Demutualization is the process by which a customer-owned
mutual organization A mutual organization, or mutual society is an organization (which is often, but not always, a company or business) based on the principle of mutuality and governed by private law. Unlike a true cooperative, members usually do not contribute to ...
(''mutual'') or co-operative changes legal form to a joint stock company. It is sometimes called stocking or
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
. As part of the demutualization process, members of a mutual usually receive a "windfall" payout, in the form of shares in the successor company, a cash payment, or a mixture of both. Mutualization or mutualisation is the opposite process, wherein a shareholder-owned company is converted into a mutual organization, typically through takeover by an existing mutual organization. Furthermore, re-mutualization depicts the process of aligning or refreshing the interest and objectives of the members of the mutual society. The mutual traditionally raises capital from its customer members in order to provide services to them (for example
building societies A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies exist in the United King ...
, where members' savings enable the provision of mortgages to members). It redistributes some profits to its members. By contrast, a joint stock company raises capital from its shareholders and other financial sources in order to provide services to its customers, with profits or assets distributed to equity or debt investors. In a mutual organization, therefore, the legal roles of customer and owner are united in one form ("members"), whereas in the joint stock company the roles are distinct. This allows a broader capital base if the customers cannot or will not provide sufficient financing to the organization. However, a joint stock company must also try to maximize the return for its owners instead of only maximizing the return and customer services to its customers. This can lead to a decline in customer service to the extent that customers', management's and shareholders' interests diverge. A very early example of demutualization were the changes to the structure of the Union Insurance Society of Canton initiated by its secretary N.J. Ede between 1873 and 1882 leading to its re-registration as a limited company having originated as a mutual assurance society for traders in Canton in 1835.

Types of demutualizations

There are three general methods in which an organization might demutualize, full demutualization, sponsored demutualization, and into a mutual holding company (MHC). In any type of demutualization, insurance policies, outstanding loans, etc., are not directly affected by the organization's change of legal form. * In a full demutualization, the mutual completely converts to a stock company, and passes on its own (newly issued) stock, cash, and/or policy credits to the members or policyholders. No attempt is made to preserve mutuality in any form. However, in a full demutualization of a
mutual savings bank A mutual savings bank is a financial institution chartered by a central or regional government, without capital stock, owned by its members who subscribe to a common fund. From this fund, claims, loans, etc., are paid. Profits after deductions ...
, stock is issued to investors in an
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
, while the depositors, who theoretically owned the bank before demutualization, do not automatically receive stock and must separately invest. Under United States federal and state regulations, depositors receive first priority to purchase the stock before any other investors. * A sponsored demutualization is similar; the mutual is fully demutualized and its policyholders or members are compensated. The difference is that the mutuality is essentially ''bought'' by a stock corporation. Instead of receiving stock in the formerly mutual company, stock in the new parent company is granted instead. * A mutual holding company is a hybrid concept, part stock company and part mutual company. Technically, the members still own over 50% of the company as a whole. Because of this, they are generally not significantly compensated for what would otherwise be viewed as loss of property. (This is also why many jurisdictions, including
Canada Canada is a country in North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world ...
, disallow the formation of MHCs.) The core participants are isolated into a special segment of the company, still viewed as "mutual". The rest is a stock company. This part of the business might be publicly traded, or held as a wholly owned subsidiary until such time that the organization should choose to go public. Mutual holding companies are not allowed in New York where attempts by mutual insurance to pass permissible legislation failed. Opponents of mutual insurance holding companies referred to the establishment of mutual holding companies in New York as "Legalized Theft". Some MHC demutualizations have been planned as the first of a two-stage process. The second stage would be full demutualization once the transition pains into MHC status are complete. In other cases, the MHC is the final stage. Note that some mutual companies, such as
Nationwide Mutual Insurance Company Nationwide Mutual Insurance Company and affiliated companies, commonly shortened to Nationwide, is a group of large U.S. insurance and financial services companies based in Columbus, Ohio. The company also operates regional headquarters in Scott ...
and the MassMutual, have owned stock companies listed on a stock exchange. Nationwide bought back its subsidiary stock company in full, on December 31, 2008. These are not MHCs, however; they are simply mutual companies which have majority control over one or more stock companies. Other mutual companies may own some of another company's stock, but as simply an asset, not something they actually control. Finally, many mutual companies, including Nationwide and MassMutual, have wholly owned subsidiaries. The subsidiaries may technically be stock companies, but the mutual owns all the stock. For example, the ''New York Life Insurance and Annuity Corporation'' (NYLIAC) is a wholly owned subsidiary of the New York Life Insurance Company (NYLIC). A person may purchase an insurance policy from either company, but only those who own participating policies from NYLIC are mutual members. Other policyholders are customers.


Security exchanges

The Stockholm Stock Exchange was the first exchange to demutualize in 1993, followed by Helsinki (1995), Copenhagen (1996), Amsterdam (1997), the Australian Exchange (1998) and Toronto, Hong Kong and London Stock Exchanges in 2000. The
Chicago Mercantile Exchange The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an ...
became a shareholder-owned public corporation in 2000 through a
public offering A public offering is the offering of securities of a company or a similar corporation to the public. Generally, the securities are to be listed on a stock exchange. In most jurisdictions, a public offering requires the issuing company to publish ...
. "The road to this initial public offering began in June 2000, when Exchange members voted overwhelmingly to transform the then not-for-profit, membership-owned organization into a for-profit, shareholder-owned corporation. On November 13, 2000, CME became the first U.S. exchange or commodities exchange to demutualize into a joint stock corporation. The Chicago Mercantile Exchange had its IPO on December 6, 2002. The
Chicago Board of Trade The Chicago Board of Trade (CBOT), established on April 3, 1848, is one of the world's oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange (CME) to form CME Group. CBOT and three other exch ...
similarly carried out an IPO in 2005, having previously been "... a self-governing, self-regulated Delaware not-for-profit, non-stock corporation that serves individuals and member firms". The Stock Exchange of Hong Kong underwent similar process of demutualization and was publicly traded. SIX Group, a global financial service provider based in Switzerland, represents an extra ordinary form of a mutualised organisation. The owners are limited to an exclusive group of service consumers, in particular Swiss and foreign banks. This entails a closer relationship with the customer, since a customer might influence the customer-oriented behavior by the magnitude of its own equity holding of SIX Group - in this category the subsidiary SIX Swiss Exchange AG.

Life insurers

Over 200 US mutual
life insurance Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death ...
companies have demutualized since 1930. At the end of the 20th century and beginning of the 21st century numerous large mutuals such as Prudential,
MetLife MetLife, Inc. is the holding corporation for the Metropolitan Life Insurance Company (MLIC), better known as MetLife, and its affiliates. MetLife is among the largest global providers of insurance, annuities, and employee benefit programs, w ...
John Hancock John Hancock ( – October 8, 1793) was an American Founding Father, merchant, statesman, and prominent Patriot of the American Revolution. He served as president of the Second Continental Congress and was the first and third Governor of t ...
, Mutual of New York, Manulife, Sun Life, Principal, and Phoenix Mutual decided to demutualize and return to policyowners all the profits they had accumulated as mutual life insurers. Policyowners were awarded cash, stock and policy credits exceeding $100 billion in a wave of demutualizations, which have been regarded by some a
very rewarding to the new owners
although the effect on customers is not discussed. Others show that the demutualization process is detrimental to customers. The boards of directors of other mutual companies, which include Northwestern Mutual, Massachusetts Mutual, New York Life, Pacific Life, Penn Mutual, Guardian Life, Minnesota Life, Ohio National Life, National Life of Vermont, Union Central Life, Acacia life, and Ameritas Life decided to either remain mutual or they decided to form mutual insurance holding companies. At the end of 2006 there were fewer than 80 mutual life insurers in the United States. Some of these mutual companies award dividends to their policyowners. For example, Northwestern Mutual expects to pay more than $5 billion in dividends to participating policyowners in 2008. Northwestern Mutual has paid its policyowners more than $65 billion in dividends, since the company was founded 151 years ago. Mass Mutual Financial Group's Web site defines life insurance policy dividends.

Agricultural cooperatives

Numerous agricultural supply and marketing cooperatives have demutualized. One of the largest, CF Industries, a manufacturer and distributor of fertilizers in the United States, was for 56 years a cooperative federation. CF then demutualized and made an
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
of equity stock in 2005. Another large example is Kerry Co-operative Creameries of Ireland, a milk and meat processor that partially demutualized in 1986 under the so-called Irish model, with the primary business of the co-operative transferred to a publicly traded company Kerry Group and the shareholding split between the co-operative and its farmer members. Since this partial demutualisation, the co-operative has gradually reduced its holding in the Kerry Group in order to fund an extensive redemption scheme of its own co-operative shares held by farmer members. Murray Goulburn Co-operative and Australia's 2016 dairy crisis is another large example.

Building societies

building society A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies exist in the United Ki ...
is a form of mutual mortgage provision organization that emerged in the UK in the 19th century, for personal savings and home mortgages. For much of the 20th century, building societies had a large share of the retail savings market, and they had their zenith after the deregulation under the Building Societies Act 1986. Following that Act, many of the larger societies, beginning with
Abbey National The Abbey National Building Society was formed in 1944 by the merger of the Abbey Road and the National building societies. It was the first building society in the United Kingdom to demutualise, doing so in July 1989. The bank expanded thro ...
, the second largest, in 1989, and including the Halifax Building Society, the largest, soon converted into joint stock banking companies, some of which were subsequently acquired by other banks. Many societies soon became targets of speculative " carpetbaggers", who opened savings accounts in order to obtain a windfall, in cash or shares, in the event of demutualisation. Most of the remaining societies, such as the Nationwide Building Society, the largest remaining mutual, adopted poison pill clauses in their rules as a defense against carpetbaggers. These took the form of a charitable assignment provision that requires new members to assign any compensation from demutualization to charity.

Membership associations

The UK motorists' organization, The Automobile Association, demutualized and was purchased by
Centrica plc Centrica plc is a British multinational energy and services company with its headquarters in Windsor, Berkshire. Its principal activity is the supply of electricity and gas to consumers in the United Kingdom and Ireland. It is the largest su ...
in 1999. The sale was completed in July 2000 for £1.1 billion.

Retail consumers' cooperatives

As well as the many agricultural supply cooperatives that demutualized, a small number of general retail consumer's cooperatives have demutualized or considered demutualization. In 1997, Andrew Regan launched an unsuccessful hostile takeover bid to demutualize the UK's giant Co-operative Wholesale Society, which, despite its name, was a large retailer in its own right. In 2007, the tiny Scottish retailer, Musselburgh and Fisherrow Co-operative Society, completed most or all of the steps necessary to demutualize. In 2008, a Swiss competition regulator recommended demutualization to Switzerland's leading supermarket chains,
Coop Coop, COOP, Co-op, or ''variation'', most often refers to: * A chicken coop or other enclosure * Cooperative or co-operative ("co-op"), an association of persons who cooperate for their mutual social, economic, and cultural benefit ** Housing c ...
and Migros.

Retailers' co-operatives

Irish grocer-owned
retailers' cooperative A retailers' cooperative is a type of cooperative which employs economies of scale on behalf of its retailer members. Retailers' cooperatives use their purchasing power to acquire discounts from manufacturers and often share marketing expenses. A r ...
, ADM Londis, changed its capital structure in 2004 to an unlisted
public limited company A public limited company (legally abbreviated to PLC or plc) is a type of public company under United Kingdom company law, some Commonwealth jurisdictions, and the Republic of Ireland. It is a limited liability company whose shares may be fr ...
, allowing its owners to trade its stock privately at market value.

See also

* Carpetbagger (United Kingdom) *
Corporatization Corporatization is the process of transforming and restructuring state assets, government agencies, public organizations, or municipal organizations into corporations. It involves the adoption and application of business management practices an ...
Financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
Mutual insurance A mutual insurance company is an insurance company owned entirely by its policyholders. Any profits earned by a mutual insurance company are either retained within the company or rebated to policyholders in the form of dividend distributions or re ...
Privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
Thatcherism Thatcherism is a form of British conservative ideology named after Conservative Party leader Margaret Thatcher that relates to not just her political platform and particular policies but also her personal character and general style of mana ...



* John W. Carson,
Conflicts of Interest in Self-Regulation
' * Andreas M. Fleckner,
Stock Exchanges at the Crossroads

External links

An Analysis of Governor Pataki's Proposed Mutual Holding Company Legislation (New York State Assembly, 1998)


– International Co-operative Alliance * {{cite news , url= , title=Not such a good idea after all? , work= , publisher=BBC News , author=Pollock, Ian , quote='With hindsight they raised more money than they would have done had they stayed as building societies and with the credit crunch that now looks like a mistake,' said Adrian Coles. But John Wriglesworth argues that losing their independence because of this was certainly not inevitable ... , date=2008-09-29 – Analysis after the last of the UK's demutualized building societies lost its independence

How the nation's largest mutual life insurers - MetLife, New York Life, Principal Mutual and others - attempted to make off with $100 billion of policyholders' money by creating "Mutual Holding Companies". And how they were stopped. Cooperatives Corporate finance *