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Quick facts

  • The Chairman met the independence criteria as set out in the 2012 UK Corporate 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, five out of the remaining seven 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
  • All directors are subject to annual election at the 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. As a result, the board recommends that shareholders vote in favour of those standing for a further term at the forthcoming AGM

Quick links

The details of the matters that the board has reserved for its own decision can be found in the 'Schedule of matters reserved for the board'. A copy can be found at corporate.unitedutilities.com/corporate-governance

A copy of the FRC 2012 UK Corporate Governance Code can be found at frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-September-2012.pdf

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Dr John McAdam
Chairman

 

Our intention is to hand over the business to our successors in a better and more sustainable position for the future

Dear shareholder,


Our year

The focus of the board has been in the planning for United Utilities Water's (UUW's) next five-year regulatory period for 2015 to 2020, and endeavouring to ensure the long-term success of the company and the group for that period and beyond. The board has concentrated on pursuing the company's continuing strategy to provide the best service to customers, at the lowest sustainable cost and in a responsible manner, and in meeting the challenges of the financial year ended 31 March 2015.

Having the same directors on both the UUG and UUW boards (with the addition of Steven Fraser, managing director of UUW's Wholesale business, on the UUW board) reflects our vision which is to focus on our core water and wastewater business and become a leading North West service provider. So, whilst both the UUG and UUW boards' agendas have been dominated by the next regulatory period, the UUG board has also been addressing the strategic and directional challenges of the group. Our governance processes also address Ofwat's published principles on board leadership, transparency and governance, and our statement can be found on our website at corporate.unitedutilities.com/corporate-governance

We have achieved considerable progress against our strategy, particularly in customer service, although this is still a primary area of focus for the board. The implementation of our new operating model for our wholesale business employing new technology and new work processes will support us in achieving this target. The board iss determined to maintain the rate of progress that has been achieved to date as we enter the next five-year period.

In January 2015, the UUW board met to consider the best course of action in terms of accepting or rejecting Ofwat's 2015–20 final determination. The board concluded that, although this was a challenging price control, we have plans in place to maintain and improve services for customers and provide an appropriate return for our investors.

Our approach

As individual directors we are cognisant of our statutory duties and in particular to promote the long-term success of our company. Our role as the board is to set the strategy of the group, and ensure its long-term success and create shareholder value. Our intention as directors is to hand over the business to our successors in a better and more sustainable position for the future. Information on our vision and strategy and the way in which we create value is included in the Strategic report.

Our governance structure

We held eight scheduled board meetings during the year, which were attended by all directors. There were also a number of ad hoc board meetings held which directors attended either in person or via telephone conferencing facilities, a number of which related to the board's involvement in the price review process. A diagram showing the inter-relationships 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 on the following pages. The diagram also describes some of the group's principal management committees.

Code principles

Leadership

Effectiveness

Accountability

Relations with shareholders

Remuneration

Our people

Nick Salmon retired as a director at the AGM on 25 July 2014 and at that time Mark Clare replaced him as senior independent director. We welcomed Stephen Carter to the board as an independent non-executive director and member of the audit committee on 1 September 2014. On Stephen's appointment, Mark Clare stepped down from the audit committee and was appointed as a member of the remuneration committee.

Stephen brings to the board table a strong career in government and regulation, having held a number of public sector roles, including serving a term as the founding chief executive of Ofcom. He is currently group chief executive at Informa plc, a FTSE 250 listed company. Further information on the process for Stephen's appointment can be found in the Nomination committee report.

We have maintained our target of at least 25 per cent of our board comprising of women, and in terms of diversity of experience, skills and personal attributes, we have great diversity around our board. Good board dynamics are vital to the proper interaction and working of a board of directors. Board directors need to work together effectively for the good of the company and, in short, they need to get on with each other; clashes of personality are to be avoided as they do not facilitate constructive debate and challenge and effective communication.

Collectively, the directors have many years of experience gained across a variety of areas and industries. Some have spent part of their careers overseas, and whilst there is a huge diversity in their skills and experience, they have predominantly worked in regulated industries, as is appropriate. Around our board table, I believe we have individuals who will apply their skills and experience to the benefit of our business and speak up if they disagree but, equally, listen to the views of others.

Although there are time constraints for non-executive directors who also have an executive role, these individuals bring valuable current market experience to any board table. Similarly, we encourage our executive directors to serve as a non-executive director elsewhere to help broaden their experience, although this is restricted to one other directorship in a company which does not conflict with United Utilities' business.

Our CEO, Steve Mogford, has made some changes during the year to the structure of his executive team of senior managers. This has resulted in a change of reporting lines and a related change in the male:female ratios of the executive team (excluding the CEO and CFO) of 4:3, (2014: 5:5).

Our ethos and culture

One of our key core values, both at board level and as a company, is to act with integrity, by applying the highest standards of responsible business practice. The company has complied with the 2012 UK Corporate Governance Code in accordance with the FCA's Listing Rules with which we were required to comply for the year ended 31 March 2015. For the period from 25 July 2014 (on the retirement of Nick Salmon) until 1 September 2014 (on the appointment of Stephen Carter), there were only two independent non-executives directors appointed to the remuneration committee, notwithstanding the fact that the Code requires that three independent non-executive directors be appointed. During this time no meetings of the remuneration committee were scheduled or held and as a result we do not regard this as being an incident of non-compliance with the Code.

Our approach to risk

We adopt a prudent approach to the way we manage the risks to our business; we feel this is appropriate for an organisation such as ours that provides a vital service to its customers, and is an approach that permeates the culture of our business. That being said, 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 that actions are taken to mitigate these risks as they feel appropriate. The greatest risk to our business is ensuring that we get the constituent elements of our five-yearly business plans correct to ensure our financeability, and that they are agreed by Ofwat in its final determination, as we are bound by these plans for the following five-year period with limited opportunity to change them.

Our investors

The remuneration committee, under Sara Weller's leadership, has been instrumental in updating the executive directors' remuneration packages to ensure they align the directors' and senior managers' interests with the long-term interests of the company and its shareholders. At the time the changes were introduced in 2013, the committee went to considerable effort to consult on the changes with a number of the company's large investors. At the 2014 AGM, 98.48 per cent of the vote was in favour of the directors' remuneration policy and, although only an advisory vote, 99.39 per cent of the votes cast were in favour of the directors' remuneration report, which would suggest that our investors are comfortable with our approach to reward.

We welcome any feedback you may have on this annual report - please email any comments you may have to secretariat@uuplc.co.uk

Dr John McAdam
Chairman