Ofwat, the water regulator, has noticed that the industry it oversees in England and Wales has been in the news recently. It has been so. Discharges of raw sewage into rivers and coastal waters are a scandal unfolding in plain sight, and each data set seems more shocking than the last. A highly critical report by MPs on the Environmental Audit Committee in January argued that Ofwat itself, as well as the Environment Agency, should be more assertive.
And here is a sort of regulatory response to the “current high level of oversight” of the sector: a letter from David Black, acting chief executive of Ofwat, to the chairmen of water companies’ compensation committees suggesting, in a roundabout way, that bosses’ bonuses should be cut if the pollution record is bad.
The letter is the first of its kind and acts on one of MPs’ suggestions, but it cannot be said to be strongly worded. Performance-related pay should show “a substantial link” to delivery for customers, including on “environmental commitments and obligations,” Black wrote, which is hardly lawful. Boards have been reminded that they are permitted to recognize deficiencies “regardless of the initial scope of [pay] incentives,” which is just a statement of something directors should already know: bonuses are always discretionary.
One could say, generously, that Ofwat is only at the preliminary stage of issuing a high-level warning and tougher tactics could follow. The problem with this interpretation, however, is that Black did not specify what penalties would be imposed if his call for good conduct on pay and bonuses was ignored, which must be a possibility.
In recent press interviews, he hinted at fines or changes to license terms, but the letter itself only stated that Ofwat would ‘assess your company’s approach’ and did not outline any possible penalties.
Maybe the payers will come clean, so to speak. But Ofwat, who comes under as much scrutiny as companies, would help himself if he presented specific examples of unacceptable pay practices. Limiting meeting room bonuses for polluters is a good idea. But politics demands that the regulator be stronger than it currently appears.
Menzies takes control a disgrace
Never rely on a bidder’s assertion that its bid is “complete and fair”. Kuwait National Aviation Services spoke the supposedly significant words when it launched 510p per share for Edinburgh-based aviation services group John Menzies. Now it delivers 608p, a massive 19% improvement that exposes last week’s boasts as gaffes.
Barring the (unlikely) arrival of a new bidder, 608p, or £559m, will be enough to win. Indeed, the Kuwaitis had already bought nearly 20% of Menzies in the market last week, which undermined the ability of the target board to fight back. If your big shareholders are not with you, resistance is futile. A “willing to recommend” statement duly followed.
For several reasons, this is a shame. First, because Menzies Chairman and CEO Philipp Joeinig made a decent case for maintaining independence, urging investors to look beyond the effect of the pandemic on a stock price that was 288p before the excitement started.
Second, because Menzies is the bigger company and they actually came across an opportunistic offer, albeit at a big notional premium. Third, because we’ve learned, for the umpteenth time, that too many midsize companies just look cheap when viewed from abroad; the door to takeover in the UK remains wide open.