Ownership and Membership, Issues for Public Sector Leadership




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New Models for Organising Public Services:

Ownership and Membership, Issues for Public Sector Leadership


The Northern Leadership Academy


March 2006






The Centre for Innovation in Health Management,

Leeds University Business School, Maurice Keyworth Building, Moorland Road, Leeds LS2 9JT


Intended Audience


This paper is for managers and leaders exploring models of ownership and membership in their current, or in the design of new, public service organisations. It is just part of the picture, it does not comment on the effectiveness of these models, but does attempt to describe their fitness-for-purpose.


Contact Details

Becky Malby

Director

Centre for Innovation in Health Management

Maurice Keyworth Building

University of Leeds LS2 9PJ

Tel 01133436321/ 3432643

Mob: 07974777309


New Models for Organising Public Services:

Ownership and Membership, Issues for Public Sector Leadership


Introduction


The Government has been examining new roles as a way of reviving civic society, as part of its drive towards an enabling state (where excellent public services – creating public value, retain tax-payers confidence). This policy intent combines creating more local ownership of public services with notions of reciprocity, membership and balancing rights with responsibilities. In the NHS this has lead to the introduction of organisational innovation such as Foundation Trust Status. Across the public sector it has lead to proposals for Mutuals (as a way to create pluralism in provision for services), and more widely, the government’s social enterprise strategy. The third sector lobby (handing state services over to charities, the voluntary sector and social enterprises) is based on the belief of the responsiveness of these organisational forms to local communities or to constituent communities, and their ability to adapt to changing demands (Aldridge 2005).


Representative governments and corporate bureaucracies have been the dominant form of organising in the 20th century. Now older ideas of pluralism, and ‘associative democracy’ which operated within the 19th century co-operative movements are being revisited (Hirst 1996). These are based on free association, voluntary membership, mutual responsibilities and exchange. These ideas are being examined again as possible ways to re-animate our public services, making them both more efficient and responsive, by creating both public requirements (in turn obligating the public sector to provide), and increasing public ownership (and therefore, commitment, and behaviour that supports service provision).


Organisations can be seen as devices for shaping behaviours to produce outcomes desired by their owners. Hence how we understand ownership is central in designing public service organisations. If notions of ownership are to shift from the State (big) to Local (small) the expectation is that this will change how public service organisations design their services, but more fundamentally, how public service organisations are themselves designed.


This paper sets out some of the background to the policy direction; the models for ownership that are available to public services, how these will fit the policy intent, and what this might mean for organisational design.


Policy Propositions


The current government sees the options for State provision clearly as:

  1. The Minimalist State – where most people pay for services and the state provides a safety net for those that can’t pay (Barber 2006)

  2. The Enabling State - where the state provides social protection, by providing strong public services, which are universal and diverse, respond to the needs and aspirations of customers, compete with the private sector on quality, and promote equity(Barber 2006); and supporting private responsibility (Gilbert 2005).


The Prime Minister’s Delivery Unit operates on the basis that the former can result from political choice or incremental public opt-out as a result of lack of responsiveness in public policy. Barber (2006) states that latter will only come about if:

  • reform creates customer pressure as well as government pressure,

  • there is excellent education to create change on the ground

  • there are improved short-term outcomes to build confidence in the service and its direction.


The other premise that we need to pay attention to is the notion of Public Value. This requires examination of what value has been achieved through public policy – i.e. how are managers turning the ideas into action. This requires managers to demonstrate the value they are adding in the same way as companies can describe shareholder value (Moore 1997).


The Enabling State model sets out ‘why’ and its requirements in terms of service outcomes (better quality, more responsive, the service of choice for the consumer). The next issue is ‘how’, some of which are described above. If we examine current public policy we can see that there are a number of delivery propositions embedded in current public sector policy initiatives that this government believes will deliver these outcomes. These are:


  • Integrated delivery mechanisms are an efficient use of public money and improve quality.

  • Government wants to be free of responsibility for things it can’t control, whilst retaining responsibility for universal provision (preventing individuals opting-out).

  • Local people are better at coming up with local solutions.

  • Services have to produce more near–to- home options.

  • Services have to be both universal (equitable) and variable (innovatory).

  • Competition will produce better quality, efficient and affordable services.

  • Individuals and their families have to take more responsibility for their future. A new contract is needed between people and their services (more co-production).

  • People value choice and want be able to choose between providers.

  • Employees (professionals, managers, support staff) have to be obligated to provide the services that are required of them (through contracts, targets).


Designing Public Service Organisations.


In our view there are 3 distinct sets of policy ideas that require clarification if they are to produce benefits in the design of modern public service organisations:

  1. Competition, contestability and efficiency.

  2. Entrepreneurship, co-production, and ownership.

  3. Public expectations and choice.


Public Service Organisations are organisations providing personalised statutory funded care, which do not seek to extend market share (so they stay local) and which operate with complex notions of ownership and membership, and within a set of public service values (concern with public good).


This paper offers perspectives on ownership and membership, but we suggest that in designing public service organisations (structures, ways of working, relationships with the external world) managers cover all three areas of policy ideas, particularly the possible impact of these policy ideas on:

  • Delivery values – what counts as a public service?

  • System Offerings – how do designed services add up to a well functioning system?

  • Change – what shapes an organisation’s/ people’s ability and willingness to change and grow?

  • Characteristics of ‘fit for purpose’ provider organisations.

  • The implications for Governance and Guardianship.


Ideas About Ownership


Ownership is seen as a thoroughly good thing and so the concept has been used in a variety of contexts in descriptions of management and organisational practice. Management theory is eclectic and draws on ideas from many disciplines; psychology, sociology, political science, operational research, engineering and now biology. Sometimes this approach is enriching but it may rip concepts from their original contextual groundings in ways that are theory-light.


The majority of people in the world own almost nothing. In western democracies ownership of a variety of resources has arisen over time as those who only had duties, living in feudal conditions, struggled for concomitant rights. It is this idea of ownership as a negotiated set of rights, which seems most fruitful for our purposes as we consider Public Services modernisation.


If we pursue this idea that ownership as the rights you have to use and dispose of resources, then ownership is closely linked to ideas about control. Trotsky commented that the British People had owned the Royal Navy for many centuries but had little control over its use. The case has been made that public services, while being publicly financed have been privately managed by a sets of professional elites – first medicine alone and now in tandem with managers (so-called provider capture). Moreover, it is increasingly necessary to demonstrate that public finance is achieving public good.


In the public sector, ownership has been seen as a State issue – accountability of the services to the State, best represented by the fact that accountability seems primarily driven by questions in the House.


However, there are now other notions of ownership, that bring accountability closer to home at the same time generating processes offer ownership that offer greater tie-in in terms of behavoiour, based loosely on the principle – you own what you create. The challenge is to design public services that generate ownership at the service level – co-producing services, and demonstrating accountability to the customer; and at the organisational level co-producing services and demonstrating accountability to the local public. The challenge for public service organisations is that these two groups of people may have different and sometimes competing requirements. Whilst this has always been so, the tension has been passed up the system. In these models of local ownership, the new role for governance is working these tensions out locally.


Models of Ownership


1. Shareholders as owners.


In corporate governance terms the shareholders are the uncontested owners. As contributors of capital their rights are privileged over other potential contestants for the right to make decisions–namely those who contribute their labour. In the early Factory system the owner was the manager. As enterprises grew in size and needed to raise capital beyond that available from the founders purse public companies were formed. These corporations had to appoint managers to run the enterprise on behalf of the owners and this was seen as a risky business. Boards were set up to scrutinise mangers behaviours to ensure their behaviour was not self-serving and was in the interest of the owners.


But duties remain. We may own a car, but we have a duty not to undermine public safety and so our rights are curtailed e.g. drive only on the right of the road, not exceed the speed limit. We also accept reciprocal responsibilities. In order to use public roads we pay road tax. Like all other owners, Corporate shareholders have both rights to protect their individual ownership and duties. Private enterprises have to comply with H&S legislation, Employment legislation, anti-discrimination legislation. They are also required to take account of others’ interests e.g. public liability insurance.


This idea of reciprocal rights and responsibilities and fair exchange extends even further when we think about the founding of the Welfare State. You pay in, when you can, so that you can take out when you are in need. Indeed the current emphasis on rights and individual patient choice is creating tension with the original principle of exchange and reciprocal relations. In addition there is concern that the sum of individual choices, without reference to knock-on consequences for others, often do not result in maximising collective or population benefits.


2. Stakeholders


In market relations the buyer and seller are directly involved together in the transaction. The contract involves an exchange of ownership between them. But if the service is publicly funded then the consumer, or service user, is not the buyer. For the seller/provider to be paid by public funds some other party has to have agency on behalf of the service user. Purchasing, contracting then commissioning authorities/organisations have served this function for the system. Hence ownership is more complex in the public services. It includes:

  • those who pay – the tax payers

  • their representatives -the national government in the case of the NHS

  • those involved in local organisational governance

  • those who use services

  • and those who work within it.



These are further complicated by being over-lapping categories in many cases.


The idea that ownership is spread between legitimate ‘stakeholders’ is the current way of describing this situation. But if ownership is the right to take certain decisions – which stakeholders can make or shape key decisions in a public service?


3. Shared ownership models


(a) The benefits of mutuality


The PLC privileges the interests of one set of participants in an enterprise, those who invest their money, the shareholders. Other models exist which recognise other sorts of ‘investments’ by groups such as users and workers. The co-operative movement has a strong history in this country and some of the mutual forms persist in highly competitive markets. For example some Building Societies continue to seek mutually beneficial outcomes for both investors (savers) and service users (borrowers). In Europe mutuals are the form for health insurance organisations seeking to spread risk. One mechanism for achieving mutually beneficial outcomes is by cutting out the additional costs of dividends to shareholders. Another is through creating a sense of ownership which creates loyalty within the investors, which in turn supports a longer term relationship and therefore a more stable investment base. In 2000 the number of time banks which match volunteers with charities, rose by 80%; the assets of credit unions grew by 22% between 1999-2000. Maybe their time has come again.


(b) Co-ops :The hidden organisations


Co-operatives have received very little attention from politicians and the media but they have continued to thrive and many expect to see a renaissance in the near future (Mayo and Moore 2001). Co-operatives directly employ 100 million people worldwide, 20% more than multinational corporations. Co-operatives represent more than 800 million people worldwide and their membership increased faster than the population growth in every region except Europe (www.ica.coop)


Most co-op members belong to consumer societies in which ownership is based on membership not shares, and members receive ‘profits’ as better prices and services e.g. the phone co-op which competes on price and services in the highly competitive UK telephone market. Credit unions (slightly less than a third of world wide membership) are set up for people who can’t access credit through the usual financial institutions. Many Agricultural coops (approx one fifth of the total membership) help small producers band together to buy equipment, to market or to distribute their products. 14 million co-op members have a 55% share of total farm products in Europe. There are also a few housing and worker owned cooperatives. Membership here is limited to workers who own equal shares but they may operate within hierarchies of management and rewards (International Labour Organisation www.ilo.org) Magnum, the photographers agency is a longstanding example. Some are controlled by the workers but owned by a Trust (the Guardian newspaper and the CP Scott Trust). Information on co-operatives in the UK is available from www.cooperatives-uk.coop.


Where co-operatives have behaved in ways indistinguishable from their corporate counterparts they have fallen into rapid decline. In the 1950s the Co-op in Britain was the largest retailer and agricultural landowner, and the Mutual financial sector of building societies has been largely demutualised.


Cooperatives around the world have agreed on some basic principles they use to define themselves:


Voluntary (no exclusion from membership on the basis of gender, race political religious or other discriminatory categories)

Democratic – controlled by its members

Participatory – members control the capital of their co-op

Autonomous Agreements with other organisations ensure democratic control is retained

Educational so that members can participate effectively and inform other members of the public

Co-operate with other co-operatives where ever possible

Concerned for sustainable development

(International Co-operative Alliance (ICA) 1995 www.ica.coop)


(c) Employee owned enterprises


Some models of ownership linked to in smaller enterprises and craft industries persist along side public services e.g. in many professionals’ organisations such as Barristers Chambers, Private Medical Consulting Practices/Rooms. Within the NHS, Dental Surgeries are the purest examples although General medical practice would also fit the description of an Employee Owned Enterprise.


A variation is where a very small minority of the employees become the owners (management buy outs). EOOs can be either for-profit or not-for-profit.


One of the advantages of EOOs is seen as removing the tensions within organisations between management and operations. The ‘owners’ are responsible for management too. In the context of statutory funding sources, attention must be given to the sorts of regulation and/or performance management that produces trustworthy governance arrangements and enables adaptive practice.


Employee Ownership is rare in large organisations. In some ‘for profit’ organisations employee may be paid, in part, in share options. John Lewis, the Retail Company describes itself as a partnership and employees are called partners. They have formal ways to influence company policy. But on the whole EOOs are small to medium enterprises.


In a market place, market forces ‘regulate’ success and failure. More thought needs to be given to how EOOs would perform in conditions of scarcity. Most sorts of health and social care practitioners are in short supply and their loss to practice has huge costs. The system is probably unsustainable if we simply eliminate failure.


Finally the evidence shows that these are inherently unstable forms of organisation, leading to either windfalls for the new owners as they sell on; or asset stripping as any capital is used to offset debts in the service.


The benefits of EOOs are that as they set up their new organisation, the members already know how to work together. What we know in terms of what works in EOOs is that they are more likely to be successful if they:

  • have access to enough capital

  • don’t grow too fast


Perhaps the biggest test here is the one we started with. Does this model fit the need for service modernisation? Is the tendancy towards exploring EOO in the public sector a cover for keeping the status quo (in terms of teams, ways of working and quality), and avoiding the challenge of community ownership?

(d) Limited shared governance


There are other examples where employees do not have full ownership rights (i.e. not shareholders) but do have rights to influence policy decisions. The John Lewis Partnership is the best known example in this country. Its employees are called partners. These retail outlets were among the last to move to Sunday opening, a freedom valued by shoppers but unpopular with shop staff.


(e) Social Enterprises


Social enterprises are both for-profit and not-for-profit businesses competing in the market place to achieve social aims. They operate on a commercial basis, and don’t seek to pursuer profit for their members (Perotin 2001).


There is no single specific legal form for social enterprises. They share these common characteristics:

  • Enterprise orientation – they produce goods or services for the market.

  • Social Aims – providing local services, providing local jobs, developing local communities. They demonstrate value both in terms of wealth creation and in terms of social impact.

  • Social Ownership – which takes accountability (through whatever model of organisation they are operating) back into their local community for their social impact

(Social Enterprise Coalition 2003)


Many are consumer led, with some set up by people who are not users, when the users need external assistance. The history of social enterprise is embedded in user focused, user led company forms. The national move is for a much wider interpretation.


Basically the language of Social Enterprise suggests small to medium enterprises embedded in their local communities, demonstrating social value, acting entrepreneurially (innovative, adaptive) operating on models of ownership that fit their for-profit or not-for-profit status.


(f) Community Interest Companies


Community Interest Companies (CIC) is a new form of company, designed for social enterprises, that want to use their profits and assets for public good – so they have the basis of the company, with added benefits for the community (dividends are set at a level that doesn’t compromise the service).


There are two main types of ownership – individual and collective. These are at the crux of organisational design, since not only are they exercised differently, they can also have opposing requirements, causing organisational tensions.


Ideas About Membership


1. Choice through individual actions


Just as employees have rights to enter and withdraw from a contractual relationship, consumers are similarly entitled within our concept of legitimate trade. A consumer should not be coerced into purchasing goods, and should the producer fail to produce goods fit for the specified purpose, should be free to withdraw from the contract. Consumers can vote with their feet. In this context choice is essential for these to be meaningful rights. So cartels, price fixing and other practices aimed to limit the consumer’s choice are outlawed in Market democracies.


In some industries, monopolies were inevitable and consumers could not realise their best interests through choice and competition e.g. in the case of the public utilities. In order to protect the rights of consumers one solution was to transfer ownership from private to public hands–nationalisation. Now the idea is to create aspects of choice through pluralistic provision (choice of provider) is one element particularly dominant in the current NHS reforms. It is not clear that individuals can make fully informed decisions about highly technical care. As in other markets caveat emptor would apply (Harrison et al 2003).


Within our Representative and Market democracies individuals have recognised their lack of power to purchase well or realise their own best interests in the face of large enterprises and the State. They have sought other ways to organise and what these forms have in common is the idea of membership.


2. Choice through collective action


A key element of a mutual organisation is the freedom to associate. However exalted their purpose, associations are open communities that individual members can join or leave. All associations should be communities of choice not fate and they cannot compel loyalty. Compulsion in an associational commonwealth is only justified in order to preserve the condition in which individuals can freely choose association and enjoy the benefits of cooperating with others (Hirst 1994). Hence from this perspective the role of the state secure the conditions for free association for its citizens.


Although collective association is the means of organising, the ends sought are benefits for individual members. Cooperation is about enlightened self- interest where individuals recognise they can best achieve the outcomes they value by working with others. The association must be justified in terms of their benefits for individuals, those benefits as being perceived by the individuals (not inputted to them as being in their interests by others) and where the association providing them has been chosen by these individuals for this purpose.

3. Membership and co-production


Other examples of membership organisations are those designed to make better use of distributing things which are not scarce in their membership. The Big Issue is one example. What homeless people have lots of is time on the street. They can add this value and in return earn money. Another example is Time Banks which enables the exchange of skills between community members. These are the skills which traditionally would have been shared in families or tight knit communities, and have never been well provided by statutory agencies. Here the exchange is of time not money, as the currency in use for distributing scare commodities (Boyle et al 2005). These are asset based models, based on releasing untapped resources.


Co-production challenges public sector models of organising by requiring professionals and service managers to move out of their traditional perspective as ‘expert’ into a partnership model, where it is only together that they can create fit-for-purpose services. This is tacitly known by many professionals, particularly in chronic disease management; social care provision; crime and prevention – you have to work with the client/ community to find a solution together to the complexity of their problem. The difficulty comes when the organisation seeks to embrace the whole system in designing solutions. At this level, issues of power, identity, change, can look insurmountable. If co-production is at the heart of public sector reform, then it will need to:

    1. build on the wealth of experience in public engagement resting in the less visible parts of current public services (e.g. mental health)

    2. rethink financial models to enable the flow of resources of value apart from money (e.g. time) to enable reciprocity

    3. redesign service organisations, to embed co-production at its heart (new public service organisations within the public sector that go beyond models of consultation, and embrace public governance).


4. Membership and Diversity


One of the challenges to any organisation developing a membership model, is ‘who gets heard’ i.e. are some members privileged over others. If membership is for everyone (citizens/ staff) then processes for actualising membership need to make the most of the diversity of views; abilities to contribute; and power of members (e.g. professionals versus lay people). Preparing for membership – providing skills development; designing membership activity; and reviewing member participation are all critical to membership being an effective organisational form.


The Implications for Public Sector Re-formation


One question now being asked is whether monopoly provision – in this case state provision - is undermining consumers’ rights. The New Economics Foundation supports extending Mutuals in the public sector, as a more effective model than privatisation in meeting the government’s desire for modernisation (www.nef.org.uk). They propose that new ways of operationalising ownership of these services could provide a catalyst for more user-focused, user-responsive services. Cooperative ventures could generate new possibilities for improved service quality, costs and support the development of new relationships with professionals.


If governance is intended to protect owners interests, then this requires exploration of the rights associated with public services, and how these will differ within Mutuals.

Perhaps the most testing issue will be one of size. Much of what is known about the models currently under consideration, is that they function well for small to medium enterprises. The New Economics Foundation suggests that by demerging the state, providing more locally designed and responsive services, in effect generating smaller organisations, the service will improve. In designing new public service organisations the lessons to be learnt appear to rest in smaller organisations and teams, where as the dominant management experience is in larger organisations. One of the starting places for ownership models will be one of size, and what we can work out about ‘what scales’ in terms of processes for co-production; engagement; and ownership.


Finally, one issue we have not covered here is ownership and networks. What we know about public service organisational design is that more and more public services are being and will continue to be delivered through networks. Network governance takes us into different forms of ownership and processes for accountability. This is the subject of a future paper.


References

Aldridge N. Communities in Control: The new third sector agenda for public service reform. Acevo 2005


Barber M. Delivery: Process and Impact. Presentation to the Public Chairs Forum. February 20006.

Boyle D, Clark S and Burns S. Hidden Work. Co-production by people outside paid employment. New Economics Foundation. In Press.

Gilbert N. The “Enabling State?” from Public to Private Responsibility for Social Protection: Pathways and Pitfalls. OECD Social Employment and Migration Working Papers. No 26, OECD Publishing. 2005.

Harrison A Appleby J and Devlin N. The real cost of patient choice. The Kings Fund. 2003

Hirst P. Associative Democracy; New Forms of Economic and Social Governance. Cambridge. Polity Press. 1994.

Mayo E and Moore H. The Mutual State. New Economics Foundation London 2001.

Moore M. Creating Public Value. Harvard University Press. 1997.

Perotin V. The Voluntary Sector, job creation and social policy: illusions and opportunities. International Labour Review, Vol 140, No 3. 2001. p327 – 362.

Social Enterprise Coalition. There’s More to Business Than You Think. A guide to social enterprise. London. 2003.

Becky Malby & Diane Plamping 2006



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