As a board, we must take long-term decisions to ensure our successors are able to operate the business efficiently for customers, and we need to build our assets to meet future demand and circumstances.
- Dr John McAdam met the independence criteria as set out in the 2016 UK Corporate Governance Code (the Code) when he was appointed as Chairman;
- The Code requires that at least half of the board is made up of independent non-executive directors (the test excludes the Chairman). At United Utilities, six out of the remaining nine directors (excluding the Chairman) are independent non-executive directors;
- The company secretary attends all board and committee meetings and advises the Chairman on governance matters. The company secretariat team provides administrative support; and
- All directors are subject to annual election at the annual general meeting (AGM) held in July. Following the completion of the annual evaluation process all the non-executive directors were considered by the board to be independent and making a valuable and effective contribution to the board (Corporate governance report). As a result, the board recommends that shareholders vote in favour of those standing for a further term at the forthcoming AGM, as they will be doing in respect of their individual shareholdings.
The details of the matters that the board has reserved for its own decision are set out in the 'Schedule of matters reserved for the board'.
A copy can be found at unitedutilities.com/corporate-governance
A copy of the Financial Reporting Council's 2016 UK Corporate Governance Code can be found at frc.org.uk
We have seen strong performance contributing towards achieving our strategic targets during 2017/18. We were proud of our employees in achieving our best ever overall score during the year under Ofwat's customer service index, known as the Service Incentive Mechanism (SIM), where we were placed in an upper quartile position of the 18 water and wastewater companies. SIM, along with other key performance indicators, is regularly reviewed at board meetings. This has been a fantastic milestone to achieve as part of our strategic journey.
During the year, we have also had our challenges, including prosecutions for operational incidents, most notably relating to the 2015 Lancashire water quality incident at Franklaw water treatment works incurring a fine of £300,000. Access to our more remote assets during the severe weather in February 2018 proved difficult and we worked hard to minimise freeze-thaw issues disrupting customers' supplies. Similarly, during the industrial action in relation to the changes to the defined benefit pension scheme, colleagues not on strike worked hard to ensure our services to customers were not affected.
As individual directors we are cognisant of our statutory duty to act in the way he/she considers, in good faith, would most likely be to promote the success of the company for the benefit of its members as a whole, as set out in s172 of the Companies Act 2006. Our role as the board is to set the strategy of the group and ensure that management operates the business in accordance with this strategy. Details of the strategy are set out in the strategic report. We believe this approach will promote the group's long-term success and our customers' interests as well as create value for shareholders and have regard to our other stakeholders. The board's intention is to hand over the business to our successors in a better and more sustainable position for the future. Within our region, our activities often have multiple touch points on individuals' lives. United Utilities is a monopoly supplier of water and wastewater services to domestic households. Many of our customers are also our shareholders either directly or indirectly holding shares through pension scheme investments. Indeed, many of our employees are also both customers, shareholders and future pensioners and have an interest in the group's long-term success. As directors we are mindful of our duties to exercise independent judgement and reasonable care, skill and diligence and there are times when difficult decisions must be taken. Last year, the board considered proposals in relation to the United Utilities defined benefit pension scheme and the related discussions with the trade unions. We listened to our employees and their representatives and were able to respond to some of their requests and address some of the aspects of the pension scheme that employees valued the most nothwithstanding the decision taken to proceed with changes to the defined benefit pension scheme with effect from 1 April 2018. This was one of those difficult decisions, where we had to act in the way we considered was most likely to promote the success of the company in the long-term. I am pleased to say that these issues have now been resolved.
Our governance structure
We held eight scheduled board meetings during the year; in addition, there were a number of other board meetings held which directors attended either in person or via telephone conferencing facilities. A diagram showing the interrelationships of the various board committees can be found in the Corporate governance report and reports from each of the committee chairs about their work can be found in other sections of this website. The diagram also describes some of the group's principal management committees.
As reported in last year's annual report, Paulette Rowe was appointed as an independent non-executive director on 1 July 2017. In addition to her experience of the regulated financial services industry, Paulette has long had an interest and involvement in the charitable sector, which brings a wider perspective to board discussions.
Furthermore, we are pleased to appoint Steve Fraser to the board as our Chief Operating Officer. Steve has been with the business in various operational roles since 2005. Most recently his role was managing director of our wholesale business and his appointment to the board reflects the value we place on his experience and in-depth knowledge of our business as we face the challenges of the next five-year asset management period.
Biographies for Paulette and Steve and those of the other board members can be found in the Board of directors section.
With three out of ten directors on the board being women we have maintained our gender target of at least 25 per cent of our board comprising women, and the board aspires to achieve 33 per cent by 2020. With regards to diversity more generally, I am satisfied that we have an appropriately diverse board in terms of experience, skills and personal attributes and in terms of age and ethnicity amongst our board members. The directors have many years of experience gained across a variety of industries and regulated businesses, and so are familiar with the particular challenges of a regulated operating environment. Although there are time constraints for non-executive directors who also have an executive role, these individuals bring valuable current market experience and thinking to the board table. Similarly, we encourage our executive directors to serve as non-executive directors elsewhere to help broaden their experience, although this is normally limited to one other directorship in a company in an industry which does not conflict with United Utilities' business.
Twenty-seven per cent of our executive team is made up of women. We are keen to develop our female senior managers so that, over time, they can be considered for executive board appointments or as potential candidates for non-executive directorships in other companies. Our current talent programme at a senior level is well embedded and we believe a non-executive appointment for senior managers provides an excellent opportunity for both personal and career development. It is a way of gaining valuable experience that may be applied at United Utilities so long as no conflicts of interest occur. Our graduate and apprentice programmes are thriving and we are focusing more effectively on middle/junior management succession. Our gender pay data can be found in the Nomination committee section. Historically, our industry has been male dominated, but we have measures in place to increase diversity in broad terms, including gender amongst our employees.
The board considered the 2016 UK Corporate Governance Code requirement (the Code), that the 'audit committee as a whole shall have competence relevant to the sector in which the company operates' and concluded that when taking into account the skills, knowledge, experience and professional qualifications of committee members (see the directors' biographies) this 2016 Code requirement was fulfilled. Furthermore, all members of the audit committee are independent non-executive directors.
Our values and culture
Our aim is to behave as a responsible business, and our business principles can be found on our website (Business principles). Our core values of acting with integrity and focusing on our customers provides both the framework for our business culture and the way in which our employees go about their daily work. Behaving responsibly has been part of the United Utilities ethos for a number of years.
The company has complied fully with the main and subsidiary principles and provisions of the 2016 UK Corporate Governance Code (the details of which are contained within this corporate governance report), with which we are required to report by the Financial Conduct Authority's Listing Rules for the year ended 31 March 2018.
Our approach to risk
Our approach toward risk is very much aligned with our culture. We are an organisation that provides a vital service to its customers and we recognise the responsibilities of this, and our intention is to act responsibly towards our stakeholders, in particular our customers, in the provision of our services to them. As a board, we must take long-term decisions to ensure our successors are able to operate the business efficiently for customers, and we need to build our assets to meet future demand and circumstances. We are a commercial organisation operating within a regulated framework and accepting some level of risk is a normal consequence of doing business. It is the board's and the executive team's role to understand the risks associated with each activity of the business and ensure that actions are taken to mitigate these risks.
We are in regular contact with our large investors through a regular scheduled programme of meetings attended by either our CEO or CFO or both of them. The programme is also supported by the activities of our investor relations team who are readily available to address investors' queries. Mark Clare, senior independent director, and myself are also available to meet with investors and will be doing so later in the year.
Ensuring that the directors' remuneration packages align the directors' and senior managers' interests with the long-term interests of the company and its shareholders is always a key area of interest for investors. Our directors' remuneration policy was last approved by shareholders at the 2017 AGM; the current intention is that the directors' remuneration policy (as published in the Directors' remuneration policy in the 2017 accounts) will apply until the 2020 AGM. At last year's AGM over 98 per cent of the votes were cast in favour of the new directors' remuneration policy and, although only advisory, similarly over 98 per cent of the votes were cast in favour of the directors' remuneration report.
We welcome any feedback you may have on this annual report – please email any comments you may have to: email@example.com