Anglian Water has corporate purpose at its core

How does a monopoly provider of an essential service prove that it has set the proverbial bar high in terms of how it serves its customers, the communities in which it operates and the environment? The answer for Anglian Water, which supplies water and recycling water services to more than six million customers stretching from Hartlepool to Lowestoft, was to embed public interest into its Articles of Association.

The move – which took place last July, with the backing of the consortium of international investment funds that own the utility – enshrines public interest objectives into Anglian Water’s constitution, and means that its board must now take account of the wider impact of the company’s actions, as well as delivering a fair return for shareholders. But it has also set Anglian Water on a collision course with Ofwat, which the water company has referred to the Competition & Markets Authority, claiming that the industry regulator’s revisions to its five-year plan is not in the best long-term interest of its customers.

Ciaran Nelson, Anglian Water’s director of brand and communications, explains that the public interest initiative is simply ‘putting a stamp’ on the way that the utility operates ‘all day and every day’. He adds: ‘This gives our customers, society and stakeholders the confidence that we are true to our word. It is not just lip gloss. This is a substantial move. We have gone deep into the architecture of our business.’

Anglian Water’s board essentially asked themselves what needed to be changed today to ensure that the ethos and values of the business would remain in perpetuity. Changing the articles of association obligates any new shareholder or owner to act in the same way. ‘It is a technical thing, but it matters,’ he explains. ‘There is a big debate about who owns big business, including public services. This change means that, regardless of who owns Anglian Water, they are obligated to consider the customers and communities in which we serve.’

Public expectations of business are changing. We needed to work a little harder to explain why we are here, particularly when nationalisation was a real threat. Defining our purpose is a powerful way to do so

Chief executive Peter Simpson describes it as a ‘cast iron commitment to the wellbeing of communities in the East of England, going far beyond the provision of clean drinking water and effective treatment of used water’. Nelson adds: ‘We have a framework to make difficult decisions.’

But it is also the latest step in a journey that two years ago saw Anglian Water liquidate its Cayman Islands (and UK tax domiciled) resident subsidiary and shrink its debt and gearing by reducing shareholder dividends, freeing up funds to invest in programmes to tackle leaks and improve security of supply. It also builds on Anglian Water’s Love every drop strategy, launched in 2010, to ensure long-term access to secure water supplies in one of England’s lowest lying and driest regions, with a fast growing population.

While Anglian Water was changing its Articles of Association, it was also conducting a refresh of its corporate purpose. ‘We are recasting the North Star of our business, by looking again at our purpose and values, [to ensure they endure] for the next 25 years, not just one year,’ explains Nelson. ‘For example, there were about a half a dozen interpretations of our purpose that had developed in the business over time, in the absence of something being centrally mandated. Teams had developed them, with a tendency to focus on what we do – the provision of clean water – rather than why we do it. They were all functional things that did a reasonable job of describing what it is we’re here to do, wrapped up in our mission, but they didn’t inspire our business. So we gathered them together, elevated them, refined into one, and then shared it back out to the teams: To create environmental and social prosperity in the region we serve through our commitment to love every drop. It is the immutable truth of our business.’

He adds: ‘Public expectations of business are changing. We needed to work a little harder to explain why we are here, particularly when nationalisation was a real threat. Defining our purpose is a powerful way to do so.’ Both Anglian Water’s corporate purpose and values were ‘co-created’, but the starting point for developing its values was a cultural audit of the business. ‘We wanted to understand culture at three different levels,’ explains Nelson.

‘Culture as it is articulated: what our people think we are trying to tell them; culture as experienced: what does it feel like to work at our business; and, a deeper culture – what types of people come to work here? What are the unspeakable truths? If we don’t own our culture then everything we do will be viewed as inauthentic.’

Anglian Water recruited management consultants Lane4 to help. ‘We looked at other companies and the frameworks they had used to drive that change,’ adds Nelson. It was an iterative process that took at least nine months. ‘People feel wedded to a value or concept, and we had to then break it down. We held a series of focus groups, from different layers of the business at different locations. We employ 5,000 people – 11,000 when we include partners and suppliers – who are geographically distributed. But we had to co-create these values from the ground up, starting with the front line workers, so those who were waiting for the answers needed to be patient.’

Nelson is a ‘big fan of trusting instincts’ and went into the process ‘with a good idea of what people thought and why’, but was also open to his view changing as time went on. An interesting theme emerged – the concept of ‘artificial harmony’ – of which he was aware, but was ‘captured [and articulated] by the culture analysis’. ‘We needed to be better at disagreeing in constructive ways, because disagreement leads to innovation. We had to show that it was fine to challenge, to try new things and not to have a fear of failure. It is very difficult in a risk averse business. How do you drive a culture of innovation and sustainability when public health is at its core?’ he explains.

‘This theme was perhaps more amplified than I had thought it would be. One of the strengths and also challenges to emerge was the familial nature of our business. That is all great, but not if that leads to deference of a hierarchy – we need to innovate and be fleet of foot.’

Three values emerged from these discussions. Together we build trust, together we do the right thing, together we are always exploring. Nelson concedes that two of the three might have been expected but that ‘what was really powerful was ‘always exploring’. We have just done a lot of work on brand values, through which we landed on the explorer-caregiver archetype as a really succinct definition of who we want to be. Having our colleagues play that back to us almost immediately, telling us that they feel we are ‘always exploring’ – always looking for new ways to do things – gives me great confidence the business has really embraced this.’

He adds: ‘We’ve since got our colleagues back together and asked them to expand these values so they each incorporate some behaviours, to help spell out what we all think they mean. ‘The result, having added in these behaviours, is we now have a relatable way to talk about our values, and hold ourselves to account against them. ‘For instance, we’re encouraged to ask if we’ve challenged the status quo. It makes people think: is there a better way?

‘This is about empowering the workforce to give everybody a framework that they can use day in, day out – to make a decision at a point when that decision needs to be made. There are processes to be followed, yes, but at its heart these values encourage colleagues to ask Did you do the right thing? The right thing from the point of view of our business, the environment and our customers.’

Now that Anglian Water has defined its purpose and values, it is holding workshops with front line managers and business leaders to show them how to ensure their people and teams incorporate these. This work is taking place against the backdrop of the industry’s five-year regulatory settlement, when each water company submits a business plan framed against a five-year and 25-year vision. The plan includes each water company’s initial assessment of what its strategy is likely to cost and, as a result, what customer bills should be.

These values encourage colleagues to ask Did you do the right thing? The right thing from the point of view of our business, the environment and our customers

Last December, however, these plans were rejected by industry regulator Ofwat, which ruled instead that water companies across England and Wales must cut customer bills by 12 per cent by 2025, saving the average household around £50 per annum. Anglian Water has plans to invest £6.46 billion over the next five years; Ofwat’s intervention will result in a shortfall of almost £750 million. But water companies are fighting back, arguing that Ofwat’s price determination will force them to concentrate on short-term performance at the expense of long-term capital investment.

Many companies, including Anglian Water, have referred Ofwat’s decisions to the Competition and Markets Authority. ‘Keeping bills low will lead to suboptimal decision making,’ says Nelson. ‘The regulatory cycle is a crunchy time for us. There will be difficult decisions to make over the next six months. It is easy to stay true to values when times are good but harder when times get tough. We have unpicked our values now so that we can use them when making these decisions. We are staying true to our purpose, and are emboldened to challenge a decision that does not allow us to live up to it.’

It is the first time that water companies have argued that there is a balance to be struck between low bills and the need to invest for the long-term, and that Ofwat’s assessments are incorrect. Nelson believes that the disconnect is in part due to timing. The price review process was embedded in the 2017/18 public policy agenda when the focus was on saving money and looking after customers.

‘The narrative has changed since then,’ he argues. ‘A climate change emergency has been declared. Local authorities around the country understand the science and the need to invest now. We had a clear narrative from government to invest in a sustainable and resilient structure, particularly outside London. We think this new piece of the puzzle has not been considered.’ Anglian Water’s customers use 1.2 billion litres of water every single day – the equivalent of a small lake – and the business has to create and run a complex network that can handle peaks and troughs, is resilient to drought and floods and also deal with climate change.

‘Our business plan is right for our region,’ adds Nelson. ‘More than half a million customers took part in stakeholder exercises and co-created our business plan. They are the bill payers of the future. If Ofwat drives through its commercial rationale, it will lead to sub optimal short-term decisions which are not aligned with our purpose [and ultimately customers’ interests].’ The company’s recent changes to its Articles of Association means that this is not viable. ‘Purpose is not a pretty veneer here. It is locked in and embedded into the way this business is run. It is a powerful tool,’ says Nelson. ‘This is a test case for the value of purpose in business, and we are pleased to be involved in that.’