Ofwat proposes licence change for governance principles

Water industry regulator Ofwat is proposing to incorporate new objectives about board leadership, transparency and governance into company licences.

Ofwat first introduced the principles in 2014 and following a consultation updated them earlier this year to include a requirement for water company boards to establish their company’s purpose, strategy and values.

Boards must also be satisfied that these, and its culture, reflect the needs of all those it serves.

The review came about as a result of “public concerns raised over corporate behaviours” in the sector and the new principles came into effect on 1 April this year.

The four objectives that appointees must meet are:

• The board of the appointee establishes the company’s purpose, strategy and values, and is satisfied that these and its culture reflect the needs of all those it serves.
• The appointee has an effective board with full responsibility for all aspects of the appointee’s business for the long term.
• The board of the appointee’s leadership and approach to transparency and governance engenders trust in the appointee and ensures accountability for their actions.
• The board of the appointee and its committees are competent, well run, and have sufficient independent membership, ensuring they can make high quality decisions that address diverse customer and stakeholder needs.

Ofwat has launched a consultation to make the proposed changes, which include the need to establish a “purpose, strategy and set of values”, mandatory.

The consultation marks the latest step in the water regulator’s bid to strengthen water companies’ corporate behaviours. It will run until 14 June.

Ofwat says it will also make sure there is “clarity and commitment” about purpose and values embedded at the “very top” of water companies.

In February, Ofwat’s chair Jonson Cox said the regulator was “impressed” by the level of company engagement with the principles, which he described as a “vital tool” for the sector to give customers and other stakeholders confidence in how companies operate.

Earlier this month, the water industry, regulators and the government came together to create an “ambitious vision” for the future.

Prompted by increased pressure and “profound challenges” organisations joined forces to develop a long-term view to guide the industry towards having the “most positive impact possible” on society and the environment.

The draft joint vision includes three key themes. The first is the importance of the sector delivering “everyday excellence”, the second is long-term stewardship of the environment, assets and relationships with customers and the third is “adding value”.

Alongside the vision Ofwat published its own draft strategy to engage on how an ambitious new direction may be delivered.