Ofwat, the water regulator, has noticed that the industry it oversees in England and Wales has been in the news recently. So it has been. Discharges of raw sewage into rivers and coastal waters are a scandal happening in plain sight, and each set of data feels more shocking than the last. A highly critical report from MPs on the environmental audit committee in January made a strong case that Ofwat itself, plus the Environment Agency, should be more assertive.
And here comes a regulatory response of a sort to the “current high level of scrutiny” of the sector: a letter from David Black, Ofwat’s interim chief executive, to the chairs of remuneration committees of the water firms suggesting, in a roundabout way, that bosses’ bonuses should be cut if the pollution record is poor.
The letter is the first of its kind and acts on one of the MPs’ suggestions, but one cannot call it strongly worded. Performance-related pay should show “a substantial link” to delivery for customers, including on “environmental commitments and obligations”, wrote Black, which is hardly laying down the law. There was a reminder to boards that they are allowed to recognise shortfalls “whatever the initial framework for [pay] incentives”, which is just a statement of something the directors should know already: bonuses are always discretionary.
One could say, generously, that Ofwat is merely at the preliminary stage of issuing a high-level warning and that tougher tactics could follow. The problem with that interpretation, though, is that Black didn’t specify what penalties would be imposed if his appeal for good behaviour on pay and bonuses is ignored, which must be a possibility.
In recent press interviews, he has hinted at fines or changes to licence conditions, but the letter itself only said Ofwat would be “assessing your company’s approach” and did not describe possible sanctions.
Maybe the pay-setters will come cleanly, as it were. But Ofwat, which is under scrutiny as much as the companies, would help itself if it laid out specific examples of unacceptable pay practices. Curbing boardroom bonuses for polluters is a good idea. But the policy requires the regulator to be stronger than it currently sounds.
Menzies takeover a shame
Never trust a bidder’s claim that its offer is “full and fair”. Kuwait’s National Aviation Services uttered the supposedly significant words when it was pitching 510p a share for the Edinburgh-based aviation services group John Menzies. Now it’s offering 608p, a mighty 19% improvement that exposes last week’s boasts as so much guff.
Barring the (unlikely) arrival of a new bidder, 608p, or £559m, will be enough to win. Indeed, the Kuwaitis had already bought almost 20% of Menzies in the market last week, which undermined the ability of the target’s board to put up a fight. If your big shareholders aren’t with you, resistance is futile. A “willing to recommend” statement duly followed.
For a few reasons, it feels a shame. First, because Menzies’ chairman and chief executive, Philipp Joeinig, was making a decent case for continued independence, inviting investors to look beyond the pandemic’s effect on a share price that was 288p before the excitement started.
Second, because Menzies is the larger company and has indeed fallen to an opportunistically timed bid, albeit one at a fat notional premium. Third, because we have learned, for the umpteenth time, that too many mid-tier companies look basically cheap when viewed from abroad; the UK takeover door continues to be wide open.
At the top, the tide turns slowly for women
A sea change has occurred in UK boardrooms, according to the Department for Business, and, up to a point, it is correct. Women hold 39% of board positions at FTSE 100 companies compared with just 12.5% in 2011, the year Lord Davies’ high-profile report voiced worries that the UK percentage seemed to have reached a plateau and urged a faster pace of progress. On a simple headcount measure of female presence in top boardrooms, the UK now ranks second to France in international tables and has overtaken quota-friendly Norway.
Yet the seascape appears all too familiar in another way. While FTSE 100 companies have recruited many more women to their non-executive ranks, the executive picture is almost unchanged. There were five female FTSE 100 chief executives in 2011; now there are eight. At that rate of change, rough parity will be achieved sometime around the middle of the next century.