New Ofwat code demands half of water company board directors be independent

(by Karma Loveday)

Ofwat is consulting until 10 September on a new Water Governance Code that would require at least half each water company board, excluding the chair, to be “demonstrably independent”. This is part of ongoing work under the Water Special Measures Act to restore trust in water.

Other proposals in the Code included: 

• Independent non-executive directors (INEDs) and chairs would not be allowed to simultaneously sit on both a water company board and its parent company board, to protect against potential conflicts of interest and reinforce the robustness of board decision-making. 

• Future share allocations to INEDs, including board chairs, would be prohibited, and full transparency around any existing shareholdings required. 

• Shared audit, remuneration and nomination committees between water companies and their parent companies would be banned under the proposals. Every water company would be required to maintain its own dedicated committees, ensuring recommendations are made in the interests of the regulated water company and its stakeholders — not the/a wider corporate group.

• Decisions relating to a water company must be made at the level of its board, unless there are good reasons otherwise. Where a group-level decision does occur, companies would be required to explain publicly and transparently why a parent company or shareholders are better placed to decide the matter rather than the water company board itself. 

• Robust annual board evaluations must be conducted, with an externally facilitated review at least every three years. 

• Boards must assess and report publicly on their management of principal and emerging risks, with an annual declaration on the effectiveness of material controls. 

• Every board must contain a senior independent director, to act as “a sounding board for the chair and a clear channel of accountability for directors and shareholders”. 

• There must be formal recognition of the role of company secretaries as a safeguard against regulatory breaches and unethical conduct. 

This is the fourth rule consulted on from the Water Special Measures Act, alongside existing rules on performance related pay, consumer involvement, and fit and proper tests for executives.

Subject to consultation, the Governance Code is expected to come into effect in April 2028, with full public reporting from July 2029.