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When is a mutual not a mutual? When it’s a public limited company
Circle Holdings Plc is a public limited company in law, and the media characterisation of Circle as a “mutual” is at best disingenious, at worst misleading.
Mutual or public limited company?
A Guardian article recently explained the issue well. Circle appears classified as a “mutual” by the current government because 51% of the company is owned by investors, with the rest given over to workers. Co-operatives are businesses owned and run by, and for, their members. Whether the members are customers, employees or residents, they have an equal say in what the business does and a share in the profits. As a minimum, 75% of the co-op should be owned by the members – if not 100% – with democratic control.
Strictly speaking, a “mutual” exists with the purpose of raising funds from its membership or customers (collectively called its members), which can then be used to provide common services to all members of the organisation or society. A mutual is therefore owned by, and run for the benefit of, its members – it has no external shareholders to pay in the form of dividends, and as such does not usually seek to maximise and make large profits or capital gains. Critically, mutuals exist for the members to benefit from the services they provide and often do not pay income tax.
Circle chief executive Ali Parsa, in the language of mutuals, talks about “surpluses” not profits when talking on Newsnight, but talks about profits and dividends (this company is allowed to pay out dividends legally when it has distributable profits) to his shareholders in the annual reports.
The public of course would much prefer to hear about the ‘social enterprise’ ‘mutual’ end of Circle, rather than the public limited company end of it, with its share price here, and its financial reports here. When I was at medical school, a Professor of Medicine taught me about how to make a diagnosis: “If it looks like a duck, and quacks like a duck, it probably is a duck”. There’s a similar adage that a clip-clop noise outside of your house is probably a horse not a zebra.
In my view, it’s not a mutual – Circle overall is fundamentally a public limited company.
Shibley is a member of Labour, and a member of the Socialist Health Association. He has postgraduate degrees in medicine, natural sciences, law and business.
Dai Powel HCT Group’s Chief Executive takes a similar view of Circle
Circle’s financial strategy
Is the new NHS simply a vehicle to make money for some?
Hinchingbrooke Hospital, East Anglia (near Cambridge), has been in the news recently. Circle Health took over running of the hospital in February, after winning a 10-year contract to do so. Circle is 50.1% owned by Circle Holdings and 49.9% owned by the Circle Partnership which is 100 per cent beneficially owned by Circle’s clinicians and employees. It successfully completed its listing on the AIM (AIM is the London Stock Exchange’s international market for smaller growing companies) in 2011, through an ability to attracted £153,000,000 (before costs) of new investment during the year through equity investments from existing and new shareholders,at a time of considerable political risk and market volatility.
Its annual report, dated 31 December 2011, proudly boasts that, “…the Group is on track in its ambitious programme to redefine UK healthcare“. Its major shareholders have included Balderton Capital (16.9%), Lansdowne Partners (28.9%), BlackRock (12.8%), BlueCrest Capital Management (14.7%), and Odey Asset Management (16.6%). In other words, in keeping with the ethos of corporate Britain, “real people” do not own the majority of what Circle does, but these major shareholders control what Circle does.
The issue of control is taken up here in this excellent article in the Guardian:
“As Gregg McClymont, Labour frontbencher and former Oxford don, has pointed out: at 80% ownership, the private equity firm has complete control over the company, not the employees. At 75% ownership, a shareholder can, under company law, amend the articles of association in any way the majority shareholder sees fit. Get down to these low levels of worker stake – and with no asset lock to stop the sell-off of prized possessions – and the state will be privatising not mutualising. It was this thinking that led to Bradford & Bingley and Northern Rock being transformed from co-ops to private companies in the 1980s. Both ended up as casualties of the great crash of 2008.”
That’s the first thing to note, if Circle is a model for the new NHS, a lot more ‘control’ of the NHS will be through people who haven’t done a day’s service in the NHS, who will be interested primarily in shareholder dividend. The flotation of Circle was a key part of its business model – it doesn’t always work. Look at Facebook, for example.
I am a proud member of Labour, and the Socialist Health Association, and I hope to explain my arguments for retaining a socialist NHS with time. I am concerned about this first observation, that some people will use the NHS primarily to make money. It doesn’t matter what sector they originally trained in – education, law, utilities – it all has the same end-point. For clarity, I don’t agree with this.
Shibley is a member of Labour, and a member of the Socialist Health Association. He has postgraduate degrees in medicine, natural sciences, law and business.
