Page 2: Organisational structure and objectives
All organisations have stakeholders, but the number and range of stakeholders depends on the organisation's structure. Building societies and public limited companies such as banks all have employees, customers and suppliers among their stakeholders. Mutual organisations that convert themselves into public limited companies, however, create a new and very different stakeholder: the shareowner.
Whereas in a mutual organisation its owners are also its customers, the shareowners of a public limited companyare much more divorced from the business. For the most part, they will be concerned only with their investment within the business and will expect a solid financial return for the risks they undertake as owners. This return is paid in the form of a dividend upon the shares they hold within the company.
As building societies do not have to pay dividends to shareowners, they do not need to generate the same level of profit that banks require in order to pay dividends to shareowners. As a result, building societies are able to charge less to borrowers and pay more to savers. They are also more free to focus upon satisfying their customers and members who are prime stakeholders.
Building societies that have become banks are able to raise money more easily and to take on new and different lines of business, but they also take on additional obligations to shareowners that alter the way in which they can set about doing business.
An organisation's form of ownership influences its business objectives. The needs of public limited companies are driven by their shareowners. To satisfy these needs, managers focus upon making decision that maximise shareowner value. That means trying to increase the dividends they pay to shareowners and also improving the profit outlook for the firm in the future, so that the company's share price remains buoyant on the Stock Exchange.
The objectives of public limited companies are, therefore, driven by the need to make profits to keep shareowners happy and onboard. Whilst the key to making sufficiently high profits involves being very good at providing what the customer wants, for public limited companies it can also involve setting prices that reflect a need of high margins. There is then the danger that prices will be set in line with a policy of 'charge what the market will bear' rather than with reference to the actual costs of providing the service, which may be markedly less than the price charged.
As a mutual organisation and without the need to satisfy shareowners, Nationwide is free to adopt a different business approach. It looks to deliver value for its members by setting low margins. This is in keeping with the society's objectives. By continuing to develop tangible benefits for its members, Nationwide's borrowers and lenders continue to enjoy lower fees and charges.