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Industry regulator Ofwat has confirmed that it will require water company boards to consist of more independent non-executive directors than executives or investors.
The clarification was set out in its corporate governance principles, published on Friday, that it expects each company to meet by April next year.
“We acknowledge that investors (who own the business) have a legitimate place on the board of the regulated company; however, the number of investor representatives should be no greater than the number of independents,” it said.
The regulator published a consultation on its proposed principles in September 2013 and companies are now expected to have codes in place by April 2014 and to meet the principles by April 2015.
Under the guidance, Ofwat also said an independent chair should be independent of investors and management while there should also be a majority of independent members on the audit and remuneration committees as well.
Furthermore, the regulator said transparency reporting must meet or exceed the standards set out in the Disclosure and Transparency Rules for listed companies.
Most current obligations on governance for water companies were put in place in the late 1990s and have largely remained unchanged since then.
However, Ofwat said that in other industries, these standards had been tightened “in the wake of significant failures in some markets” and “greater focus in the media”.
“The structure of the group within which the company sits should be set out clearly and unambiguously. Customers can expect to know how the group which contains their company is structured, especially as the corporate structure for some groups is complex.
“Meeting these principles will allow the water sector in England and Wales to demonstrate that it recognises and fully meets the responsibilities that come from providing an essential public service,” said Ofwat.
The guidance also states that it should be clear to stakeholders that the board of the regulated company is leading the company, both in terms of accountability and legitimacy, as opposed to the board of the holding company.
“The regulated company must act as if it is a separate public listed company and have full control of the business,” said Ofwat.
Last week Ofwat also published a consultation on principles it considered should guide the governance arrangements of the holding companies.
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