The water regulator has identified dividend policies and diversity as two areas companies’ boards need to provide more clarity on.
Ofwat found progress has been made to meet objectives it set on board leadership, transparency and governance principles in companies’ annual reporting, but said there is more to be done.
In 2019 company licences were modified to include objectives for board leadership, transparency and governance including establishing a purpose, strategy and set of values. They are required to report on how principles are met through annual reporting. The reforms were part of a wider mission to rebuild trust and confidence in the water sector.
Ofwat said for 2019/20 all companies (including Tideway) had clearly stated their purpose and why it was important. It said all companies generally “could be clearer” about how their dividend policies are applied when making decisions on declaring dividends.
The regulator said all companies should improve transparency with stakeholders about how dividends are declared, and how the dividend policy is used when deciding what dividends are declared or not.
The report noted wide acknowledgment of the issue of diversity at board level, but many had only considered gender diversity. Ofwat said it wants to see companies considering diversity in its broadest sense when making decisions about board membership and ensured the board is equipped to make decisions for employees, customers and stakeholders.
Aileen Armstrong, senior director at Ofwat, said the objectives reflect the special responsibilities regulated water companies have in providing an essential public service.
“We have seen examples of good practice, but also areas where there is room for improvement,” she said. “We want to make sure companies live up to, and continually evolve in line with, the highest standards of governance. And companies need to be transparent about how they are doing that.”