As the board of directors, we recognise our responsibilities to our different but mainly interrelated stakeholder groups and our wider societal responsibilities.

John McAdam

Quick facts

  • Dr John McAdam met the independence criteria as set out in the 2016 UK Corporate Governance 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, seven out of the remaining ten directors 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.
  • The directors' biographies (see Board of directors) include specific reasons why each director's contribution is, and continues to be, important to the company's long-term sustainable success.
  • All directors are subject to annual election at the annual general meeting (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 (see Corporate governance report). As a result, the board recommends that shareholders vote in favour of those standing for a further term at the forthcoming AGM, as they will be doing in respect of their individual shareholdings.

Quick links

The details of the matters that the board has reserved for its own decision are set out in the 'Schedule of matters reserved for the board'.

A copy of the Financial Reporting Council's 2016 UK Corporate Governance Code can be found at frc.org.uk

Dear Shareholder

Our year

We have reported strong financial performance and sustained our improvement in operational performance contributing towards achieving our strategic targets during 2018/19. Our 2020–25 draft business plan for UUW was awarded fast-track status in Ofwat's initial assessment. Our plan reflects our strategy of providing the best service to customers, at the lowest sustainable cost and in a responsible manner, and in accordance with our core values. Ofwat commended our plan in a number of areas, including customer engagement, affordability and vulnerability, resilience and innovation. We believe our plan demonstrates the regard the board has for our various stakeholder groups in its decision-making. Our plan is designed to promote the group's long-term success and customers' interests as well as creating value for shareholders.

During the year, we have also had our challenges. In particular, the prolonged hot and dry weather last summer, resulting in exceptional demand from customers, impacted many areas of our operations.

Our approach

Our role as the board is to set the strategy of the group and ensure that management operates the business in accordance with this strategy. Details of the strategy and purpose are set out in the strategic report (see Our purpose and strategy). We believe this approach will promote the group's long-term success, our customers' interest, create value for shareholders and take account of our other stakeholders. The board's intention is to hand over the business to our successors in a better and more sustainable position for the future. Within our region, our activities often have multiple touch points on individuals' lives. United Utilities is a monopoly supplier of water and wastewater services to domestic households. Many customers are also our shareholders, either directly or indirectly holding shares through pension scheme investments. Indeed, many of our employees are also customers, shareholders and future pensioners and have an interest in the group's long-term success. As individual directors we are mindful of our statutory duty to act in the way each of us considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, as set out in s172 of the Companies Act 2006 (the Act). There are times when difficult decisions must be taken requiring each of us to exercise independent judgement and apply reasonable care, skill and diligence in the decision-making process. As the board of directors, we recognise our responsibilities to our different but mainly interrelated stakeholder groups and our wider societal responsibilities. For the first time this year, we have included, as required by s414CZA of the Act, a s172(1) Statement (see Directors' report).

Our governance structure

We held eight scheduled board meetings during the year; in addition, there were a number of other board meetings held which directors attended either in person or via telephone conferencing facilities.A diagram showing the interrelationships 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.

Our people

At 31 March 2019, we had maintained our gender target that at least 25 per cent of the board comprised of women with three out of ten directors on the board being women. The board aspires to achieve 33 per cent by 2020. Our current gender balance places us 33rd in the FTSE 100 in the '2018 Hampton Alexander Women on Boards Leadership Index'. With regards to diversity more generally, I am satisfied that we have an appropriately diverse board in terms of experience, skills and personal attributes and in terms of age and ethnicity among our board members. During the year, we have updated our board diversity policy, and included an ethnicity objective (see Nomination committee).

As directors, both individually and collectively, we have many years of experience gained across a variety of industries and regulated businesses, and so are familiar with the particular challenges of a regulated operating environment. Although there are time constraints for non-executive directors who also have an executive role, these individuals bring valuable current market experience and thinking to the board table. Similarly, we encourage our executive directors to serve as non-executive directors elsewhere to help broaden their experience, although this is normally limited to one other directorship in a company in an industry which does not conflict with United Utilities' business.

Twenty-nine per cent of our executive team is made up of women. We are keen to develop our succession pipeline of female senior managers so that, over time, they can be considered for executive board appointments or as potential candidates for non-executive directorships in other companies. Our current talent programme at a senior level is well embedded and we believe a non-executive appointment for senior managers provides an excellent opportunity for both personal and career development. It is a way of gaining valuable experience that may be applied at United Utilities so long as no conflicts of interest occur. Our graduate and apprentice programmes are thriving and we are focusing more effectively on middle/junior management succession. Our gender pay data can be found in the Nomination committee section. Historically, our industry has been male dominated, but we have measures in place to increase diversity in broad terms, including gender among our employees.

The board considered the requirement in the 2016 UK Corporate Governance Code (the Code) that the "audit committee as a whole shall have competence relevant to the sector in which the company operates". It concluded that, when taking into account the skills, knowledge, experience and professional qualifications of committee members (see the directors' biographies in Board of directors), the Code requirement was fulfilled. Furthermore, all members of the audit committee are independent non-executive directors.

Our values and culture

Our aim is to behave as a responsible business, and our business principles can be found on our website (see Corporate governance report). Our core values of acting with integrity and focusing on our customers provide both the framework for our business culture and the way in which our employees go about their daily work. Behaving responsibly has been part of the United Utilities ethos for many years.

The company has complied fully with the main and subsidiary principles and provisions of the 2016 Code (the details of which are contained within this corporate governance report), with which we are required to report by the Financial Conduct Authority's Listing Rules for the year ended 31 March 2019. The board is working towards addressing the details of the 2018 Code, against which it will report next year.

Our approach to risk

Our approach toward risk is very much aligned with our culture. We are an organisation that provides a vital service to its customers and we recognise the responsibilities of this, and our intention is to act responsibly towards our stakeholders, in particular our customers, in the provision of our services to them. As a board, we must take long-term decisions to ensure our successors are able to operate the business efficiently for customers, and we need to build our assets to meet future demand and circumstances. 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 ensure that actions are taken to mitigate these risks.

Our investors

We are in regular contact with our large investors through a regular scheduled programme of meetings attended by either our CEO or CFO or both of them. The programme is also supported by the activities of our investor relations team who are readily available to address investors' queries. Feedback is regularly shared with board colleagues.

Ensuring that the directors' remuneration packages align the directors' and senior managers' interests with the long-term interests of the company and its shareholders is always a key area of interest for investors. The directors' remuneration policy was most recently put to the shareholder vote at the AGM in 2017, when over 98 per cent of the vote was cast in favour of the policy. At this year's AGM we are renewing our directors' remuneration policy, a year earlier than expected in order to align performance targets with the new five-year asset management period starting on 1 April 2020. Further information and the proposed new policy can be found in the Directors' Remuneration policy.

Looking forward

Having served on the board for over 11 years, and as the company is preparing for the start of its new regulatory period in April 2020, I felt now was a good time for me to hand over the reins, and I will leave the board on 31 December 2019. The company announced on 13 May 2019 the appointment of Sir David Higgins as a non-executive director and Chairman designate. I am grateful to Mark Clare, senior independent non-executive director, who led a thorough search process on behalf of the nomination committee, identifying Sir David as my successor. Sir David is an excellent appointment, his approach and experience will fit well with the culture at United Utilities. I have very much enjoyed my time as a member of the board and am confident that the company is well placed as it goes into the 2020–25 asset management period.

As always, any feedback you may have on this annual report is welcome – please email any comments you may have to: secretariat@uuplc.co.uk

Dr John McAdam
Chairman