Ofwat publishes report on water company leadership

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OFWAT has published its first report on water companies’ response to the new board leadership, transparency and governance principles.

This is part of the regulator’s ongoing challenge for ‘companies to act in the long-term interest of customers and the environment and to demonstrate their commitment to the wider public interest they serve.’

Aileen Armstrong, Senior Director of Finance and Governance at Ofwat commented on the report: “We know that public purpose is critical to rebuilding legitimacy and tackling challenges ahead.

“We expect companies to step up, build on emerging areas of good practice, and drive a culture that places the needs of customers and the environment at the heart of their business.”

The report found companies moving in the right direction but with more to do to embed those principles in the business:

  • The vast majority of boards have already taken steps to establish or refresh their company purpose but there was limited evidence of actions taken so far to ensure that the companies’ cultures help to deliver their purpose.
  • Companies have improved transparency in a number of areas, but they need to do more to explain clearly how bonus payments for executives, and the dividends paid to owners, are linked to how well the company is performing for its customers and the environment.
  • Companies will need to clearly explain in future years how they operate in practice to ensure that there is independent challenge and diversity of thought on their boards. This should build on the arrangements that companies already have in place, or are committed to delivering, to ensure that their board structures are conducive to independent challenge.

Since August 2019, all water companies have had a licence condition in place to meet the objectives of the board leadership, transparency and governance principles.

According to Ofwat, this plays an important role in the sector meeting its long-term challenges and delivering greater public value.