How to be a purposive utility company

Even before the Covid crisis and the climate emergency movement, the notion that capitalism had to
be about more than simply short-term shareholder returns had been growing worldwide.

The World
Economic Forum, US industry bodies, leading financiers including the Governor of the Bank of
England, the Chief Executive of Ofwat and the British Academy have all been making the case – in
different guises – for what had become known as purposive companies (aka 'public purpose',
'rethinking modern capitalism' and 'sustainable/responsible business').

If this is true for companies in general, it is even more true for public utilities, particularly when

these are monopolies. These companies deliver essential public services. Their 'licence to operate' as
private sector deliverers of these services rests in part on an implicit compact with customers and
with society. Should this compact fracture – perhaps due to perceived excess returns or executive
pay or evidence of poor practice or under-delivery – the sectors in question face severe scrutiny.

The nationalisation agenda in the UK was in part a response to this. It came to a head in the run up

to an election period, fuelled by some notable failures of service companies outside the utilities
sector; but behaviours of at least some utilities perhaps lent credibility and popular support.
Furthermore, the utilities are central to the big issues of the next 30 years: net zero, adapting to
climate change and, through energy and water poverty and lack of broadband access, changes in
patterns of vulnerability in society.

In a disrupted social media driven world, a demonstrable and evidenced commitment to public

purpose is a major positive. With regulation and legislation inevitably being partly responsive to
events, forward thinking companies with real social and environmental commitment will deliver and
respond better to the inevitable problems such as floods, droughts or supply outages, and will have
earned the endorsement (or at least the benefit of the doubt) from customers and wider
stakeholders. Risk is reduced, and in all probability, long term shareholder value can be enhanced.

There is no doubt that while expectations have risen on utilities there has been some genuine

movement. The utility sectors' response to the Covid-19 epidemic reveals a number of companies
instinctively looking to do the 'right thing'. But this is not just about crisis management, it is about
the vision, strategy and culture of companies in their day to day operations and their forward
planning. It is about understanding the social and environmental context in which the company
operates and leading, rather than following, regulatory incentives. And here the ground has shifted
and expectations are rapidly evolving.

So what does a public purpose/sustainable licence to operate actually entail? This is what our most

recent Fair for the Future Project publication – Developing and Embedding a Sustainable Licence to
Operate and a Purposeful Business Approach: A 'How-To' Guide for Public Utilities – sets out. The
Guide provides a utility specific systematic and stretching framework for putting public purpose into
action. Drawing on in depth case studies from outside the sector chosen for their relevance to
essential services, good practice from utilities before Covid, and a number of examples of how
companies have responded to the pandemic, it illustrates key areas which form part of a purposive
company. But we are also quite clear, this is not simply about a short-term CSR response or a one-off
'badge'. We include clear statements of what good practice might look like, and checklists against
which companies can judge themselves now and in their ongoing decisions.

In short, companies need:

- Authenticity, which means getting delivery right first and foremost.
- Cultural change beyond visions. Whatever the answer is it needs to be both top down and
bottom up. The board need to lead, the CEO and Exec directors have to 'get it' and explain
and live it, but the biggest external advocates are front-line and operational colleagues –
repairing mains/cables, in the call centres and in their local communities. They will be
making decisions about what is 'fair' on a daily basis in an increasingly disrupted world.
- Reaching out to stakeholders in way which conventional uni-directional 'stakeholder
engagement' has not typically done before. Genuine co-invention means working with
stakeholders, rather than telling them.
- Ownership of this agenda across the company, not simply in comms or regulatory interfaces
(or, for that matter, even in the sustainability part of the company – one of the problems
which the CSR agenda has had for the last decade or more).
- A willingness to open up to external scrutiny and assurance, and the transparency which
goes with this, to demonstrate delivery of public value.

In producing our 'How-to-Guide,' over a two-year period we thoroughly tested four 'pillars' against

which companies may wish to structure their thinking with key stakeholders: public purpose,
philosophy and public service values; making best use of 'capital' (which includes human and natural
capital) through competition and collaboration; fairness: expectations on roles and responsibilities;
and strategy and narratives that 'ring true'.

A sustainable licence to operate is not a fad, or a transitory matter which will go away. It is the basis

of a long term compact between utilities and society, enriching both. And when companies put talk
in this area into action, they can more confidently work with stakeholders to reshape their policy
and regulatory frameworks to ensure these are sufficiently adaptive to cope with the deep
uncertainty that we all face. We will be exploring the implications of the public purpose agenda for
policy and regulation in our final Fair for the Future Project paper at the end of this year.