Ringing the alarm for water companies; regulation by social contract is going to require them all to raise their game

7th November 2019 10:48

By Alex McCluckie, Associate Director. Email Alex 

Regulating the water industry by social contract provides an exciting opportunity for water companies to reposition themselves as a force for good in society.

This deceptively simple statement is one that had spent an evening reverberating around my brain as my train home rolled into Manchester Piccadilly Station. I had spent the evening on Pall Mall at the Institute of Directors listening to Rachel Fletcher, Ofwat’s CEO, lay out her stance on what water companies need to be doing to not only provide goods and services, but to take responsibility for the wider impact their business has on the environment, employees and wider society.

Now, anyone who has read Ofwat’s new strategy (Time to act, together, published October 2019) will be unsurprised to learn that this was not a talk about ownership – there is enough debate still raging around this topic in the media and political discourse at present. Instead, this was a full-on endorsement for regulation by social contract to be viewed as an idea that is very much compatible with the principles of private ownership.

It is undeniable, of course, that there has been concern from some quarters that select owners have used water companies as a means for financial gain (and in the process damaged the sector’s image and legitimacy) however, an assault on profit making this talk was not; more a repositioning of what profits can be and should be being earned for.

The (regulatory) times, they are a-changin’

The regulatory landscape over the last few years has certainly been one that has reflected the importance of companies meeting society’s needs, as opposed to those solely of the shareholder and owners. In fact, earlier this year (2019) Ofwat introduced binding principles into water companies’ licences, one of which forced companies to set a clear company purpose that recognises the needs of its wider stakeholders as well as its shareholders. Encouragingly, a cursory glance at various companies’ purpose statements would suggest that such emphasis has been heeded:

Furthermore, I have seen first hand how various water companies are already taking action to provide a wider social benefit. From Dwr Cymru Welsh Water’s Weed Wiper initiative to Severn Trent’s Community Champions programme and funding of reservoir visitor centres, many companies have incorporated practices that benefit society into their day-to-day operations. The problem however, is that such examples are still small scale. As Fletcher made abundantly clear, in Ofwat’s eyes, the industry’s net benefits to society are “not anywhere near as good as they could be, or indeed where they need to be” for the industry to meet society’s expectations.

Bells and whistles will not be enough!

The overriding feeling of the night, to me at least, was of a clear vision for water companies to intrinsically weave social purpose into the very fabric of their core business. Anything less will not be tolerated by the regulator. Although that last sentence was also exactly the point.

Embedding social purpose shouldn’t be something that needs to be imposed ‘from above’ but should be something that companies proactively pursue because it is the right thing to do and will therefore meet consumers expectations. For an industry that literally interacts with consumers (and society more broadly) every single day, this emphasis on doing more for society seems to make perfect sense – but make no mistake, for the companies themselves, this will be no mean feat.

“Relentless” was the word used by Fletcher to describe how the pursuit of a customer focused approach should be and tellingly, some companies (which were left nameless) are still some way off getting even the basics of this (repositioned) purpose right. Change then is the name of the game for water companies, right from the Board to those with boots on the ground; companies will really have to start thinking in new ways about how consumers are to be given a voice.

The evening really served to signal a challenging yet exciting time for the industry and from a selfish perspective, for research. Monitoring and measuring are going to be crucial aspects of this call to action as it will only be through adequate and accurate measurement that we will be able to tell whether any real change is coming about, both at the external ‘outcome’ level as well as the more ‘internal’ level of company culture.

This is far from a trivial issue. Indeed, without true company buy-in at all levels it will be very difficult for culture change to occur. What is more, employee engagement may even serve as a useful regulatory indicator as to the extent to which a company is likely to take its purpose and convert this into the kinds of action that Ofwat is so keen to see. The changes required, as you’re beginning to see, are vast.     

Fletcher sounded off with a call to all companies, to “raise our game”. This isn’t going to be easy and there is a long road ahead, but the potential gains are enormous which is why company culture and employee engagement simply cannot be ignored.

That’s why at DJS Research Ltd, we have a dedicated Employee Engagement Team ready to help. Our team has 40 years of combined experience supporting businesses to uncover the insights they need to improve employee engagement and business performance. We deliver annual/biannual employee surveys, more regular pulse and ‘always-on’ surveys, qualitative research in the form of focus groups, workshops and depth interviews, and more focussed pieces of work, including wellbeing surveys, culture surveys and equality and diversity surveys.

Want to hear more? Just drop me a line and I’ll be in touch!


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