservatives from the Christian democratic tradition, who were very supportive of co-ops. There were liberals, you know, people from different wings of the political spectrum, and so Mutuo was established to try to do the same kind of work, to improve the business environment for co-ops and mutuals, but do that on the basis of working with everybody who was interested in that. 

We concentrated on legislation, on regulation and on policy on this cross-party basis, since about 2012 – pretty much at the same time as the Quebec summits, if you're around to remember those … I sound like an old man bringing up something over 10 years ago, but the summits were a focus for lots of new approaches to working together. 

So we decided, because we had so many issues in common in different countries, that we would provide our services internationally at the time. So for me personally, I carried on doing all of that until 2008, when I stepped away from my Co-operative Party role, and I became full-time exclusively working with Mutuo.

Ann Apps: Oh, wow. There's so much background in there that reveals so much for me, about the work that I've known that you've done in Australia, and it makes so much more sense now. So thank you so much for that and it's a beautiful segue into the next question – which is, we've been talking about mutuals and we've been talking about co-ops. We've sort of thrown them together in the same mix. And you've explained a little bit how the two sectors have sort of come to work together. Through your organisations in the UK, a lot of people don't really understand what they are, what the difference between them is. So if we start from the basic premise that a mutual and co-op, they're both member-owned businesses, how would you explain to the audience the difference between the two? It's interesting to think about the political difference between the two, I think.

Peter Hunt: Sure. I mean, let's say ‘you're a member-owned organisation’ is good a definition as any. But we get a bit hung up, in our sector, about different ownership structures. When we're talking about legal forms, when we use the term ‘mutual’ in the UK we're talking about all types of member-owned businesses. And so in a sense, it's a generic term. 

It's also a specific term, which is where the thing gets complicated, when you start to talk about the difference between cooperatives and mutuals. A cooperative is a business that is established as a member-owned business but actually adheres to the cooperative principles. And so in most countries, it's a specific legal thing to be a co-op. So all co-ops are mutuals, but not all mutuals are co-ops. 

I don't think we should really get too hung up on legal entities because what we're actually talking about is a different strand of the economy, businesses that do things for different reasons. They've got different motives, one of service delivery rather than that of capital accumulation –  so co-ops and mutuals are the same in this very important respect, in that they exist to bring people together to be able to solve problems. It might be to provide the service that they want, but to do it focused on that service rather than on building capital value, which is the reason that companies are established. 

So for me it's cooperative business with a small ‘c’, that's what we mean by all of this – and sometimes I get a bit impatient with the other labels that people bring to the table around social enterprise or solidarity economy, all that sort of stuff. I understand it and I can see that it's correct, but it's over complicating it, because the answer stares us in the face – we're talking about the cooperative economy, it is a small ‘c’, and we should all be proud of that. 

So from my perspective, there are legal differences in some countries. There are specific things, which are cooperative enterprises, but when we're talking about a cooperative movement, it's a small ‘c’, and it should include all those different types of member-owned businesses in my opinion.

Ann Apps: Yeah, I absolutely agree. And I think the identity thing is really interesting. And it's really topical because we've just come out of the ICA Congress, and essentially for most of 2022 there's going to be a lot of discussion around what is the identity of a co-operative. You're right, we have this distinction between legal models and we also have the movement – but I think that your contribution there is incredibly valuable because if we don't start to sort of find that point of difference and zoom in on that point of difference, then it makes it very, very difficult to make a case for what co-ops are and why they should be treated differently, or should they be treated the same, but they have different characteristics.

Peter Hunt:  That's right. But at the time when everybody's talking about ‘what's the purpose of business, what's the purpose of corporations’, you know, we do have a different purpose, and we do have a distinct purpose. And that to me, is the thing – that business purpose, the identity,is the core of it, rather than specific legal structure. And we can have those legal structures for very good reasons. But when we're trying to communicate what's good about cooperative businesses, it's what they achieve. That matters, not how they do it.

Ann Apps: Yeah. Absolutely. So we only talk about ‘demutualisations’ - particularly in relation to LV=, and we'll talk about that in a minute. But the co-op sector tends to see the demutualisation of any co-op or mutual as a loss or defeat, in what is essentially a war to maintain those business models as distinct from the investor-owned model. So I was wondering if you could explain a little bit about this, what we use the word ‘demutualisation’ for. 

But again, I don't know if our audience knows what we're talking about when we say ‘demutualisation’. I was wondering if you could explain that a little bit, but also if you could give some examples of any demutualisations that have happened in the past, in your time in the sector, that you would consider to be such a tragedy – in the sense that an organisation that was benefiting many has been demutualised and potentially exploited – it has never delivered the same benefit or it has ultimately disappeared. So I just wondered if you had any examples?

Peter Hunt: Yeah, well, all of them, right? 

I mean, let's start at the beginning. Strictly speaking, demutualisation is the loss of mutual status. And, you know, going back to what I've already said about the different types of co-ops and mutuals, whatever the way they're organised, if you take that status away, and they're no longer owned by their members, then you can say they've been demutualised – because it's the member ownership which is the mutual part of the core of the business. 

That usually, in practical terms, means they've been converted into a company, which is either a private company or a public one. And you've got these examples of demutualisations in financial services in particular; that has taken place in some countries in a very big way. The reasons people put forward for these demutualisations are normally around capital. We all know what the capital conundrum is in the cooperative – you know, how can you get investment into the business without risking demutualisation. 

This is forever being seen as a weakness of cooperatives – which, on the other hand, are building patient capital over a long period of time from the grassroots upwards. It takes a long time and they can't, when they get into complicated capital-heavy markets, compete with businesses that can raise money quickly. So the argument about access to capital is that cooperatives and mutuals can't raise capital, so you have to demutualise them so that they can carry on their business in a different corporate format. 

The question, really, is what are they actually carrying that business on for, and for whom – once they've been demutualised, who do they firstly belong to? Not the same people. And who do they serve, and what is the business purpose? Which is the crucial question, really, for me. It's owned by investors, so its purpose is to build capital value for those investors. 

It's actually written into the law of most countries, that it's the job of a company to build capital value for investors and you can take them directly to the courts if they don't achieve that. So it's no longer the same business. So, to answer your question directly, in an example of where a cooperative or mutual has been demutualised, it's ceased to serve its business purpose. Well, it can't serve the same people because they're no longer the owners. They're no longer the stakeholders that business exists for, so it is a different type of entity. 

But then if we look again at this argument about access to capital, we can start to deconstruct it because in lots of ways it's a false argument. Loads of businesses say ‘we need capital’ – for example, in financial services … oh, it's all become very technical. ‘We need more money to invest in infrastructure, IT infrastructure’, for example – that's been used many times over as a justification for demutualisation. Of course, the demutualisation happens, but what then happens to that business? It's no longer a mutual, it's a capital-accumulating business, but actually what about the capital? It doesn't actually stay independent – and you can look, you can count on one hand – businesses that get demutualised and stay independent, because what happens is they get merged into other businesses rapidly. 

Australia's a really good place for these examples. I looked at it recently and you've got some very large demutualisations of financial services businesses – of mutuals, credit unions and building societies …we might call them mutual banks today. The insurance sector was completely obliterated in Australia by demutualisation. The worst example is AMP, a business that as soon as it had demutualised, it didn't raise capital to stay independent. It soon merged and then, not very long later, ceased to be able to function as a useful part of society. It was a problem for society, with these scandals of mis-selling products. 

What you ended up with in all of these demutualisations, and I'll come on to the best example of a lot in a second, is that they don't actually deliver what they were supposed to deliver in the first place. They don't deliver a strong independent business. I can pick a couple of examples where they did do that. I mean, one is Bega Cheese in Australia, which demutualised and has stayed independent–  and has used the capital to build the business, ironically, to hoover up some other cooperatives in the meantime. But actually that's the exception that proves this rule, because everybody else has merged, become part of bigger banks – and if you look at the banking sector, which is now concentrated in Australia, and in the UK; these demutualised businesses have been merged into enormous cluster organisations. And they go wrong, they go wrong in a big way – in Europe and America, we suffered the global financial crisis in a very bad way. 

And this was contributed to in a very significant way by businesses that had previously been independent, that merged into these massive mega banks and then collapsed, and had to be paid for by the taxpayer. Now, in contrast, the remaining cooperative and mutual sector didn't need bailing out, didn't need taxpayer support and carried on providing services according to its business purpose. So you can see this is not just about the individual members losing out from demutualisation … society loses out from demutualisation, it creates risk in economies, it makes life more difficult for governments, if only they would see that.

Ann Apps: If only and if only members had a better understanding of what it was that they were giving up, because many of the demutualisations that I've seen happen have happened when members have a nominal share and they're told that their nominal share [and this certainly happened with Bega Cheese] that their shares which have held a nominal value, were all of a sudden going to have a market value, which was going to be significantly more, and they were going to suddenly become very wealthy in the sense that what they held now was a share capital. 

Certainly this is not the case from mutuals, as we know. It's an interesting point of difference, isn't it, between co-ops and mutuals, – but the big demutualisations that I've seen here recently had a lot to do with the members. Murray Goulburn was very different than Bega Cheese. I think that maybe Bega Cheese was one of those demutualisations where it was a situation where a dairy industry was declining in terms of the numbers of members, but growing in terms of the amount of capital that was required … Probably not enough attention has been given to the loss of small dairy farms in this area … so that we now have just a few mega dairy farms … Diversity is something we're going to talk about shortly.

Peter Hunt: That's a really interesting point, and there are all sorts of consequences for these decisions – which people don't think about at the time and bemoan afterwards. Demutualisation should be thought through very carefully before it's proposed. 

I think we can distinguish between co-ops and mutuals where there's been a capital contribution by the members and those where there hasn't – you can see an argument, for example, in an agricultural cooperative, which has been established over generations, and generations of farmers have contributed capital to that business, to make it what it is. They've put money in it, and they've taken risk in doing that, and they've benefited from that risk. In contrast, you look at some of the consumer mutuals in the credit union, the banking and insurance sector and the contribution has only ever really been nominal, where a member would make a $1 or $10 subscription, and that's what it is. It's a subscription for using the services. It's not a capital contribution. So if you pay back that money with interest, it's really what the member owns. They don't own the underlying assets … 

Not too far away from where you are, you've got Newcastle Permanent Building Society. It's got ‘permanent’ in its name because the intention was that it would be exactly that. It wouldn't be taken apart and shared out at any point, you know, that asset was to be passed on to the next generation for their use, and it would be inherited. And so the members’ ownership … We are sort of probably a little bit guilty of this in our sector of talking about ownership, but the idea of ownership needs to be distinguished in mutuals because we're not talking about the subdivision of everything by the number of members that you've got. There is an estate, an asset, which belongs to past generations and future generations, and we're just stewards for this to do the best we can whilst we're around with those assets. 

So yeah, I can't see any justification for sharing out centuries of assets among people who haven't contributed to them. And you know, we saw in lots of countries, the UK in particular, people would join before a deadline in order to be able to carpetbag some of those assets – so you know, it's completely corrupt and should be outlawed.

Ann Apps: Absolutely! It's about, I think, the movement or the sector having to fit their business, a square peg, into a round hole, in many ways. And that brings us to a really interesting point, which is about diversity – because a no-brainer in all of this is diversity, isn't it? You know, we talk about diversity everywhere. Oh, we need diversity on boards. Or if you've got an investment portfolio, you shouldn't put all your eggs in one basket. You need diversity – yet here we are talking about, you know, types of businesses across the sector and we don't have very much diversity. And as you say, particularly if they're amalgamating, merging vertically, then we're ending up with all our eggs in one basket – and we suffered from that through the great financial crisis, but it seems like we haven't learned from that mistake. 

But we're here to talk a little bit about the voters’ rejection of the takeover bid by bank capital of LV=.  I have to say, I didn't know about LV=, I'm in Australia, but I'm sure it's very well known in the UK. It has received quite a lot of press in the lead up to this takeover bid by Bain Capital, and the members have voted to reject it. So I was wondering if you could tell us a little bit about organisation. I know it started out as a friendly society. But tell us a little bit about LV=, and what were the events in particular, probably more recent that led up to this situation?

Peter Hunt: Until recently, LV= was the second biggest mutual insurer in the United Kingdom with 1.2 million members, with a whole suite of insurance products, but what's happened in Europe recently is that the amount of capital that an insurance company has to be able to retain to cover its commitments has increased. 

And so this caused some difficulties for LV= in its previous form. It had been going for 178 years, it was originally a burial society where people put a penny into a box to try and avoid the pauper’s funeral, a very working class concept – it started in Liverpool and then became a national business and over years it merged with other friendly societies and mutuals, it was a friendly society. And then when the rules changed on capital adequacy, they found that they needed to raise money and they had a very successful general insurance business, which was car insurance, home insurance, that kind of thing. And they decided to sell it. They sold it to Allianz of Germany, for over a billion pounds. So this is a very, very sweet deal, a very serious amount of money. And that was something like twice the amount of money they needed for their capital adequacy. So it was a good deal. 

And it gave them the opportunity to look forward – what we're going to do next, we're not going to do general insurance, or if we did, we'd have to start again; so what are we going to do with the rest of the long-term insurance business? 

And the kind of products they would sell would be with profits –policies, pensions, lifetime endowments, long-term policies with people in for years and decades rather than just a year at a time. After they sold the general insurance to Allianz, they changed the chairman of the business. Not a big deal, not seen as too radical. The previous chair had reached the end of his tenure, it was time to get a new one. 

And they took on this character, Alan Cook, and under his chairmanship, they decided to convert the friendly society in 2019 – this is all quite important to this timeline of events – to a company limited by guarantee. So it was still a mutual but instead of coming under friendly society law, it would come under Company Law. And the argument that was put forward for this was that friendly society legislation – no surprise here – hadn't been updated for a few years, and so let's go and become a company, and have all the flexibilities that we'd have under the company legislation, while still being a mutual. 

This isn't a radical idea, because the other two biggest mutuals in the UK are both companies with a mutual constitution, so it wasn't seen as too big a deal. The company declared its commitment to mutuality at that time – but remember the date, May 2019. Within five months the chief executive had been replaced with someone completely new from outside the [mutual] sector, who was unknown and was pretty much seen as a surprise appointment, and he started work on 1 January 2020. So here we are. May 2019. October 2019. The pandemic is just about to start raging around us in the early part of 2020. And within 12 weeks of taking up the post this new Chief Executive has completed a thorough strategic review and put the business up for sale. Supposedly, he didn't tell the members it was for sale. So in March 2020 LV= is being touted for sale around different financial services markets and purchasers. And it was only in June of last year that this leaked to the media and the members found out through a Sky News report that the business – the business that they owned, that they were members of and that had just been committed to mutuality a year before – was up for sale and they've had 12 bids. Within a very short space of time, by September the Board announced they were in sole discussions with Bain Capital, and this was seen as a bit of an earthquake – because an American private equity investor had never been involved in UK life insurance before. It was completely seen as out of the blue because for some years, there have been on-off discussions between LV= and Royal London, which is the biggest mutual insurer in the UK. So the top two had been on/off discussions about merging. Everybody will always assume that if anything was going to happen to LV= would merge with Royal London. But Royal London was ruled out of the bidding at this point, and by September 2020 the board announced that they had agreed a sale price to Bain Capital that was the first time they wrote to their members to tell them anything about the whole deal. 

Ann Apps: Interesting that the new CEO has done this. I wonder, had he bothered to have a look at the constitution, because if he sold it without even talking to his members, even thinking about getting a mandate, do you think that he was completely oblivious to the concept of mutuality? Do you think he was aware of it or didn't know what it was?

Peter Hunt: On his own admission, he had no experience of working with a mutual before. And he maintained to today that he had no pre-set agenda. That he was going to do the review and move forward on the review. But I mean, it just doesn't stack up credibly. And that's one of the axes that became, the big part of this whole story, that they had an incredible message to give to members, which was ‘We're not going to tell you about all this stuff, we're just going to tell you what we've done and then we're going to ask you to vote in favour of it. But don't ask us questions about the justification for it, because we're not going to tell you, and we're not going to share that information with you’. And then over the whole period of about a year, this was dragged out of bits of information were dragged out of them, I mean, fundamentally it looks to any disinterested observer that this was planned by the chair, that the conversion to a company limited by guarantee was part of it, because by going under Company Law, they get around a very important part of their constitution, which is the poison pill. 

So if we now look at mutuals in many countries, certainly in Australia, they have high thresholds in their constitutions, that if you're going to demutualise, you have to have three quarters vote in favour of it on the 50% turnout. That's typical, in some places it’s even higher than that. The friendly society law can't be changed in the UK, you can change the rule, but then you have to have the same threshold to change the rule. So it effectively stops demutualisation occurring. 

However, if you convert to a company, you can apply to a court for a scheme of arrangement to override the constitutional settlement. That was the intention of LV=. In fact, today is 20 December, and this was the date set to put the scheme of arrangement before the High Court in London, had the first vote gone through. It was always their intention that they would do this because there's no way they would ever meet the turnout threshold of 50% of members voting. And they knew this from the first day.

Ann Apps: So just to clarify, am I correct [in saying] that, because they were a company limited by guarantee they still had to get a 75% majority, presumably because it was going to be a special resolution that they didn't have to have a 50% membership turnout, is that right?

Peter Hunt: Well, they did, but they could apply to the court to have it overruled. So the scheme of arrangement would have been to overrule their own 50% turnout.

Ann Apps: Yeah, I was just confused. Did they get a 50% turnout in the middle?

Peter Hunt: No, it was a 15% turnout and we’ll hopefully come on to talk about some of the lessons around that level of apathy. It's almost like you had a mini war between a small number of members with everyone else watching, eating popcorn. Actually, you know, it was quite fierce for those who had the skin in the game.

Ann Apps: Absolutely. So that segues beautifully into telling us a little bit about how Mutuo and the Co-op Party in the UK became involved in this and what role did they play in rallying the members so that there were at least some that were aware of what was going on.

Peter Hunt: Okay, so I should just explain how the UK mutual sector works with Parliament first, because for some years there's been an All Party Parliamentary Group for Mutuals, and this is a place where Members of Parliament, members of the House of Lords, can come together and discuss topics of importance in the mutual sector and work together on specific areas of shared interest. It's completely cross party, it has about 100 members of the MPs and peers in Parliament, so it's quite a big parliamentary group. It meets four times a year and for some years Mutuo has provided pro bono secretariat support for this. We've managed the meetings, we've arranged the programme, and we've put this together. 

And when we saw that the deal had been agreed with Bain Capital we were pretty horrified. We went to talk to the Chair and the Vice Chair of the All-Party Group (APPG) and said we've got to do something about this. I mean, we were surprised that nobody else has done anything, nobody has said anything about it, even complete radio silence from the mutual sector. Apart from the Association of Financial Mutuals, which is the peak body for mutual insurers, which had put out a pretty benign press release, I think the expectation was, there's nothing anybody could do about it. If they wanted to do this, that's the way it's gonna be. And we looked at the timeline and we thought this deserves a little bit more scrutiny. 

So we suggested that the APPG look to an inquiry into the proposed demutualisation, a very quick one, because we didn't know how quickly they were going to bring forward the member vote. At the time, we thought it could be as soon as May, this year [2021]. And that was certainly the intention, if you looked at the press releases from LV=, they said they wanted to have the vote in the first half of 2021. So we knew we had to move quickly. So the APPG agreed to conduct a quick inquiry. And they had six sessions of calling evidence from different witnesses from different cooperative and mutual businesses, from their business leaders, and from LV= themselves. And so this was pulled together and a report was produced. We wrote the report, and it was produced in April this year [2021]. And, the evidence that we found was quite shocking. The circumstantial evidence of the timeline, the strange decision to keep the whole thing secret and the extraordinary conclusion that Bain Capital was the appropriate business to[sell to] … and I think that the press release from LV= said, something like, there'll be different owners, but they would keep the same business purpose. Well, this is extraordinary nonsense. So we didn't think that was a good idea. But the fundamental finding of the inquiry was that there's no way, given the information that so far has come into the public domain, that members would have a clue what was in their interests, because they're only being fed very partial information, very limited information. And so that needed to be expanded upon.

Ann Apps: I noticed that the Financial Conduct Authority had a role to play. They certainly were able to object. Isn't that correct? And they decided not to object. They said there was a non-objection. I know their role is limited. But I think it's worth mentioning that they were effectively saying they were satisfied with the communications.

Peter Hunt: They did. And this, this was extraordinary. You know, we found it completely extraordinary. I think the reality of the situation with the regulator was that they thought, well, this was just going to go through, no demutualisation has ever been stopped before. They all went through. So why would this be any different, there might be some pesky people making a noise at the side, but it would still go through. And that was their expectation. And so I don't think they actually paid a lot of attention to it until Parliament started to scrutinise it. And on the back of the inquiry, and there are a number of parliamentary debates and interventions, a series of very difficult questions, the flood of letters from Members of Parliament, to the regulators and the Treasury and then suddenly, regulators started taking the whole thing a lot more seriously, but only to the degree that they spent more time trying to justify their position. So this dragged it out for some months. 

And we used those months working with the Members of Parliament, I should mention Gareth Thomas as the Chair, the indefatigable Chair of the APPG, he put so much time into this campaign. And then we went looking for friends in the media who would agree with all of this, and we couldn't find anybody who agreed with LV=. 100% of the media commentary was calling this out as a terrible idea. So we knew we just had to keep pushing this – but we also knew that there was going to be an offer of cash [to members, as an inventive] to vote for it and that nobody's ever succeeded [in stopping a demutualisation] before. So this was all stacked against us. And by the way, the only information that members got about it was from LV= themselves. So everything else they had to pick up from newspapers or from the television or the radio. We got lucky with the Daily Mail campaign. It's got one of the biggest readerships in the UK, whatever it stands for other things. 

But to put that aside, its financial and business pages are very well resourced, and they were going to campaign to try to get LV= members to oppose the sale, because it didn't think it was in their interests, and we had an extra session of the APPG to get the Chairman [of LV=] in front of it. Again, we finished with more questions than answers at the end of that session. 

And so we identified members [of LV=], organised a letter writing campaign, a petition to regulators, there were parliamentary debates, as I said, and then we found lawyers to prepare a legal challenge, because we believed that the information that had been provided to members was inadequate for them to make this decision – and so a court should not permit a scheme of arrangement even if the vote went through. And we were supported by a City law firm, which gave pro bono support. We got a QC providing advice, and we prepared to challenge them in court had we not succeeded with the vote.

So what can I say? I mean, it was an enormous effort. And there's only two people full time in Mutuo and the rest of our network is sort of being consultants. So we probably spent a good half of our work time this year prosecuting this case. And then at the end, others joined in the campaign. So you asked about the Co-op Party and the trade associations, they were quite late to the game, but they came in around about October time, and that all added to the pressure. And so by the time that the vote happened, all of the commentary was in favour of the arguments that we've been putting forward.

Ann Apps: It's really interesting to think about this and about the strategy that you use … thinking about the role of the all-party working group, and just how important that is to have that political support across the party spectrum. And it's one thing that co-ops and mutuals have been able to do quite often, we've seen that happen in Australia as well, get that cross-party support. 

Again, it seems to me that it comes back to educating, one of the really huge advantages in having those sorts of groups is that in the process you’re also educating those people about the value in the model and why it's different than an investor owned model. 

It also tells us a little bit, doesn't it, that on the one hand, there’s the involvement of Parliament and some sort of statutory implications, some regulatory protections, even in the sense that you could have lodged a challenge had the scheme of arrangement gone through to the courts. On the other hand, you've got this sort of general view, the lie-down sort of approach that everybody else took, which was, ‘Oh, this is inevitable and demutualisation is on the table, it will go through’. Which seems to me … it's almost an acceptance of the inevitability of the market: ‘this is the market, and the market will do whatever it will’. But of course, that's not the case. There is this interaction between the state and the market, it’s always there. 

And I guess what I'm really interested in, underpinning my research work, is how can the role of the state change, the regulators change, to protect corporate diversity. Do you think there needs to be some change in the way that things are done – like, for example, the regulator here didn't do much? I did notice that they said that they can't consider the nature of the ownership model when they make a decision, they're not allowed to. I wonder if they should be required to consider the nature of the ownership model, for example?

Peter Hunt: if you go back to what I said earlier on, I mean, the reason we exist is to try to improve the business environment for co-ops and mutuals. There are three main drivers in the public realm, and they are regulation, legislation, and policy. 

But the most important by far of those three is policy, because policy includes the political will to do something. So to your point about education, you have to have people involved in deciding policy who have a knowledge of what they're doing. And this seems like a no-brainer thing to say. But actually, who knows about co-ops and mutuals, who understands the difference? Who understands capitalism? And, you know, that's a regular refrain of mine: we need to teach people about capitalism before we can teach people about cooperation, because only then will they understand the difference. 

And this monoculture, this draining monoculture of economists, of educationalists, of lawyers, of politicians, that there's only one-way of doing things, is what we're challenging. So it's a massive task. It's enormous, in lots of ways. We can pull off the occasional, spectacular success, but overall, we're still losing on a regular basis. 

So going back to the responsibilities in all of that, yes, absolutely. The regulator would have responsibilities to manage diversity, because they are supposed to have responsibilities to manage risk in the economy, and if they can't see that one is connected with the other, then where are we going? But let's be clear about it, a regulator does what its mandate tells it to do. So if its mandate is not firm enough – either legislation or the statute that sets up the regulator - then you've got to strengthen it. 

And so, again, to your point, it's absolutely critical that regulators have this responsibility, legal duty to ensure that diversity is not harmed by decisions like this. And the question arises, how do you make that happen? And you only make it happen if you have the political will to make it happen, you're only going to get that if you have educated and informed and supportive politicians. And so that's why going right back to the beginning, it's absolutely crucial to have these kinds of long-term relationships built up. Parliamentarians, who, one time will be in opposition, the next time will be in government. It's a long game, you have to completely repeat it constantly, you have to educate people, but if you don't do it, there's no point running to them when there's a crisis, because there's no one to listen. 

And in this situation, we had a superb Labour and cooperative Chair of the All party group, a superb Conservative Vice Chair, a superb Liberal Democrat Vice Chair, and the three of them, basically, threw most of the punches. And did a great job, working together across parties, because they all equally understood the importance of this, because they were engaged in it, they were experts in it. And that's something that you have to do over a long period of time. So everybody around the world has to do this. I know lots of countries do it. But it's a really important part of that job. 

And then you're an educationalist, you will know how few people actually understand different types of ownership structure and different types of business purpose. But we've got this massive opportunity now, which I'm really optimistic about, which is the movement towards people understanding sustainable business and making purchasing decisions and investment decisions based on that sustainability. And there's nothing more sustainable than the co-operative. So if you have the correct organisation in the co-op, if you have the correct communication in the co-op, then you've got a real opportunity to take advantage of all of that. And the pennies will drop all around, with the politicians, with the educationalist, with the lawyers and everybody else. They'll say, ‘oh, that's what you mean’. Yeah, we're not actually talking just about a legal structure. We're talking about a business purpose. And we're different. It's a cooperative business purpose. And if you can like that, and enjoy supporting that, then you need to make sure that the legislative, regulatory and policy framework makes it happen. See environment work. I think that this is great, we're entering a very optimistic period, I think.

Ann Apps: Yeah, I completely agree - you can smell or sense the change in the wind … and it does come from policy, doesn't it, that all of a sudden, they're starting to stop and take notice about the need to look at sustainability? Because, as you say, the capitalist model has devastated the Earth, we're really looking down the barrel … and it continues, like this rolling machine that's just exploiting and extracting, exploiting and extracting, it’s looking like limitless growth. 

It's really interesting now that we've sort of been through a couple of years of the pandemic, how the states have had to look inwards again for a while, which is something that they haven't done, they haven't focused their attention back inwards. And when they were looking outwards, there was this sort of sense of nimbyism, wasn't there? Not in my backyard? Let's get rid of filthy manufacturing. Somebody else can take care of that problem. And now all of a sudden, they're going ‘Manufacturing, we can't import anything. Nothing's available. You know, like, oh, gee, maybe we need some manufacturing industries’. And it's an interesting time when you think about that, together with sustainable business, that we can, all of a sudden say ‘Hey’ and I loved that you've almost given us a by line that there's nothing more sustainable than the cooperative model.

Peter Hunt: That's right. And it's about getting people to understand what we mean by that sustainability. And it's about the different business purpose. And to me, that's, you know, everything that encapsulates why we do what we do, and that’s why it was worth fighting, in that we're fighting for the business purpose. We weren't just trying to stop paying capital – although, to be fair, I think if they succeeded, the next thing they'd be doing would be looking for other victims. And what do they do? I mean, you can't blame them for doing what they do. That's what I do.

Ann Apps: Yeah, that's their business. That's their business purpose.

Peter Hunt: That's fine. Yeah. So we understand that, they're not going to be our sugar daddies. Anyway …

Ann Apps: That reminds me, in Australia, you might be aware, we had a banking royal commission a while ago and revealed the terrible behaviour of some of the banks. And it was just fascinating. I remember a fellow cooperator and I were talking about this where the commissioner was saying, ‘it's just terrible, because they're not looking after their customers’. They were looking after their investors, and so how terrible that was, we were like, ‘Yeah, but that's the business model’. They're just doing what they're supposed to be doing, which is the business model.

Peter Hunt: That’s right. And that's when I say, I don't think people understand capitalism. That's what I mean. Yeah, that's what they do. You know, don't be surprised if they do that, you know, they cut corners, and they try and find ways of doing more for their investors, because that's where they get their incentives from, and that's how they get paid. So they're gonna do it. So don't be naive about that.

Ann Apps: Unfortunately, I think there is too much naivety about exactly that. And I think that's probably a segue into the second part of this question. We've talked about how you were able to get that support, that really important support, from the politicians and what a difference that made. But what about the member base, because we've only had at LV= a very small turnout. And, you know, it's a bit scary when you think about it. 85% of the members of LV= didn't turn out to vote. I'm not that surprised, I think for a customer-owned business model that again, there is this general apathy, which is a bit like the new CEO, thinking, ‘well, we don't have to tell you about this’, that he was essentially treating them like they were the members of an investor-owned organisation where essentially members showing up to vote at a general meeting, they're not factored in, it's considered that only a very small portion of members will be there. And then they rail against shareholder activism – if there is any – so what do we what do we think about this this issue? You're a mutual, you're a member-owned business and yet, people don't vote, they don't exercise that democratic right, which is such an important feature, a core feature of the mutuals – one member, one vote. 

So what can we actually do? Do you think that how can mutuals change this if there are other things that they're not doing well, that they could do better?

Peter Hunt: Well, firstly, on the numbers of this, of this demutualisation, though 85% of members didn't vote, 15% did. Normally, in their annual meetings, or their special meetings, they were getting 9%. So they had an increase of 50% in turnout this low. But it's still small numbers. But you can see from these small numbers that you can crunch them in different ways. And one of the ways you could crunch them is that if they had even reached the 75%, the 15% turnout, it would have been something like 10% of the total qualifying membership, and you can't make a decision to demutualise the business on that basis. That's why we have super majorities built into constitutions and that's why they need to be maintained. And that's why we should not permit those super majorities to be undermined by some clever legal route, which is what was proposed here. But anyway, coming back to your question. I think there are a few lessons from this, which are separate from the legislative and regulatory shortcomings. The first one is a positive message, which is that demutualisation can be opposed successfully. It's not inevitable.

I can't count the number of people in the last week who've spoken to me and said, ‘Oh, we never thought that would happen.’ You know what? In the last couple of weeks, I did think it would happen. I didn't think we could do this, because I still hadn't come across a single person who wasn't paid for by LV= who thought it was a good idea. 

So you know, of all the people who are offered cash to vote for this, not enough of them wanted to do it. And I think that's at least a small victory. But moving on to the sort of failure of engagement in all of that. I think the first thing to say is that mutuality – in my experience anyway – only really works where there's good faith and trust. And that's built up over time. It's built up through communications. It's built up through engagement with members. And you look at the businesses that have demutualised, they're the ones that haven't done that, they are the ones that haven't engaged, that haven't let communication go in. And so I think, you know, there is a correlation there between those. 

Lesson number two, is that there has to be faith and trust as a two-way process. That's built up over a long period of time. And when you get leadership – and I’m not just picking on the Chairman, who is the villain of the piece – the board supported them all the way through, all of them. They are all responsible for this, it’s clear it was an error of judgement because they didn't get the votes. So I don't think that they've operated in the interests of the members, and they're certainly not communicating and participating with members at any point. 

I should have mentioned that one of the scandalous things that happened in 2020, during the closings due to COVID in the UK … There wasn't a lockdown in September 2020 [when] they had their AGM but they decided not to make it online, to have just 12 people in the room of 1.2 million members, and the only way they could qualify on their quorum was to drag staff members in who were qualifying members to make the quorum the whole thing was over in eight minutes. Now, that was the same week they decided to make Bain Capital the exclusive negotiator. So you got to ask questions about their good faith in all of that, you got to ask questions about now. 

But more to the point, what the rest of us can learn from all of this is that mutuals need to constantly demonstrate the member value in their engagement. They've got to do it on a commercial basis. They're gonna do it on a moral basis, what's the point? What is membership all about? And what is the value of all of that? Because members will fiercely protect their membership when they know what it's worth. 

But if they're disengaged, if they're not communicated with, if the whole thing looks just like any other public limited company, then they’re just gonna treat it like that. 

You're from Australia. The BCCM’s fabulous mutual value measurement is a really good way of identifying the narrative around what the difference of value is in a cooperative or mutual business – and then applying that to the way that the business operates, the way it describes itself, the way it communicates with people. When they know about this, we'll fight for it. And the people that we met who were fighting for the future, but absolutely relentless, and hats off to them. The members were great.

Ann Apps: It really does come back to governance, in a way, doesn't it? Because this is something that I'd picked up in some of my research – and it's a bit of a problem when, in a competitive environment, co-ops and mutuals have had to grow to compete. So once their competitors are getting bigger, they also feel like they've got to get bigger. So you have these amalgamations. 

But one of the things that I came across, and I thought it was really interesting , is that as these organisations get bigger, [coops often have many members on the board], but they start to feel a bit inadequate and they feel like they need some external help and consultancy because of the complexity of their business models. The danger is always that those people will come in and they don't know anything about the model at all. So they've come in from the corporate sector. 

One of the things that I came across was the sense that, particularly on boards when you're a board of an organisation that’s starting that's quite big and powerful there is this sense, I think, it's a little gendered, that there might be not be big boys, they're not playing at the big end of town so they feel the need to shed this, ‘sissy’ co-op outfit or whatever so that they that they are actually recognised as big boys in town and I've come across this and I just wondered to what extent that sort of narrative fits what happened with LV= because you've got a new chairman that seems quite determined to get rid of mutuality and I did notice somewhere in a press release where the CEO said this is a model that no longer suits his business, it's it doesn't fit us any more. I wondered if you thought about that. 

Because I think you're right, I think the solution to that does come down to mutual value measurement – the problem is, if they're being told to measure their business value using indicators that don't recognise or reflect the business purpose, then they're going to say that their measure of success is different, actually. So their measure of success is that they're recognised by the big boys down at the end of town, and they're measured on some sort of financial efficiency whereas mutual value measurement is starting to bring in these other things which might reflect the business purpose. And that seems to be more important because, as you're saying, if they get that right, the governance, the people who are in power, understand the model, then they will communicate it well to their members, then their members will understand it and have something to fight for.

Peter Hunt: Yeah, I think that's all correct. So I mean, at the end of the day, there’s a lot of suspicion about self-interest from the Chair in the Chief Executive.

The one thing I can be clear on is that we couldn't work out who would benefit as a member from this, but we knew that the Chief Executive and the Chair would both benefit financially from the deal because they get a new job out of it. And they weren't hiding this, they admitted it but surely that ought to have made them inappropriate people to be doing in negotiations with Bain. 

But anyway, if we put that aside and you think about the sort of structural parts of all of this, I think you're right about this attitude that somehow a mutual isn't as good as a listed company. Having said that, the fees paid to Directors, and to the Chair were just as good as a comparable size listed company. So they weren't holding back on that score. And the problem really here was that the case wasn't ever made for the deal. The board didn't trouble itself with wanting to explain, there's still a slight possibility that there's a logic to this, but nobody ever found out what it was. I mean, they said they needed capital. So they sold the general insurance for 1 billion pounds, and then they boasted straight afterwards they were the best capitalised mutual in the UK. They were actually the best capitalised insurer in the UK at that point. Then, just a few weeks later, they said they didn't have enough capital because they didn't intend to use that money. It was effectively the working capital of the business. They needed another 100 million pounds for IT and all sorts of things and you had to drag the number out of them. They weren't going to say how much they needed and in reality it was the board not wanting to invest in mutuality. 

Probably for all sorts of reasons that had been coming for a few years, not just because the chairman, they didn't have people on the board who could make that case. And ironically, in the end, they spent 43 million pounds of members’ money on this failed sale. Which is half of what they said they needed. So you got to scratch your head and think what, either they needed somebody with a calculator to start off with, to be able to, you know, work this all out, because members never got to the bottom of the capital issue. I think that there are all sorts of questions around governance. 

I don't think that mutuals are any different from a corporate [business]. You get failures of governance at every level, for different types. So I don't think there's any difference, and you can go through the same search processes to find Non-Executive Directors for a mutual or a non mutual, and they'll have same faults and the same successes. However, the problem I think arises when you have no representation of membership, no consumer voice, no member-owner voice, in this situation. And there was a member panel in LV=, but it was toothless. It didn't really have any responsibility. 

So I think in the Anglo jurisdictions [and I sort of apologise to the audience, if anyone's listening from a country that this couldn't happen in because, you know, you're lucky, but it's because you've got the legislation and the regulatory framework that wouldn't permit this. Lots of countries around the world don't permit this kind of asset stripping because they understand the value of mutual ownership and they understand the value of indivisible reserves and of capital which belongs to the estate rather than to individuals. So I apologise to them for having to listen to all of this. They might probably be sitting back thinking, well, it could never happen here and it couldn't in lots of countries, but in Anglo jurisdictions we probably need either to have new legislation which makes it as good as they have in France, Portugal, Argentina, and the countries too numerous to mention. 

Or we need to have an Anglo version of governance, which makes sure that there is a voice for the members – and, so that it's not all done on a proxy basis on their behalf, that there is a voice, maybe a supervisory board, a two tier structure, something like that. Maybe some control over who the Chair is. 

And you know, Mutuo has done work on this to different new mutuals over the last 20 years in the UK, and it's been very successful in every case, established when they started from scratch, two-tiered structures. So you do have this real relationship between the membership and the governance of the business, but it's another subject area. You're going back to the point I made before, you've really got to have good faith and you've got to have people wanting to make the success of the mutuality for it to succeed otherwise, it can fall apart so quickly.

Ann Apps: What do you say about the idea that that directors should be asked to report on achieving their purpose in the year, so that in their annual report to their members, they have to tell their members what they've done to not just preserve their mutual strength, but to promote it – in a sense, I suppose, to be audited on that particular point?

Peter Hunt: That’s a really worthwhile idea, because if you read the annual reports of the best co-ops and mutuals, they do that already. They talk about why they're different. They talk about what they do to be different and what they've achieved on behalf of their members. They're really good at it. And there are loads of really good examples in Australia. You know, you've got Australian Unity, a fabulous example of that. In the UK, the Co-operative Group, a fabulous example of that, Vancity in Canada, all over the world. You know, there are loads of really good examples. I'm going to stop giving examples because people will say, ‘well, what about us? But there are loads of examples of really good co-ops and mutuals that do that very well. And formalising this in some way makes sense.

Ann Apps: One of the reasons I'm sort of quite pro formalising this is that inevitably those chairs and CEOs have to have some understanding of what the difference is, of why should they be explaining to the members what a mutual is – that they need to understand what it is, if they're required by law to do that?

Peter Hunt: Yeah, that's it.

Ann Apps: I think probably, we've stretched our audience in terms of listening. So I want to thank you so much for taking time and it must be getting late. Where you are, it's a reasonable time of day, who knows? Thank you so much. It's been a great conversation and I have learned so much, I'm really lucky to get to sit in the interviewer’s chair, I get to learn so much from the people that I interview – and you're certainly no exception, Peter, it's been an absolute pleasure listening to you and your wisdom. And we’re very fortunate to have had you explain to us what's happened here because it has broader significance than just the situation with LV=. I guess, to finish, the one thing that we haven't talked about is what next for LV=, so maybe we could just finish up on that?

Peter Hunt: Likewise, thank you very much for inviting me to talk to you and you probably didn't expect me to go for so long. For the future, they are either going to be an independent business – and there are smaller independent mutual businesses, you know, successful, the size is not a barrier to them, they're still well capitalised.  They could, with the right motivation, potentially do that. 

They've also immediately had an offer of merger from Royal London, which has also offered mutual membership to all of the existing members of LV=, so that's something that might be attractive to the members. We'll see where the dust settles over the next few weeks, and the APPG will be coming back to this in late January to review the situation. Members have spoken and I think that's the most important part of this story, which is that what was put in place by the members has been preserved by the members. And this business, whatever it does, will be mutual going forward. And that's a good thing.

Ann Apps: It's a wonderful thing. So thank you so much, and I'm going to wish you a very happy Christmas and New Year. We're just in the rundown to the festive season, which in Australia is the beginning of our holiday season. So I hope that you have a safe and happy Christmas and thanks so much.

Peter Hunt. You too. Thank you very much. Nice to talk to you.