Ofwat chief executive Rachel Fletcher backed the case for a social contract in the water sector, and set out her thinking on what that might mean in practice for firms, at The Water Report and Indepen’s Defining the Social Contract Summit last week.
Fletcher (pictured) said there was a case on legitimacy, business and environmental grounds for water companies to reconsider what it means to be a private owner of a public service like water today. This was not a matter of new rules, she explained, but of shifting the fundamental culture of companies: “We are not talking here primarily about new rules and regulations…I think the social contract has to be much deeper than a set of externally imposed rules.
"It involves engaging the passion for serving customers and the environment that I know sits with many who work in and lead the water sector. It involves bringing these wider elements into play, so that the company is not just focused on profit maximising within a set of regulatory constraints. This ownership for addressing a wider set of challenges, for making a positive contribution to society needs to infuse the culture and leadership of the company and drive everything the company does.”
She went on to set out her view on what the key elements of the social contract might be:
• “The foundation stone would involve the company doing the basics right, based on a deep understanding of, continual feedback from, and a relationship with the customers it serves.
• The company would examine its own corporate behaviours and ensure that these withstand scrutiny in all respects. The company would uphold the highest levels of corporate governance.
• The company would have links into and an understanding of the community it serves – whether this is geographically defined or defined in other ways. And it would be looking to benefit or support the community across the full suite of business decisions it makes – procurement, employment, expenditure, investment.
• In a similar way, the company would not limit itself to simple compliance with environmental regulations. It would understand the impact it is having on the environment and would be constantly looking for new ways to improve the ecosystem it is built on.”
As for the how, Fletcher said: “All of this will involve innovation, whether this is using social media to engage with customers and communities, innovative partnerships to improve the environment and help hard to reach customers, or new technologies to provide the basics better and more cheaply.
It might mean opening up the company to more public scrutiny, say by open meetings – so that it is held accountable for its performance across these dimensions.
“Taking on a more explicit social purpose may lead the company to ask some interesting questions, about the kind of people who should be on the company board, the kind of investors that should be brought in and even whether the community should have a wider interest ownership stake in the company.”
The chief executive said Ofwat as regulator is and will continue to play a part in developing a new deal with society – including through its price review methodology; wider encouragement of innovation; its work on board leadership and governance; and its developing post PR19 strategy and sector vision. But she left companies in no doubt that they should get on with making “the deep seated and pervasive changes needed right now” rather than wait to be told.
And she indicated that a considerable upping of game was needed in the round: “We are beginning to see companies move in this direction with some interesting ideas emerging in company business plans. But make no mistake, bringing about a new social contract will be a journey for the water sector, unlike any it has taken since privatisation. And I believe it is vital for every water company to be an enthusiastic participant on that journey.”