Ofwat is proposing that independent non-executive directors should be the single largest group on water companies’ boards and for all boards to be independently chaired - part of a raft of proposals to strengthen its 2014 principles for board leadership, transparency and governance principles.
The regulator has launched a consultation on its proposals, including potential changes to water companies’ licences. Introducing the consultation, Ofwat said:
“While the companies have largely complied with our principles, the corporate behaviour of some companies, along with significant service failures, has damaged trust in the sector.”
In order to rebuild trust and confidence in water and regain sector legitimacy, a culture change which came from the top was now necessary to give the companies a renewed sense of purpose, and put customers at the heart of the water companies’ businesses.
The consultation paper says that expectations for the behaviour of water companies are very high – arguably higher than for other companies – and that there are some approaches to delivering strong leadership, transparency and governance that are “non-negotiable”.
Referring to their “privileged monopoly status”, Ofwat said the water companies have a special responsibility to work as diligently for their customers as for their owners.
The consultation forms part of a programme of work set out by Ofwat in April 2018 to enable and challenge companies to rebuild legitimacy and put customers at the heart of their businesses.
Ofwat will consult on a number of proposed revisions to the principles and companies’ licences, including:
- A new principle for company purpose, values and culture that is consistent with the role of monopoly provider of an essential public service;
- A licence requirement for all water companies to meet Ofwat’s principles; and,
- A licence requirement for independent non-executive directors to be the single largest group on boards.
Introduced in 2014, Ofwat’s principles aim to bring the water sector in line with the high standards of corporate governance expected of a monopoly provider of an essential public service.
Ofwat’s Chairman, Jonson Cox said:
“Water is a vital public service like no other. Holding a licence to provide water is a privilege. It is only right that those at the top of water companies should be fully accountable for how their business is run and that water companies themselves are held to higher standards than any ordinary business.
“The revised principles we are consulting on, will continue to drive the highest standards of board leadership and decision-making across the water sector, which in turn forms part of our ongoing work to make sure that water companies put customers at the heart of everything they do.”
The proposed changes would apply to the 17 largest regulated water companies in England and Wales and Bazalgette Tunnel Ltd, known as Tideway, the only licensed infrastructure provider.
Deadline to submit responses to the consultation is close of business on Tuesday 21 August 2018. Click here to download the consultation document
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