They're just old-fashioned guys, but mutuals can still put public companies in their place

As Standard Life prepares for a clash with the carpetbaggers, Melanie Bien says the unconverted have a reason to believe

In recent years, being a mutual has meant coming under attack from carpetbaggers determined to pick up a big windfall bonus. Yet new research suggests that being a public limited company (plc) rather than a mutual is not such good news in the long run for investors.

With-profits funds have come in for a mauling recently, with thousands of endowment holders discovering that their policies will not generate enough cash to pay off their mortgage at the end of the investment term. But figures suggest policyholders whose endowment is with a mutual are in a much better position than those invested with a plc.

Nine of the 10 top performing funds over the past 25 years are run by mutuals, according to research from the International Cooperative and Mutual Insurance Federation (ICMIF). Over 25 years, the "mutual advantage" equates to £14,207 or 22 per cent. This rises to £18,915, or nearly 27 per cent, if you have invested with one of the top five mutuals.

"I wasn't at all surprised by the findings," says Shaun Tarbuck, chief financial officer of the ICMIF. "Mutuals don't have the extra costs that a plc has, such as higher salaries and remuneration packages for executives, and dividends to shareholders."

Standard Life policyholders might take some convincing. Angry members made their views known at the mutual society's annual meeting in Edinburgh last week, when it was announced that nearly £500,000 was paid in bonuses to six executives last year. But Standard defended the bonuses, saying they are awarded on a three-year cycle and are a "reflection of the good years between 1999 and 2001". Bonuses for 2002 – the year when rates were cut for policyholders – are said to be well down on the previous year.

On the whole, the positive findings on the performance of mutuals will be encouraging for Standard Life as the insurer looks like it may have to defend its mutual status yet again. David Stonebanks, a retired lecturer who claims he has support from 1,600 members for demutualisation, is aiming to push for an extraordinary meeting in July. This is the earliest a vote can take place because, under society rules, three years must elapse between demutualisation bids.

The last attempt came in July 2000 when carpetbagger Fred Woollard tried to force Standard Life to convert. He failed to win enough support for the bid and many people feel that Mr Stonebanks will be similarly unsuccessful. Chief executive Iain Lumsden says the board "unanimously believes" that staying mutual is in the group's best interests.

"I don't expect to see a demutualisation," says Anna Bowes at independent financial adviser Chase de Vere. "Standard Life has been pushed towards this a number of times in the past few years and has fought it off. The company's performance has been good. It cut bonus rates but it hung on until the last minute before it did this. So I would say it makes a good case for staying mutual."

Mr Tarbuck believes that those pushing for conversion have the wrong motives. "There is a circle of greed that drives demutualisation – not whether it is going to bring better value for policyholders," he says.

He adds that the problem with motions for demutualisation is that they cost a lot to defend – money that would otherwise have gone to the policyholders.

"Standard Life would be able to defend it, but I hope it won't have to because it is a waste of policyholder money," says Mr Tarbuck.

"While some demutualisations have to happen because they are better for policyholders, I think Standard Life members should give the management another five or six years to turn the company around before making this decision. They are a relatively new management team and haven't been in place long enough to make a difference."

When choosing where to invest, Ms Bowes at Chase de Vere believes investors shouldn't be swayed solely by whether a company is a mutual or not. "I don't think mutualisation should be your first concern," she says. "The company's financial strength is the most important consideration. Returns might be better if there are no shareholders, but that's by no means a dead cert. In the case of Standard Life, it has pretty good financial strength and it's a mutual, so that's a double bonus."

However, she warns against choosing a fund on the basis of past performance, and points out that it's potential performance that should be of greater concern to investors.