We are often asked, early in our conversations with Councils, about new delivery vehicles. The most frequently-asked-question is whether a mutual or a wholly owned local authority trading company (LATCO) is the best way to go.
The answer is of course, that it depends on the circumstances of the Council itself and what that Council wants to achieve.
If pace is an issue (and it often is), LATCOs are much quicker and easier to set up. A LATCO takes six to twelve months to set up compared with an average 18 months for a mutual. The legal, procurement and stakeholder issues in a LATCO are less complex than with mutuals.
Furthermore, if trading with other Councils is the main aim, it is easy to use a LATCO to set up joint ventures with other authorities. This is commonly used for Shared Service ventures where ‘Council A’ can, without any recourse to procurement, approach ‘Council B’ to set up a company together on a 50/50 basis, a model used to huge effect by Norse Ltd, the multi-purpose LATCO owned by Norfolk County Council which now has joint ventures with Councils right across England.
Finally, and this can be a 'clincher', LATCOs can be used as a 'staging post' to a different kind business. The LATCO - gives time for the new business to settle down into an independent form and re-configure ready for either a limited procurement in which only social enterprises can take part – or exposure to a 'full-fat' procurement process 3-5 years down the line.
So why not just go for a LATCO every time?
This is because there are things to watch for with LATCOs. Set up wrong (and they often are) they can end up, operating like cut-off limbs of the Council rather than the agile, commercial creatures they were intended to be. Indeed, the very proximity of a LATCO to the Council can mean that it's too easy both for the Council to interfere too much and for the company itself to cling to 'Mother'. This year, we have seen several LATCOs end up folding back into Councils, including a much-heralded back-office LATCO in Cheshire West that lasted just months.
If a LATCO is to work, it is our experience that you definitely need an independent board and chair with Councillors ideally at one removed on a 'Shareholder Panel'. This is what ‘Persona Ltd', a social care LATCO in Bury, Lancs has done. Instead of packing its board with elected Members, Persona is getting the competencies on board it needs to become commercially strong and operationally independent.
Another key success factor in a LATCO is a new, post-Council identity. Again, Persona was deliberately not named 'Bury Council Care Ltd'. All LATCOs also need clear brand-values which are above and beyond affiliation with the Council. This is because culture-change – new attitudes and behaviours - are where the real efficiencies reside in new delivery vehicles, once the obvious efficiencies have been achieved.
So, if a LATCO can work, is it worth considering a Mutual? Often it is, particularly when it is important to extend ownership of a service to a community. An example is ‘Suffolk Libraries Community Benefit Society’ – formerly the Council’s library service - which is part citizen-run. Or a mutual can be appropriate when you are asking the workforce to transform a paternalistic public service into something more empowering, such as ‘Chiltern Rangers’, once a dowdy Council woodland management department now a business all about getting everyone involved in their local natural environment .
A mutual can also make sense when you need a partner, either for their money or know-how. On some other occasions, a Council may be looking for investment in a new venture, as Hammersmith did when setting up 3BM, their schools support mutual with Prospects, an employee-owned business. Likewise, Somerset Council is choosing a partner with whom to set up a £30m mutual to modernise their learning disability services from 2017. Part of the drive for the mutual is to bring new commercial ‘DNA’ into the service.
There is a final reason a mutual is often chosen – and that’s to create a proper commercial distance from the Council. We have noticed that Councils sometime form a mutual when looking to 'cut the apron' strings and demand a service stand on its own two feet, as Warrington Council did recently with Catalyst Choices CIC, a social care business. Likewise, Kensington and Chelsea did this with ‘EPIC’, their youth service which has now grown into three other London boroughs as a mutual.
So, there is no one answer for all situation. The reality, when appraising options, is that organisational form depends on a number of factors: the required pace and nature of service transformation sought and the level of investment (both in cash and talent) to make the new business work.Back to stepping out now