Chief executives follow the money and until we link water bosses’s pay with the amount of sewage being cleaned up from our rivers, we’ll be stuck with the faeces, writes Chris Hirst.
Last week, it emerged that Thames Water’s biggest investor had cut the value of its stake in the debt-riddled firm by almost 30 per cent. So maybe the Canadian pension fund was surprised to read advice aired in The Times recently that investing in water companies could be a smart move, even if they are unpopular right now. Given their historic single-minded dedication to their shareholders, who could argue. Except of course for the fact that the consequent rinsing of the general public from their monopoly positions has left a rather unpleasant taste in the mouth. The unpleasant taste is particularly strong if you happen to spend any time in the nation’s rivers.
The state of the UK’s water industry is a sorry tale indeed. Monopoly positions and feeble regulation have been ruthlessly exploited. However, it is important to remember these things are not done by faceless corporations, but by people. Real people, who I’m sure see themselves as trying to do the right thing.
If real people caused the problems, real people can fix them. The reason our water industry is in a terrible state is because their chief executives were very heavily incentivised to return as much money as possible to their shareholders. And asleep at the wheel regulators allowed them to achieve this by pumping sewage into rivers and imposing hosepipe bans rather than damage their profits by improving infrastructure, supply and service. That’s monopolies for ya.
The companies’ bosses are paid eye-watering bonuses to do so. The only way the problem is fixed is if this is changed. City types can moan that isn’t how it works. Except – it is. Incentives work. Chief executives follow the money. If they get a lot less money when they dump sewage into rivers, it absolutely guarantees it would happen far less frequently. This could and should happen right now. Indeed, the large-scale environmental harm they are causing will only stop when this happens. If there is no personal incentive to change, no change will be made. That’s real people for ya.
Much has already been written about all the complicated challenges the industry now faces, that it will take time and investment and all the other stuff. At least some of which is true, but some is an excuse. A literal shitshow has been allowed to run unchecked for which we should blame the government and regulators, not the shareholders. The rules, if necessarily the law, must change. Shareholders and senior executives need to comply and in order to avoid corporate or even individual penalties they will incentivise their CEOs accordingly; incentivise them to maximise their returns without breaking the law. None of them will like it. But that’s not our concern. Water supply and clean rivers is our concern. The first is what the companies’ CEOs are paid handsomely to deliver and the second is what they must now protect while doing so.
This is without doubt a more difficult task than the money printing exercise they have been responsible for thus far. But it’s not that difficult. The answer, as always, is if the current incumbents can’t do it, get somebody who can. Somebody who has the will to fix the mess their predecessors were allowed to create. A rule of thumb which must also now apply to the previously somnolent regulators. And the way to make sure it happens is to make unambiguously clear that the CEO’s incentives link directly to clean rivers and a healthy supply in the nation’s taps. Until this happens – nothing will change.
Of course they must also deliver a return to their shareholders. The reason being a leader is difficult is you have to deliver results with constrained resources – usually time and/or money. CEOs who achieve that deserve the big bucks (in any industry) because it’s difficult to do. CEOs who find themselves in a position where all they need to do is turn the taps on and outflows money aren’t worthy of the name. Or the cheques.