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Code principle: Leadership

Overview of the board’s responsibilities

  • The board is responsible for setting the strategy of the group and ensuring the long-term success of the group for customers, investors and wider stakeholders; and in creating shareholder value
  • The board is responsible for challenging and encouraging the executive team in its interpretation and implementation of how it manages the business, and that it is doing so in accordance with the strategic goals the board has set
  • The board is responsible for ensuring the company's internal control systems (including financial, operational and compliance) and processes are sound and fit for purpose. See the 'accountability' section of this report on Corporate governance report continued for more detail
  • The board is responsible for ensuring that the company has the necessary financial resources and people with the necessary skills to achieve its objectives. It also reviews managerial performance annually
  • The UUG board has oversight of capital expenditure projects within UUW which exceed £50 million, and any project which materially increases the group's risk profile or is not in the ordinary course of the group's business
  • Full details of the matters that the board has reserved for its own decision making due to their importance to the business or the working of the board, can be found on our website at

Directors' tenure as at 31 March 2015

Directors tenure

Governance structure for our board and our committees

In line with the Code, the board delegates certain roles and responsibilities to its various principal board committees, as shown in the diagram in the Corporate governance report. Whilst the board retains overall responsibility, a sub-committee structure allows these committees to probe the subject matter more deeply and gain a greater understanding of the detail, and then report back to the board on the matters discussed. The reports of the principal board committees required by the Code can be found on the subsequent pages. Minutes of the board and principal committee meetings (with the exception of the remuneration committee) are tabled at board meetings and the chairs of each of the board committees verbally report to the board on their activities.

The executive team is chaired by the CEO, and its members are the senior managers who have a direct reporting line to the CEO. The executive team meets monthly and is responsible for operational matters and implementing the strategies that the board has set, and the day-to-day running of the business. Short biographies of the executive team can be found on our website at corporate.unitedutilities.com/united-utilities-executive-team

The structure chart shown in the Corporate governance report also shows the principal management committees and a brief description of their roles. These committees enable senior management to understand and, if necessary, challenge the business in its interpretation of the implementation of the strategies the board has set. The board received reports from the CEO and CFO at every scheduled board meeting, providing the board with an updated overview of the business and its financial position.

Directors' key responsibilities

TitleNameResponsibility
ChairmanJohn McAdamIs responsible for the leadership of the board, setting its agenda and ensuring its effectiveness in all aspects of its role
Chief Executive OfficerSteve MogfordTo manage the group's business and to implement the strategy and policy approved by the board
Chief Financial OfficerRuss HouldenTo manage the group's financial affairs and to contribute to the management of the group's business
Independent non-executive directorsCatherine Bell
Brian May
Stephen Carter
Sara Weller
To challenge constructively the executive directors and monitor the delivery of the strategy within the risk and control framework set by the board
Senior independent non-executive directorMark ClareIs responsible, in addition to his role as an independent non-executive director, for discussing any concerns with shareholders that cannot be resolved through the normal channels of communication with the Chairman or chief executive officer

Governance structure of the board and its principal committees and the principal management committees

2015-AR-Risk-group-board.png

 

Board activity in 2014/15Cross referenceLink to strategic objectives
Shareholder relations
  • Received and discussed a presentation by Makinson Cowell on investors' views and perceptions
View reference
  • Received and discussed feedback from roadshows/presentations to investors by the CEO and/or CFO
View reference
Leadership and employees
  • Reviewed and discussed the health and safety of employees
View reference
  • Considered board succession planning and the appointment of Stephen Carter as a new non-executive director
View reference
  • Reviewed and discussed executive succession plans and the needs of the business and an update on the activities to develop talented employees
View reference
  • Discussed the results of the annual employee engagement survey
View reference
Strategy
  • Debated and discussed developments in shale gas in the North West of England
  • Reviewed the group's energy strategy and the progress with the installation of renewable sources of energy production at treatment works and other facilities
View reference
  • Held a strategy session debating and discussing the future direction of Wholesale, Domestic Retail and Business Retail business units
Governance
  • Reviewed and debated the risk profile of the group and in particular the principal risks
View reference
  • Reviewed and discussed updates on cyber security and information management strategies
View reference
  • Approved revised terms of reference for the audit, remuneration, treasury and corporate responsibility committees
  • Reviewed biannual updates on changes and developments in corporate governance
  • Reviewed and discussed the evaluation of the board, its committees and individual directors and conflicts of interest
View reference
  • Reviewed the performance of the external auditor and recommendation for reappointment
View reference
  • Reviewed the effectiveness of the risk management and internal control systems
View reference
Regulation (UUW business)
  • Reviewed, challenged and approved the 2015–20 business plan submission
View reference
  • Reviewed the award of the framework contracts for capital programme contractors for the 2015–20 period
  • Approval of capital expenditure to modernise Davyhulme wastewater treatment works
View reference
Financial
  • Reviewed and challenged the dividend policy
View reference
  • Reviewed and approved the half and full year results and associated announcements
  • Reviewed and approved the company's tax strategy
View reference
  • Reviewed and approved the company's treasury policy and insurance arrangements
  • Reviewed progress with material cases of litigation involving the group
View reference

Key to the strategic objectives

 Best service to customersP65 Icon 6 Lowest sustainable cost Responsible manner

The boardroom table

Boardroom Table Diagram

Attendance at board and committee meetings

Eight scheduled board meetings were planned and held during the year (2014: eight). A number of other board meetings and telephone conferences were also held during the year, as the need arose. The table below shows the actual number of scheduled meetings attended and the maximum number of scheduled meetings which the directors could have attended.As directors, our intention is always to attend all scheduled board and committee meetings; only in exceptional circumstances would we not do so. Similarly, every effort is made to attend ad hoc meetings either in person or via the use of video or telephone conferencing facilities if needs be. None of our non-executive directors have raised concerns over the time commitment required of them to fulfil their duties.

On the evening before each scheduled board meeting all the non-executive directors meet together with the CEO; this time is usefully spent enabling us to share views and cross-check our understanding of certain issues.

Board
meetings
Audit
committee
Remuneration
committee
Nomination committeeCorporate
responsibility
committee
Treasury
committee
John McAdam

8

8

n/a

n/a

4

4

n/a

n/a

Steve Mogford

8

8

n/a

n/a

n/a

2

2

n/a

Russ Houlden

8

8

n/a

n/a

n/a

n/a

4

4

Catherine Bell

8

8

4

4

5

5

4

4

2

2

n/a

Stephen Carter

4

4

3

2

n/a

1

1

2

2

n/a

Mark Clare

8

8

1

1

3

3

4

4

n/a

n/a

Brian May

8

8

4

4

n/a

4

3

n/a

4

4

Nick Salmon

4

4

1

0

2

2

2

2

n/a

n/a

Sara Weller

8

8

n/a

5

5

4

3

n/a

n/a

Icon 3

Actual number of meetings attended

Icon 4

Maximum number of scheduled meetings which the directors could have attended

  1. Nick Salmon retired from the board and the relevant committees with effect from the close of the AGM held on 25 July 2014. Nick was unable to attend the meeting of the audit committee in May 2014.
  2. Stephen Carter was appointed to the board and the audit, nomination and corporate responsibility committees on 1 September 2014, at which time Mark Clare stepped down from the audit committee and joined the remuneration committee. Stephen was unable to attend the November 2014 meeting of the audit committee due to a pre-existing commitment arranged prior to him joining the board.
  3. Sara Weller and Brian May were not able to attend the August 2014 meeting of the nomination committee, as it was arranged at short notice.

Code principle: Effectiveness

Board evaluation

We engaged Lintstock Consultants (Lintstock) to undertake our external evaluation; they also conducted the external evaluation in 2012. Other than conducting the 2012 evaluation, Lintstock had no other connection with the company.

The process, facilitated and evaluated by Lintstock, was based on the completion of online questionnaires by board members addressing the performance of the board and its committees, the Chairman and individual directors.

In addition to board members, other members of the executive team who regularly attend and support committee meetings were asked to complete the same questionnaires.

The anonymity of all respondents was ensured throughout the process in order to encourage an open and frank exchange of views. The results were then analysed by Lintstock; were then discussed with the Chairman, the chair of the relevant committee, and the company secretary; tabled at a meeting of the relevant committee; and then presented to the board.

A summary of Lintstock's analysis of the 2014/15 evaluation is as follows:

Board composition and expertiseBoard members' skills and expertise were felt to be appropriate, and in particular the board members' knowledge and understanding of the regulatory environment the company operates within, along with their understanding of the views of regulators, customers and investors.
Board agendaThe allocation of time spent on the key strategic issues of the price review during the year was appropriate as were the other topics devoted to board discussion. With the completion of the price review, more time could now be allocated to address the advent of further market reform and competition in the sector.
Board supportPresentations to the board and the timeliness of board documentation were appropriate, although improvements could be made to the content and format of papers. The support and training needs of board members continued to be addressed.
Wider strategic oversightThe involvement of the board in the development of the strategic direction of the group was considered to be appropriate. The board would consider what improvements could be made to the format of the board strategy day.
Risk management and internal controlThe board's approach to the management of risk was considered to be appropriate, with suggestions being made to refine the management and oversight of risk overall.
Succession planning and human resource managementBoard members felt that the senior management structure and the succession planning for executive and key management positions supported the strategic objectives. The visibility by the board of potential internal candidates for succession should be maintained and enhanced.
CommitteesThe composition and performance of the audit, remuneration, nomination, corporate responsibility and treasury committees were considered to be appropriate.
Individual directorsThe individual performance of the directors was assessed; all of which were considered to be effective and all directors demonstrated the expected level of commitment to the role. The review of the Chairman's performance, led by the senior independent director and that of Catherine Bell concluded that both continued to demonstrate an independent approach, notwithstanding they had each served in excess of six years as a director.

The internal evaluation conducted in 2013/14 identified the following actions:

  • There was a need to improve further the visibility and engagement of the executive team and a wide range of senior managers with the board and provide more opportunities for such engagement; and
  • Maintain the strong focus on succession planning for executives and those in critical posts in the talent pipeline.

Whilst progress has undoubtedly been made during the year, these are enduring themes which will continue to be pursued.

Training

Specific training has been provided to the directors during the year on a number of areas including regulatory matters and changes in reporting and governance requirements and their responsibilities in accordance with the Goods Vehicles (Licensing of Operators) Act 1995. On the appointment as a director to the UUG and/or the UUW board, directors receive information on the key duties of being a director of a regulated water company including the role of the regulated company's holding company. This information is kept continually under review.