As part of our on-going work on Ethical Business Regulation, Professor Hodges and I recently commented on Ofwat’s consultation on revised board leadership, transparency and governance principles.

The Water Services Regulation Authority, or Ofwat, is the body responsible for economic regulation of the privatised water and sewerage industry in England and Wales. 

Here’s a brief excerpt from our response:

Q4. Do you agree with our proposed principle for purpose, values and culture?

Consultation on revised Board Leadership, Transparency and Governance principles
Consultation on revised Board Leadership, Transparency and Governance principles.

We applaud Ofwat for highlighting the importance of purpose, culture and values and the alignment of these to the needs of those served by a company. For a long time the evidence of the importance of these concepts not only to the success of the company, but to the interests of its stakeholders has been growing. We believe it is now overwhelming. Therefore it is right that Ofwat should encourage water companies to develop and articulate their social purpose, identify the core values that will serve this purpose, and align their culture, via these values, to the important function they serve in society.

We note that Ofwat considered the FRC’s December 2017 consultation on revisions to the Corporate Governance Code, particularly in relation to the purpose, values and culture of boards, and will consider the conclusions prior to finalising their Principles on Board Leadership, Transparency and Governance (the “Principles”). We strongly encourage them to do so, particularly as they are embodied in the FRC’s Guidance on Board Effectiveness, (the “Guidance”) issued a few days after Ofwat’s consultation.

Companies should be able to provide evidence of serious, consistent, holistic and genuine steps to create and maintain a healthy ethical culture. They should also be able to provide evidence of such a culture based upon “evidence and information drawn from a range of sources. Drawing insight from multiple quantitative and qualitative sources helps guard against forming views based on incomplete or limited information.” (Guidance, Principle 23) We have written extensively on this in Ethical Business Practice and Regulation: A Behavioural and Values-based Approach to Compliance and Enforcement, Hart Publishing, December 2017.

Here’s the Ofwat consultation on Board Leadership, Transparency and Governance principles for reference. And you can follow the on Twitter for updates: