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Good Companies do Bad Things – Reputation for Utility Companies

January 31, 2011

Utility companies face a number of challenges to their reputation.  Some of these are long standing and others loom as the effects of the financial crisis work their way into household budgets.

Reputation assurance  – There have been some spectacular PR disasters in this case, which is usually when the management of reputation is seen as a media exercise.  The core of good reputation assurance begins with robust internal processes for managing risk and there are three essentials to this; the identification of risk, monitoring risk and having a resilient mitigation plan.

As severe weather events become more frequent and networks more overloaded, what are the fall-back plans?  How many of the risks already on the corporate register are being independently monitored and do have meaningful mitigation plans?

Governance  – So far, the chairman has borne the brunt of the board’s governance responsibilities to look after investors’ interests. The majority of risks associated with utility companies fall into the non-financial category.  Much has been made of the need for the ‘financial expert’ in UK board governance to assure financial risk.   But does the diversity of  the board reflect the nature of the business and risk profile and are there adequate independent verification of non-financial risks?

Outsourcing and suppliers  –  A company needs to watch how far it devolves accountability and the clarity with which it demarcates the lines of responsibility between supplier and client.  When things go wrong this avoids one side blaming the other as there is always a contract to fall back on.  But the law is changing in regard to liability and responsibility for fraud – the new UK law on fraud places primary responsibility on the company for the prevention of fraud makes this even more critical.

Transparency  – Organisations often do not  know the extent to which individuals connected with operations bend the rules to meet targets.  Most organisations’ systems for picking up grassroots sentiment on matters relating to safety or risk taking are wholly inadequate and there is more work to be done in ways by which a company can tap into the views of its direct and non-direct workforce.  Techniques employed in consumer research and used to great effect by the UK’s political parties should be considered.

Non payment of bills  – In addition to the potential causes of loss of reputation from failures already identified, a new source of potential damage to reputation is looming.  As the effect of public sector cuts meets with stagflation in the economy, households will be increasingly squeezed.  A report for the Department f Communities and Local Government saw mortgage defaults climbing to near 1990s levels by 2015.  In the shorter term, households are cutting down on food bills and non-essentials.  The next level is likely to be juggling which bills to pay.

The electricity and gas suppliers are able to enforce payments via pre-payment meters, but we are likely to see headlines about pensioners unable to afford the charges to keep warm.

The water companies currently cannot do this, and have to resort to taking people to court to gain payment.

In either case, there are likely to be negative headlines for utility companies. .

How to ensure that “good companies do not do bad things” is the biggest challenge for any corporate board.

Written by Gill Ringland, CEO of SAMI Consulting

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