Diversity in Financial Services: The future role of mutual providers Professor Jonathan Michie

1. Diversity in Financial Services: The future role of mutual providers Professor Jonathan Michie Director Oxford Centre for Mutual and Employee-owned Business Kellogg College, University of Oxford 4th November 2010

2. Kellogg College • Kellogg is the University of Oxford’s largest and most international graduate college: • over 600 students from more than 70 countries • more than 400 part-time and 200 full-time students • Kellogg is home to a number of Research Centres: • Undertaking research and publishing the results • Hosting Visiting Fellows, associates and DPhil students • Running short courses and day-schools

3. A centre of excellence in research and education for the mutual and co-owned business sectors: Oxford Centre for Mutual and Employee-owned Business • 1. Leading research on the performance of the mutual and co-owned sectors • 2. Offering professional development programmes matched to the needs of the sector and the development of their current and future leaders • 3. Encouraging debate and advancing new thinking about mutuality and co-ownership • 4. Creating a national and internationalnetwork of academics, practitioners, and policy makers

5. The 2007-08 Credit Crunch and 2009 Recession • The 2007-08 global credit crunch was caused by: • 30 years of privatisation, deregulation, demutualisation • Promotion of a ‘greed is good’ corporate culture of maximising ‘shareholder value’ • Allowing financial markets to dominate, and the bonus culture to proliferate • Crunch epitomised by the demutualised Northern Rock reinventing the ‘bank run’ • Crunch created the first global recession – with a fall in world output and income during 2009 – since the 1930s

6. Diversifying the financial services sector • ‘We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry.’ • A stronger mutual sector would deliver multiple benefits: • Advantages of the mutual model itself, with the organisation and its managers answerable to customers, not external shareholders • Mutuals provide effective competition to shareholder-owned banks, which are therefore pressured to provide better service • Organisations with different ownership structures and business models will react to events differently, so that a diversified sector is less prone to speculative bubbles, and more resilient

7. Policies to promote diversity • Break up the state-owned banks, returning relevant parts – such as Northern Rock – to the mutual sector • Culture change amongst regulators, politicians and the media, to accept a diversity of corporate forms, rather than assuming the PLC form is the ‘norm’ • Require regulators to promote corporate diversity • Appoint a Minister for Mutuals • Learn the lessons from the credit crunch: • Jack Welch (the original champion of ‘shareholder value’): ‘Shareholder value is the dumbest idea in the world’

8. Jonathan Michie Oxford Centre for Mutual and Employee-owned Business Kellogg College, University of Oxford jonathan.michie@kellogg.ox.ac.uk http://www.kellogg.ox.ac.uk/researchcentres/meob.php