Industry warns Water Governance Code would cost £23m and put off investors

(by Karma Loveday)

Water UK has pushed back on Ofwat’s Water Governance Code, which would replace the existing Board Leadership, Transparency and Governance principles. In its consultation response, the trade body argued Ofwat’s proposal diverges without good reason from the pan-sector UK Corporate Governance Code, and would cost £23.2m over five years in recruitment costs for 58 additional board members – either adding to bills or diverting resources from other investment. 

Water UK said Ofwat’s proposals strayed from the UK Corporate Governance Code on: its definition of the independence of non-executive directors and chairs; the composition of regulated company boards; reporting on reserved matters; and the composition of remuneration committees. “Most fundamentally, Ofwat proposes to depart from the ‘comply or explain’ approach used for provisions in the UK Corporate Governance Code. For example, Ofwat proposes that its definition of independence for non-executive directors be an ‘apply and explain’ requirement, rather than [...] ‘comply or explain’.”

Water UK argued this could make water unattractive to investors, relative to other regulated sectors including energy, transport and banking. Moreover that this would create inappropriate ‘one-size-fit-all’ governance requirements, and miss the chance to cut the regulatory burden in line with the UK Government's priorities.

The trade body recommended Ofwat should instead go with the recommendation of the Independent Water Commission and align its corporate governance framework with the UK Corporate Governance Code, adopting a ‘comply or explain’ approach.

It added that should Ofwat proceed with creating a Water Governance Code, the industry would expect to see further engagement and a formal consultation under Section 35C of the Water Industry Act 1991, including an assessment of impacts.