Dr John McAdam, Chairman
The board asked Mark Clare, our senior independent director, to undertake our own investigation in order that lessons could be learnt and appropriate actions taken.
- The Chairman met the independence criteria as set out in the 2014 UK Corporate Code (the Code) when he was appointed as Chairman
- The Code requires that at least half of the board is made up of independent non-executive directors (the test excludes the Chairman). At United Utilities, five out of the remaining seven directors (excluding the Chairman) are independent non-executive directors
- The company secretary attends all board and committee meetings and advises the Chairman on governance matters. The company secretariat team provides administrative support
- All directors are subject to annual election at the AGM held in July. Following the completion of the annual evaluation process all the non-executive directors were considered by the board to be independent and making a valuable and effective contribution to the board. As a result, the board recommends that shareholders vote in favour of those standing for a further term at the forthcoming AGM
The details of the matters that the board has reserved for its own decision are set out in the 'Schedule of matters reserved for the board'. A copy can be found at corporate.unitedutilities.com/corporate-governance
A copy of the FRC 2014 UK Corporate Governance Code can be found at frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014.pdf
2015/16 has been a challenging year for the group. Key areas of focus for the board have included ensuring that the programme of building water and wastewater assets for the new AMP is well under way, with around £800 million of the total £3.5 billion having been spent in the first year. Secondly, we announced on 1 March 2016 that we would enter into a joint venture with Severn Trent, combining the two companies' non-household water and wastewater retail businesses subject to obtaining clearance from the Competition and Markets Authority (CMA). Clearance was announced by the CMA on 3 May 2016. The board's view was that the synergies created through combining the two businesses would provide an efficient and cost-effective operation focused on improved customer service, increased efficiency and enhanced value for shareholders. Thirdly, we have had some major operational challenges during the year that have impacted a large number of our customers in Lancashire and Cumbria, which will have tested to the full their faith in our commitment to customer service. The board was kept fully informed of the progress of these incidents and held a number of board teleconference calls to discuss the approach being taken by management to restore normal service to customers. The board was extremely disappointed that these incidents occurred and for the inconvenience caused to our customers. In addition to the investigation of the Lancashire water quality incident by the Drinking Water Inspectorate, the board asked Mark Clare, our senior independent director, to undertake our own investigation in order that lessons could be learnt and appropriate actions taken.
As individual directors we are cognisant of our statutory duties. Our role as the board is to set the strategy of the group and ensure that management operates the business in accordance with the strategy in order to safeguard both its long-term success and customers' interests, and to create shareholder value. As a board we have a strong sense of common purpose: our intention is to hand over the business to our successors in a better and more sustainable position for the future. Information on our vision and strategy and the way in which we create value is included in the strategic report.
Our governance structure
We held eight scheduled board meetings during the year; in addition, there were also a number of board meetings held which directors attended either in person or via telephone conferencing facilities, a number of which related to the board's involvement in the Lancashire water quality incident. A diagram showing the inter-relationships of the various board committees can be found below, and reports from each of the committee chairs about their work can be found on the following pages. The diagram also describes some of the group's principal management committees.
Catherine Bell will be stepping down from the board at the AGM on 22 July 2016. Catherine has chaired the corporate responsibility committee and been a key component in driving forward the board's corporate responsibility agenda. As a result, during the year, the nomination committee undertook the process of recruiting a new independent non-executive director. We announced on 5 May 2016 that Alison Goligher will join the board as a non-executive director with effect from 1 August 2016.
We have maintained our target of at least 25 per cent of our board comprising women. In terms of diversity of experience, skills and personal attributes, I believe we have great diversity around our board; the directors have many years of experience gained across a variety of industries, with regulatory backgrounds. Good board dynamics are vital to the proper interaction and working of a board of directors. Board directors need to work together effectively for the good of the company and, in short, they need to get on with each other; clashes of personality are to be avoided as they do not facilitate constructive debate and challenge or effective communication. I believe we have individuals who will apply their skills and experience to the benefit of our business and speak up if they disagree but, equally, listen to the views of others.
Although there are time constraints for non-executive directors who also have an executive role, these individuals bring valuable current market experience to our board table. Similarly, we encourage our executive directors to serve as non-executive directors elsewhere to help broaden their experience, although this is restricted to one other directorship in a company which does not conflict with United Utilities' business.
At the time this report was approved, 40 per cent of our executive team is made up of women. We are keen to develop our female senior managers so that, over time, they can be considered for executive board appointments or as potential candidates for non-executive directorships in other companies. We believe a non-executive appointment provides an excellent opportunity for both personal and career development and it is a way of gaining valuable experience that may be applied at United Utilities so long as no conflicts of interest occur.
Our culture and values
Our aim is to act as a responsible business, and our business principles can be found on our website. Our core values of acting with integrity and focusing on our customers provides the framework of our business culture and for our employees in the way in which they go about their daily work. The board's role is to set the strategic objectives and ensure that management takes responsibility for implementation. Should our employees have concerns about wrongdoing or potential breaches of our business principles then they can raise their concerns anonymously via a confidential whistleblowing telephone service. Any concerns reported would then be investigated.
Notwithstanding the challenges of the water quality incident in Lancashire, what shone through for the board was the behaviour of our employees. The 'tone from the top' was demonstrated by Steve Mogford's personal leadership of the incident, and our staff worked tirelessly to restore water quality as quickly as possible. On behalf of the board, I wish to extend our gratitude to them; this provides but one example of the dedicated approach our employees have to serving our customers and their importance as an asset of our business.
In accordance with our aim of acting as a responsible business, the company has complied fully with the 2014 UK Corporate Governance Code with which we are required to comply by the FCA's Listing Rules for the year ended 31 March 2016.
Our approach to risk
Our attitude toward risk is very much aligned with our culture. We are an organisation that provides a vital service to its customers and we recognise the responsibilities of this, and our intention is to act responsibly towards our stakeholders, in particular our customers, in the provision of our services to them. As a board, on behalf of our business we must take long-term decisions in order that our successors are able to operate the business efficiently for customers in the future and we need to build our assets to meet future demand and circumstances. All things being equal, we are a commercial organisation operating within a regulated framework, and accepting some level of risk is a normal consequence of doing business. It is the board and the executive team's role to understand the risks associated with each activity of the business and ensure that actions are taken to mitigate these risks.
We are in regular contact with our large investors through a regular scheduled programme of meetings attended by either our CEO or CFO or both of them; the programme is also supported by the activities of our investor relations team. Ensuring that executive directors' remuneration packages align the directors' and senior managers' interests with the long-term interests of the company and its shareholders is always a key area of interest for investors. The executive remuneration policy was approved by shareholders at the 2014 AGM, and is intended to apply until the 2017 AGM. At the time of the introduction of the new policy, the remuneration committee under Sara Weller's leadership went to considerable effort to consult on the changes with a number of the company's large investors and their feedback was taken into account. Although only advisory, at both the AGMs in 2014 and 2015 over 99 per cent of the votes were cast in favour of the directors' remuneration report. We welcome any feedback you may have on this annual report – please email any comments you may have to firstname.lastname@example.org
Finally, I would like to wish Catherine every success for the future and thank her for her extensive contribution to the board and United Utilities.