To ensure that board members and senior management have the appropriate balance of skills and experience to support the group's strategic objectives.
- All members of the committee are independent, thus exceeding the Code requirement that a 'majority of members of the nomination committee should be independent non-executive directors';
- The role of the committee is to make recommendations to the board on its composition, balance and membership and on refreshing the membership of the board committees;
- The company secretary attends all meetings of the committee;
- The customer services and people director, who has responsibility for human resources, regularly attends meetings and is responsible for engaging with executive search recruitment advisers; and
- The CEO is not a member of the committee, but from time to time is invited to attend. Neither the Chairman nor the CEO would participate in the recruitment of their own successor.
Terms of reference – unitedutilities.com/corporate-governance
Nomination committee members
Dr John McAdam (chair)
We have made considerable progress during the year in developing our board succession plans, and we have tried in this report to provide an informative explanation of our succession planning activities that will reassure our stakeholders that these matters are being properly addressed. In many ways, given the nature of the subject matter, it is a difficult topic to report publicly, and on a human level, people's lives and circumstances can change, sometimes at short notice.
As a board that is relatively small in size, succession planning to ensure that board members and senior management have the appropriate balance of skills and experience to support the group's strategic objectives is a matter that the board as a whole considers. We therefore have the benefit of the views and experience of all board members to contribute to the debate. During the year the board has reviewed the people and organisational capability plan and the progress being made to develop the skills and capabilities we need going forwards to support, amongst other things, our Systems Thinking and digitalisation. In our succession planning we aim to ensure both our board directors and members of the executive team and other senior managers, who are potential successors to the executive team or board, are well equipped with the right skills and experience to address the challenges of our business and, where necessary, address any developmental needs. They also need to be in tune with the culture of the company.
In support of these board discussions, the nomination committee has responsibility for considering the detailed recruitment process for executive and non-executive board appointments and members of the executive team. All the non-executive directors are members of the nomination committee and participate in meetings and in the recruitment process for new board colleagues. The nomination committee would be supported in a board recruitment process by Louise Beardmore, customer services and people director, as part of her human resources responsibilities. The committee met three times during the year. The meetings discussed and developed our board and executive level succession plans, which address both contingency planning needs and requirements in the short to medium-term. These plans now include more granularity on timescales for key board positions. During the year, the committee finalised the appointment on 1 July 2017 of Paulette Rowe as an independent non-executive director. Paulette's first-hand regulatory experience will provide additional perspective in this important area for the group, and her experience of technology driven business transformation will contribute to our operational activities, through the customer experience programme and our Systems Thinking approach. We welcome Paulette to the board in this her first non-executive role for a listed company.
The committee has for some time been monitoring the development of Steve Fraser towards a board appointment and it was concluded that he be recommended to the board for an executive appointment as Chief Operating Officer.
Historically, independent non-executive directors at United Utilities have served a term of between seven and nine years, a pattern which has facilitated the refreshing of the board in recent years on an annual basis, along with ensuring a high degree of continuity. Notwithstanding this, the specifics of each of the non-executive directors' time of departure has been driven by their own personal circumstances. Serving beyond a nine-year term is identified in the Code as being one of the reasons which could affect a non-executive director's independence. The 2016 Code excludes board chairmen from the nine-year rule.
Our board diversity policy (see Nomination committee) is taken into account during every candidate selection process. Ultimately, we do strive to appoint the person we believe is best matched to the role in terms of what they have to offer the company and to make a positive contribution to the board conversation and board dynamics. Diversity of outlook and interest is essential to ensuring we have a variety of views to contribute to discussions. We have revised our target for gender diversity, which currently stands at 30 per cent, in our board diversity policy, which shall be to maintain at least 25 per cent, and aspire to 33 per cent female representation on our board by 2020.
Dr John McAdam
Chair of the nomination committee
Pictured: (back row, left to right) Alison Goligher, Stephen Carter, Brian May, Sara Weller (front row, left to right) Paulette Rowe, Dr John McAdam, Mark Clare
Main responsibilities of the committee
- Lead the process for board appointments and make recommendations to the board about filling vacancies on the board, including the company secretary;
- Consider the succession planning of directors and members of the executive team;
- Make recommendations to the board on refreshing the membership of the board's principal committees;
- Review directors' conflict authorisations;
- Consider the request from executive directors for election to the boards of other companies and make a recommendation to the board; and
- Consider requests from non-executive directors for the election to the boards of other companies; this role has been delegated to the Chairman (other than in respect of his own position).
Directors' tenure as at 31 March 2018
What has been on the committee's agenda during the year
The committee has further developed the board succession plans during the year, taking into account more granularity around timescales for key board positions, the likely evolution of the business and the changing shape and increasingly competitive nature of the industry expected from 2020 onwards. A succession planning matrix tool (incorporating the skills matrix, see below) for board directors is used to support the planning process for board appointments. The succession planning matrix highlights the Code governance requirements; existing directors' terms of appointment and a forecast/anticipated time frame for when they might leave the business; the projected strategic needs of the business and the resulting preferred experience of any potential new board member; and existing potential internal successors to a role (where identified) and those who could act as an interim should the need arise. A candidate suitable for the role of CEO would need to demonstrate that their management approach would fit with the company's culture of acting responsibly. The committee would seek to consult with the incumbent CEO, given his unique knowledge and perspective of the group, on his view of the needs of the business going forwards. The CEO would not be involved in the appointment process of his successor, nor would the Chairman be involved in the appointment of his successor.
Board appointment process
Typically, following board discussions, the nomination committee will be responsible for drafting a brief, setting out the attributes and experience of a preferred candidate supported by the customer services and people director as part of the human resources function of the role. The brief would be shared with a number of executive search agencies (all of which would be signatories to the voluntary code of conduct on gender diversity for executive search firms) who would be invited to present their understanding of the role and attributes required. One of these firms would be engaged to conduct the search. (Russell Reynolds were involved in Paulette Rowe's recruitment, as they demonstrated the best understanding of the role. Other than providing executive search services on previous occasions, Russell Reynolds had no other connection with the company.) A long-list of candidates would then be reviewed by the nomination committee and those identified for a short-list would be invited for interview, initially with the Chairman, the CEO and the customer services and people director. Thereafter, a number of candidates would be invited to meet other non-executive directors and the CFO. Following the interview process, the nomination committee would meet to review and discuss the candidates (with the support of the customer services and people director) taking into account the views of the CEO/CFO and assess the 'best fit' with the succession planning and skills matrix and then make a recommendation to the board. References would be sought and reviewed by the Chairman prior to an appointment being taken up. A preferred candidate would also meet with representatives of Ofwat.
Reviewing membership of the principal board committees
The committee considered the membership of the principal board committees. During the year, Brian May joined the remuneration committee as it was felt that Brian's financial expertise would provide a mutual benefit for both the remuneration and audit committees. On appointment, Paulette Rowe became a member of the audit committee, where it was felt her experience of regulated services, and the importance of risk and reputation, would be of most benefit to the board. As a result, it was agreed that Alison Goligher should relinquish her responsibilities as a member of the audit committee given her membership of both the corporate responsibility and the remuneration committees.
The board diversity policy (see Nomination committee) is to 'ensure the selection process for board candidates provides access to a range of candidates, although any appointments will be made on the basis of equal merit but with due regard for the benefits of diversity on the board, including gender diversity'. The objective of the policy, is for new directors to bring something different to the board table, be it in terms of experience, skills, perspective, interests or other attributes. As referred to above, our board diversity policy would be brought to the attention of any executive search firm used as part of the selection and appointment process for a board position. Feedback would be sought from the search firm in terms of their success in attracting potential candidates with diversity of attributes and from any interview process conducted by other board members and taken into consideration in identifying suitable candidates. As mentioned above, Steve Fraser and Paulette Rowe were appointed during the year and their biographies can be found in the Board of directors respectively. For both of them, this is their first directorship of a FTSE 100 company. Steve is bringing his first-hand operational experience to the board discussions and Paulette's interest in the charitable sector brings a new element of diversity to our discussions. Additionally, with Steve's appointment the range of ages of board members has increased.
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 and we have a number of initiatives in place supporting women in the workplace (see Nomination committee). We encourage our senior managers to take on a non-executive directorship role but recognise that the responsibilities of such a role are very much a personal commitment.
Skills matrix of board directors
|Finance/accounting||Utilities||Regulation||Government||Construction/ engineering||Industrial||Customer facing||FTSE companies|
|Dr John McAdam||✓||✓||✓||✓|
Summary of board diversity policy
- Ensure the selection process for board candidates provides access to a range of candidates, although any appointments will be made on the basis of equal merit but with due regard for the benefits of diversity on the board, including gender diversity;
- Ensure that the policies adopted by the group will, over time, promote gender diversity among senior managers who will in turn aspire to a board position;
- In selecting candidates for board positions, only use the services of executive search firms who have signed up to the voluntary code of conduct for executive search firms as recommended by Lord Davies; and
- Adopt measurable objectives from time to time for achieving gender diversity at board level – which shall be to maintain at least 25 per cent, and aspire to 33 per cent female representation by 2020.
Conflicts of interest and time commitment
The company's articles of association contain provisions which permit unconflicted directors to authorise conflict situations. Each director is required to notify the Chairman of any potential conflict or potential new appointment or directorship, and the board reviews the position of each director annually. No changes were recorded which would impact the independence of any of the directors.
The board does not specify the precise time commitment it requires from its non-executive directors in taking on the role as they are expected to fulfil it and manage their diaries accordingly. The board is content that none of its directors are overcommitted and unable to fulfil their responsibilities as a board director for United Utilities and are not 'overboarded'. Each individual's circumstances are different, as is their ability to take on the responsibilities of a non-executive directorship role. Should a director be unable to attend meetings on a regular basis, not be preparing appropriately or not contributing to board discussions the Chairman would be responsible for discussing the matter with them and agreeing a course of action.
Induction of new non-executive directors
An induction programme is devised for each new non-executive director. It would include one-to-one meetings with the Chairman and each of the existing non-executive directors. They will have one-to-one meetings with the CEO, CFO, managing director of the wholesale business and the company secretary along with other members of the executive team. They will also meet members of the operational teams and visit some of the key operational sites and capital projects to ensure they get a first-hand understanding of the water and wastewater business. New directors receive a briefing on the key duties of being a director of a regulated water company, including the role of the regulated company's holding company. They will also meet with the strategy and regulation director and are required to meet with representatives of Ofwat.
Paulette Rowe: summary of induction
- Met with members of the executive team discussing our business and regulation;
- Visited the integrated control centre based in Warrington, meeting staff, and discussing the group's monitoring and control of its water and wastewater network and assets which forms the 'digital brain' of our network;
- Met with the corporate affairs director and head of sustainability;
- Met with the customer services and people director to discuss the actions undertaken by the business to improve service to customers;
- Met with the director of human resources operations to discuss the group's employee agenda;
- Discussed the wholesale operating model with the wastewater network director and the water and scientific services director; and
- Met with the chief scientist and visited the water and wastewater testing laboratories where regulatory and operational samples are analysed every day providing essential data.
Wider succession pipeline and talent management
For a number of years, we have had a written succession plan for our executive directors and other members of the executive team, which now includes more granularity in terms of timescale. This plan identifies an interim internal successor to fill a role in the short-term should the need arise, and the longer-term development needs of potential successors to be able to fulfil a role on a more permanent basis. As with all our board appointments, we would always aim to appoint the best person to fulfil a role. It would be common, when recruiting for a senior role, for an external search to be conducted alongside an internal candidate recruitment process.
Any changes that are required to the profile of the management team to reflect the changing needs of the business are considered by the board in the executive succession plan. Succession and development initiatives for senior executives include executive mentoring and coaching and participating in an executive business school programme. Leadership development centres have been delivered to identify, and validate potential for future director and senior leader positions and developing a number of role-ready diverse candidates to provide the group with leadership capacity in an increasingly complex environment. The gender diversity across all talent groups is 30 per cent female and 70 per cent male; we continue to work to create balance as part of our ongoing diversity and inclusion plan (see below). There have been three senior appointments during the year from our executive succession plan, Steve Fraser appointed to COO, James Bullock appointed to strategy and regulation director and Louise Beardmore now has a broader role with responsibility for human resources in addition to her customer role.
During the year, board directors have a number of opportunities to meet with members of the executive team, both formally when senior managers are required to present at board meetings on matters related to their responsibilities, and on more informal occasions such as when they host site visits for board members. Board members also have the opportunity to meet members of the apprentice and graduate population and other employees identified as potential talent within the business.
What we have done to improve diversity in 2017/18
Our aim is to have a workforce representative of our region and our customer base, with the capability to deliver requirements now and in the future. To do this we aim to increase our diversity year on year, requiring us to attract talent from a wide and diverse talent pool.
Our workforce profile is made up of 64 per cent male and 36 per cent female, compared to the UK average where 50 per cent of the workforce are female. We remain committed to improving our gender balance, but recognise that this will take time to change.
We have focused on how to challenge tradition and attract more women into our business, particularly into historically male dominated roles by:
- Evolving and building our employer brand to attract more women and building relationships with external organisations like Teach First to help target and attract women with a focus on the STEM-based roles;
- Evolving our recruitment processes to eliminate unconscious bias and gathering insight into why women drop out during the process and committing to having shortlists of diverse candidates for all roles;
- Putting the spotlight on our female ambassadors to help inspire and attract talent;
- Reviewing our employee brand across the employee life cycle to retain and provide a working environment that meets female requirements;
- Challenging our talent development programme lists to ensure there is a representative gender split;
- Growing our employee and ambassador networks to give our women a stronger voice;
- Our CEO Steve Mogford signing the 30 per cent Club campaign to achieve the target of 30 per cent female representation in senior leadership teams by 2020. Along with 60 leading companies, we have joined a national mentoring scheme to support the succession of our talented women into senior leadership positions;
- Asking our supply chain base to share their approach to improving diversity; and
- Reviewing quarterly metrics to measure our progress.
In 2017 through our graduate and apprentice campaigns we targeted our activities at better attracting a more gender diverse intake; we now have 39 per cent female graduates (as compared with 13 per cent of the UK science, technology, engineering and maths (STEM) workforce) and 61 per cent male graduates. Our apprenticeship population is now 23 per cent female and 77 per cent male.
In the North West 19 per cent of the working age population are disabled or live with a long-term health condition. Our ability network aims to support employees with, or those who support, people with a disability or long-term health condition. In 2017 we gained the government recognised Disability Confident status.
Ethnicity and social mobility
We are members of the National Apprenticeship Champions Diversity Network Forum, alongside other companies in the UK, to address the challenge of recruiting more apprentices from black, Asian and minority ethnic (BAME) backgrounds.
Youth unemployment in the North West is higher than the national average at 11.2 per cent. Throughout 2017 we continued, in collaboration with our partners, to lead our youth programme. Since the programme started in 2014, we have helped support 80 young people from across our region who were not in education, employment or training attain the skills they need for work with 70 per cent of participants moving into paid employment after being involved in the programme. The objective of our young people plan is to improve the quality, diversity mix and geographic coverage of candidates. We have been working with Teach First as a way to gain access to talented young people from diverse cultural communities in our region. Teach First works to end educational inequality by training excellent graduates to teach in schools serving low-income communities. We have hosted a number of visits from schools in low-income communities to promote our early years careers programmes. Pupils participated in practical exercises, such as C.V. writing. Around 60 per cent of students from the visiting schools were from BAME backgrounds
At present, we have a higher proportion of men at more senior levels within our organisation and more men in higher-skilled and higher-paid roles which contributes to the gender pay gap. We have an action plan in place which focuses on how we challenge tradition and attract more women into these currently male dominated roles; how we develop our female talent to increase the number of women in senior positions and strengthen succession pipelines; and leading from the top on a commitment to change. Our gender equality network (GENEq) aims to support, mentor, develop, inspire and promote both men and women in United Utilities to realise the benefits of gender equality. Our gender pay gap figures are shown below. Further details can be found in the full report, a copy can be found at unitedutilities.com/corporate/responsibility/employees/diversity/
Median and mean gender pay gap
Median and mean bonus gender pay gap(3)
91.7 per cent of males and 84.4 per cent of females received a bonus payment. Levels are less than 100 per cent as the eligibility criteria requires a minimum level of service to be completed during the bonus year and therefore some new starters may not be eligible.
- Source : Office for National Statistics October 2017
- Source: company payroll data for the month of April 2017
- Source: company payroll data, bonus paid in the 12 months period preceding 30 April 2017