Pre-appointment Hearing: Chair of Ofwat

Fifth Report of Session 2021–22

Author: Environment, Food and Rural Affairs Committee

Related inquiry: Pre-appointment Hearing: Chair of Ofwat

Date Published: 22 April 2022

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Contents

1 Ofwat

1. The Water Services Regulation Authority, or Ofwat, is the body responsible for economic regulation of the privatised water and sewerage industry in England and Wales. Its statutory duties as an economic regulator are set out in the Water Industry Act 1991:

  • Further the consumer objective to protect the interests of consumers, wherever appropriate by promoting effective competition;
  • Secure that water companies properly carry out their statutory functions;
  • Secure that water companies can finance the proper carrying out of their statutory functions;
  • Secure that water supply licensees and sewerage licensees properly carry out their licensed activities and statutory functions;
  • Further the resilience objective to secure the long-term resilience of water companies’ water supply and wastewater systems; and
  • Secure that they take steps to enable them, in the long term, to meet the need for water supplies and wastewater services.1

2. Ofwat is a non-ministerial Government department that is accountable directly to Parliament. In England, Ofwat is sponsored by the Department for Environment, Food and Rural Affairs (Defra) and within Wales by the Welsh Government.2 It is independent of both governments and those it regulates.

3. Ofwat employs around 250 people based in Birmingham and London. Staff have a broad range of professional backgrounds including economists, accountants, lawyers, engineers, scientists and support service specialists.3

4. Ofwat is led by a Board of directors which includes the Chair, generally up to six Non-Executive Directors and four Executive Directors, including the Chief Executive. The Board’s non-executive appointments are made by the Secretary of State for Environment, Food and Rural Affairs in consultation with the Welsh Government. The Board helps to guide Ofwat strategically and provides challenge and advice to the Chief Executive and the Executive team on their development and implementation of the strategy and business plan, and performance against that plan.4

5. Ofwat refreshed its strategy in 2019 with reference to the challenges the industry faces, its statutory duties, and the strategic priorities and objectives set by the Defra Secretary of State and the Welsh Government. In doing so, it considered the tools it should use to address the challenges facing the sector and the kind of regulator it needed to be from 2020 onwards.5

6. In March 2022, Defra published the Government’s strategic priorities for Ofwat.6 The statement sets out the government’s priorities for Ofwat’s regulation of the water industry in England. These prioritise focus on protecting the environment, delivering a resilient water system and protecting customers.

2 Recruitment process

7. The current Chair of Ofwat, Jonson Cox CBE, will step down on 30 June 2022.7 A competitive recruitment process for his replacement was launched on 13 October 2021.8 Applications closed on 12 November 2021. Out of 19 applicants, eight were invited to interview, and four were considered appointable.

8. On 23 March 2022, the Defra wrote to us to identify Iain Coucher as the successful applicant and the Government’s preferred candidate as Ofwat Chair. This was publicly announced on 8 April 2022.9

9. In line with Cabinet Office and Liaison Committee guidance, the appointment of the Chair of Ofwat is subject to a pre-appointment hearing by our Committee. We held this hearing on 20 April 2022.

10. Pre-appointment hearings scrutinise the quality of ministerial decision-making, which is a proper part of ministerial accountability to Parliament. Although the outcome of the hearing is not binding on the Government, a committee’s view should inform the Ministerial decision on whether to proceed with an appointment.

Government’s preferred candidate

11. Mr Coucher has held a number of senior executive roles, including that of Chief Executive at both the Atomic Weapons Establishment plc (AWE) (2016–2020) and Network Rail (2007–2010). He was also a non-executive director for Cadent Gas Limited (2018–2020) and member of the Rail and Safety Standards Board (2007–2010)—an ex officio position associated with his role at Network Rail.

12. Mr Coucher is currently a senior adviser at HIG Capital, a global investment fund, and Trustee at the British Trust for Ornithology and Earthwatch (Europe).

13. The candidate’s full CV is available in Appendix 1.

3 The pre-appointment hearing

14. Iain Coucher gave evidence to us at a pre-appointment hearing on 20 April 2022. We questioned Mr Coucher on several areas including his motivation in applying for the role, his professional background, and his priorities upon appointment.

15. We welcomed his recognition that he does not yet have a deep understanding of the intricacies of the water industry or practical experience as a regulator but acknowledge the extensive commercial and strategic experience that he can bring to the role. We expect him to develop his understanding of the water industry, broader environmental issues and the responsibilities and perspective of a regulator.

16. We were surprised, however, that he had not given greater consideration to the way in which environmental sustainability should be incorporated and rewarded in Ofwat’s regulatory role. We would encourage him to engage with the Chairs of the Office of Environmental Protection and Environment Agency to develop a strong working relationship and to effectively manage their different regulatory responsibilities.

17. We believe that Mr Coucher knows that, as Chair of Ofwat, he must take firm action to ensure water companies are improving their environmental performance to achieve zero serious pollution incidents by 2030, and that they are taking immediate action to significantly reduce sewage discharges from storm overflows. Upon taking up the role we expect Mr Coucher to set out a detailed plan for how Ofwat will drive improved performance by water companies and to publish metrics that can be used to judge Ofwat and water companies’ performance.

18. As the Chair, Mr Coucher will be responsible for the leadership of Ofwat. We were disappointed that he did not display to us that he had reflected upon, and learnt lessons from, previous challenges in organisations he had led. We will look to him to establish a culture of integrity and openness in Ofwat.

19. We were satisfied that Mr Coucher understood that the reduction of water pollution will require Ofwat to redress the balance between the dividends paid to shareholders and the level of investment in Britain’s water infrastructure. Through coordinated action to prevent environmental pollution, while protecting consumer bills, we believe that Ofwat can help create a safe, affordable, and resilient water supply now and for future generations.

20. Overall, during the pre-appointment hearing Iain Coucher demonstrated relevant experience, a strong understanding of the challenges facing Ofwat, as well as appropriate priorities for his proposed tenure.

21. We are satisfied that Iain Coucher has the professional competence and personal independence required of the Chair of Ofwat, and that the recruitment campaign and his selection as the Government’s preferred candidate were conducted in accordance with the Cabinet Office’s Governance Code on Public Appointments.

22. We are content with Iain Coucher’s appointment and look forward to future robust engagement with him during his tenure as Chair of Ofwat.

Appendix 1: Candidate’s curriculum vitae

Experienced Non-Executive and former five-times Chief Executive. Main Board level since 1999; 300+ Board meetings; Audit, Remuneration, Risk and Safety Committee Member. Building portfolio of appointments in sustainability, engineering, technology, infrastructure, defence and transportation. Passionate about environmental responsibility and corporate sustainability.

Board Experience

2018 – 2020 Non-Executive Director, Cadent Gas plc

2015 – Current Trustee, Earthwatch (Europe)

2022 – (Pending) Trustee, The British Trust for Ornithology

2016 – 2020 Chief Executive, Atomic Weapons Establishment (AWE) plc

2012 – 2015 Managing Director, Alvarez & Marsal

2007 – 2010 Board Member, Rail Safety & Standards Board (RSSB)

2007 – 2010 Chief Executive, Network Rail

1999 – 2002 Chief Executive, Tube Lines

Career overview

2021 – Current Senior Advisor, HIG Capital

2016 – 2020 Chief Executive, Atomic Weapons Establishment (AWE) plc

2021 – 2015 Alvarez & Marsal

2012-2015 Managing Director

2014-2015 Interim Chief Executive, LBC Tank Terminals

2002 – 2010 Network Rail

2007-2010 Chief Executive

2002-2007 Deputy Chief Executive

2002 Managing Director, CLG (Bid Vehicle to acquire Railtrack)

1999 – 2002 Chief Executive, Tube Lines

1985 – 1999 Electronic Data Systems (EDS)

1997-1999 Chief Executive, TranSys

Early career Marconi / Hunting Engineering

Education, Honours and Interest

2020 MSc Systems Thinking, (with a focus on Climate Change), Open University

2019 Honorary Doctorate, Cranfield University

2015 MSc Environmental Decision Making, Open University

1990-1991 MBA, Henley Management College

1979-1982 BSc (Hons) Aeronautical Engineering, Imperial College, London

Interests: Natural history, conservation, cycling and modern art.

Broad Experience Detail

2018 - 2020 Cadent Gas plc

Cadent Gas owns, operates and maintains the largest gas distribution network in the UK, transporting gas to 11 million homes and businesses across West Midlands, North West England, East of England and North London.

Cadent Gas is owned by a consortium of private investment funds, including Macquarie Infrastructure and Real Assets, Allianz Capital Partners, Hermes GPE, CIC Capital Corporation, Qatar Investment Authority and Dalmore Capital.

Under the ownership structure, the investment funds have the right to appoint one or more directors. Appointed as a non-executive director, as nominated by Hermes GPE.

2015 – Current Trustee, Earthwatch (Europe)

Earthwatch is a global charitable organisation with a mission to engage people worldwide in scientific field research and education to promote the understanding and action necessary for a sustainable environment.

Appointed Trustee in 2015 and reappointed for further three-year terms in 2018 and 2021.

2022 (Pending) Trustee, The British Trust for Ornithology

The British Trust for Ornithology was founded in 1932 for the study of birds in the British Isles. Through the application of citizen science and data analytics, it harnesses the skills and passions of birdwatchers to advance the understanding of ornithology and produce impartial science.

Appointment is subject to final ratification, at the Annual General Meeting, scheduled for December 2021. The appointment is expected to take effect from January 2022.

2007 – 2010 Board Member, Rail Safety & Standards Board (RSSB)

The Rail Safety and Standards Board is a British independent company limited by guarantee. Interested parties include various rail industry organisations, including Network Rail, train operating companies, and rolling stock companies.

Career Detail

2020 – Current Advisor, HIG Capital

H.I.G. Capital is a leading, global, alternative investment firm, with over $45billion of equity capital under management. It focuses on the small-cap and mid-cap segments.

2016-2020 Atomic Weapons Establishment (AWE) plc – Chief Executive

AWE plc is a high performing, specialist manufacturing and integration business responsible for the design, manufacture and support of warheads for the UK. Using technical expertise in design physics, supercomputing, materials science and systems engineering, AWE also provides innovative solutions that support counterterrorism and nuclear threat reduction activities. AWE is a private company, owned by three shareholders in a joint venture: Lockheed Martin, Serco and Jacobs. It is a major contractor to the Ministry of Defence (MOD). Annual revenue is around £1bn.

As well as the fiduciary responsibilities of running a company of over 6,000 people, remit included:

  • The delivery of a programme of system life extension;
  • The construction of a number of very significant and complex capital investments;
  • The transformation of the business, modernising the facilities and the workforce;
  • Dealing with the legacy of redundant, contaminated facilities.

Results /legacy:

  • Joined when performance was at a low: the manufacturing part of the business was unable to meet contractual obligations; two major projects were forecast to overspend by £1bn each; and costs needed to be controlled and reduced.
  • These issues have now been addressed:
    • production rates are at the required level;
    • capital spend has been stabilised;
    • significant financial savings have been achieved.
    • Additional revenues of ~£200m/year have been secured.

2012-2015 Alvarez & Marsal – Managing Director

Alvarez & Marsal is a global, professional advisory services company, employing around 3,000 people in 40 countries. A&M specialises in operational performance improvement, strategic restructurings, turnarounds, interim leadership, tax and business advisory services.

  • Responsible for the creation and development of a new Transportation & Infrastructure practice, within the Corporate Solutions and Private Equity businesses.
  • Acted as interim CEO, LBC Tank Terminals, a global independent bulk chemical and oil storage business with facilities in the USA, Europe and Asia.

2002-2010 Network Rail - Chief Executive (2007-2010) & Deputy Chief Executive (2002-2007)

Network Rail manages and maintains the UK rail network - c£6bn revenue, £4bn annual investment programme, 36,000 people, 20,000 miles of track, 2,500 stations, 40,000 bridges, and signalling electrification systems, and is the UK’s 4th largest landowner (development and retail income c£500m pa)

  • Tasked with restoring public confidence in safety, improving punctuality, delivering major projects and dramatically reducing costs/increasing revenue. Results:
  • Transformed NR into a world-class, customer-focused service delivery company
  • Negotiated a five-year settlement with governments (Westminster and Scotland) and the regulator, giving a record level of investment of £30.6bn.
  • Improved punctuality from 78% arriving on time to >91%
  • Increased the numbers of trains running on the railway from 18,000 per day to over 24,000
  • Transformed passenger and workforce safety on the railway, to world-class levels
  • Reduced operating, maintenance and renewal costs by c£1,000m (£4.5bn to c£3.5bn)
  • Delivered West Coast route modernisation for £6,900m (c£6,000m less than 2002 forecast)
  • Restructured entire delivery model, insourcing 15,000 front-line maintenance people from seven different companies in six months
  • Built world class project management capability from scratch (4,000 people, tools, systems)

2002 CLG (Bid Vehicle), Managing Director

Railtrack was created in 1993 to own the railway infrastructure. It was floated in 1995, but by 2000 was in difficulty (punctuality/safety issues, and upgrade costs out of control). It was put into “special administration” in 2001. I was approached by government (Department for Transport) to help solve the problem: as MD of a new entity which would bid for and acquire Railtrack.

  • Led a team of experts (financial, legal and asset management advisors) to create the new company.
  • Within nine months we had developed a comprehensive, convincing and affordable solution: established a new and innovate-type of company and management team, put in place a complex, financial support package of around £9bn; and created a comprehensive transformation programme and five-year business plan.
  • The company became Network Rail, took over Railtrack in 2002, and I was asked to drive the transformation.

1999-2002 Tube Lines Group (Bid/Operating Consortium), Chief Executive

In 1999, London Underground launched an ambitious, controversial plan for private sector investment in the creaking transport system. I was recruited by one of the bidding consortia to lead their bid for a multi-billion, 30-year contract to acquire, operate, maintain and modernise three tube lines (Jubilee, Northern and Piccadilly). In total it comprised 200 miles of track, 255 trains, 100 stations and over 2,500 bridges, lifts and escalators) and a £4.5bn investment programme.

  • I created a new company, with a new vision for the future of the underground, a believable, affordable, deliverable plan, and secured a complex financial support package.
  • Our bid went from 4th of four on the original shortlist to win the bid and took over the lines in 2002.

1985-1999 Electronic Data Systems (EDS)

EDS transformed companies through the application of technology, delivering systems, processing capability and business process operations around the world. At the time, EDS had annual revenues in excess of $6bn and employed 110,000 people. I had joined a company called Systems Designers (SD) as a systems-engineer. In 1988 SD bought the IT arm of BP, to become SD-Scicon, and in 1991 was acquired by EDS (now HP). In 1993 I started leading bids for major contracts for EDS, and went on to lead bidding, negotiation and subsequent delivery of the company’s major technology infrastructure contracts.

1997-1999 Chief Executive, TranSys (Contract Bid/Delivery)

My final role at EDS was leader of the team which created the SPV, designed and successfully bid for the £1.7bn contract to install and operate the ground-breaking and transformational Oystercard ticketless payment system for London Underground.

In 1997, London Transport had a vision to introduce smartcards across London, but no money or “know how” to do it. We made it happen: creating a technical solution and a consortium to bring smartcard technology to one of the most complex transport operations in the world.

  • The creation of a new special purpose company to deliver a new revenue collection service for Transport for London (TfL), involving tickets, retailing systems, station vending machines and electronic gating systems;
  • Negotiation of a 17 year, £1.7bn pound contract, involving complex £200m, 100% debt-funded financing package;
  • Development of an innovative smartcard system (Oystercard), as well as marketing and sales campaign to launch the product.

1996-1997 Divisional Head, Ground Transport (Sector Lead, Contract Bid/Delivery)

1994-1996 Delivery Director, Time Life Account (Contract Bid/Delivery).

1993-1994 Bid Leader, Jubilee Line Communications System.

1990-1993 Project Manager, Intervention Board for Agricultural Produce (IBAP).

1985-1990 Variously Systems Engineer, Project Leader and Project Manager

1984-1985 Marconi, Team Leader, BATES

1982-1984 Hunting Engineering, Systems Engineer

Appendix 2: Candidate’s declaration of interests

Iain Coucher declared no real or perceived conflicts of interest in relation to the role.

Iain Coucher declared no activity relevant to his suitability as a public appointee.

Appendix 3: Role specification, diversity information, and recruitment campaign

Role specification

The Chair will be expected to:

  • Act as an ambassador for Ofwat with respect to its various stakeholders, including water companies and investors, customer and environmental groups, complementing and not duplicating the role of the Chief Executive and executive team;
  • Ensure Ofwat is fully equipped to address the complex stakeholder environment and interrelated systems within which it sits, including to manage alignment of investor and consumer interests, and of national and regional/local perspectives;
  • Ensure Board members proactively engage in succession planning and the identification of potential candidates for future senior leadership and Board appointments, considering gaps in skills and experience;
  • Ensure open, inclusive and effective discussion and decision-making, including by ensuring executive and non-executive voices are effectively heard and balanced and providing effective support, challenge and mentorship;
  • Lead an effective Board and support the Chief Executive in delivering Ofwat’s strategy and effectively discharging its statutory responsibilities, taking account of the strategic priorities of the UK and Welsh governments;
  • Represent Ofwat and act as the primary contact for the Board with the Secretary of State and Welsh Ministers, raising issues as appropriate and ensuring that other Board members are kept aware of such communications, and be responsible to UK and Welsh Ministers for the achievement of objectives covering the overall leadership, direction and effectiveness of Ofwat;
  • Lead the Board in a manner which demands and delivers transformational performance, representing consumers and the communities the sector serves.
  • Uphold Ofwat’s strong reputation as an impartial, independent and evidence-based regulator, exercising sound judgement.
  • The successful candidate must abide by the Nolan principles of public service and the 12 Principles of Governance for all Public Body NEDs, the latter as reflected more specifically in the case of Ofwat in the Framework Document agreed with Defra and taking account of Ofwat’s role and responsibilities.10

Recruitment diversity information

Campaign Launch Date

13 October 2021

Campaign Closing Date

12 November 2021

Reason for any changes in

timetable to that originally

published

The pre-appointment scrutiny hearing date was rescheduled on two occasions. Initially to allow sufficient time for Defra Ministers to meet appointable candidates and decide on their preferred candidate. The second was to allow sufficient time of the Committee to review the preferred candidate. The advert, shortlist and interview stages concluded as planned, without changes to the timeline.

Advertising strategy

The Department conducted a search for candidates by seeking nominations for the role from senior staff within the Department, the Chairs of many Defra public bodies and key stakeholders. The advert was shared widely via networks and publicised through the Cabinet Office Public Appointments website and the Defra public appointment LinkedIn and Twitter pages. Ofwat commissioned Saxton Bampfylde to draw up a list of potential candidates.

Advisory Assessment Panel

-David Hill (Defra Director General Environment Rural and Marine) as Panel Chair

-Delroy Beverley (British Library Trustee) as the Senior Independent Panel Member

-Gian Marco Currado (Welsh Government, Director for Marine and Environment)

-Christine Farnish (former Ofwat Board member)

Number of applicants

19

Number of candidates invited to

Interview

8

Number of candidates found

appointable

4

Diversity data

Table A: Gender

Percent Male

Percent Female

Percent Identify another way

Percent not declared

Applicants

74%

21%

5%

0%

Shortlist (applicants invited to interview)

75%

25%

0%

0%

Table B: Ethnicity

Percent White

Percent Ethnic Minority

Percent not declared

Applicants

89%

11%

0%

Shortlist (applicants invited to interview)

100%

0%

0%

Table C: Disability

Percent disabled

Percent non-disabled

Percent not declared

Applicants

5%

95%

0%

Shortlist (applicants invited to interview)

0%

100%

0%

Formal minutes

Wednesday 20 April 2022

Members present:

Neil Parish, in the Chair

Barry Gardiner

Dr Neil Hudson

Robbie Moore

Mrs Sheryll

Philip Dunne also attended under the provisions of paragraph (1)(e) of Standing Order No 137A (Select committees: power to work with other committees) (Environment, Food and Rural Affairs Committee’s resolution of 23 February).

Draft Report (Pre-appointment hearing: Chair of Ofwat), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 22 read and agreed to.

Resolved, That the Report be the Fifth Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available (Standing Order No. 134).

[Adjourned till Tuesday 26 April at 2.00 p.m.


Witnesses

The following witnesses gave evidence. Transcripts can be viewed on the inquiry publications page of the Committee’s website.

Wednesday 20 April 2022

Mr Iain Coucher - Defra’s preferred candidate for the Chair of OfwatQ1–70


List of Reports from the Committee during the current Parliament

All publications from the Committee are available on the publications page of the Committee’s website.

Session 2021-22

Session 2019-21

Number

Title

Reference

1st

Moving animals across borders

HC 79

2nd

Environmental Land Management and the agricultural transition

HC 78

3rd

Tree planting

HC 356

4th

Labour shortages in the food and farming sector

HC 713

Number

Title

Reference

1st

COVID-19 and food supply

HC 263

2nd

Pre-appointment hearing for the Chair-Designate of the Office for Environmental Protection (OEP)

HC 1042

3rd

The UK’s new immigration policy and the food supply chain

HC 273

4th

Flooding

HC 170

5th

Air Quality and coronavirus: a glimpse of a different future or business as usual

HC 468

6th

Public Sector Procurement of Food

HC 469

7th

Covid-19 and the issues of security in food supply

HC 1156

8th

Seafood and meat exports to the EU

HC 1189


Footnotes

1 Water Industry Act 1991, section 2

2 Department for Environment, Food and Rural Affairs, Appointment of Chair to the Board of Ofwat, Ref No. APPT02-21, October 2021

3 Department for Environment, Food and Rural Affairs, Appointment of Chair to the Board of Ofwat, Ref No. APPT02-21, October 2021

4 Department for Environment, Food and Rural Affairs, Appointment of Chair to the Board of Ofwat, Ref No. APPT02-21, October 2021

5 Department for Environment, Food and Rural Affairs, Appointment of Chair to the Board of Ofwat, Ref No. APPT02-21, October 2021

6 Department for Environment, Food & Rural Affairs, The Government’s strategic priorities for Ofwat, March 2022

7 “Ofwat Chair appointment extended and Board members reappointed”, Department for Environment, Food and Rural Affairs press release, 11 October 2021;

8 Cabinet Office, ‘HM Government Public Appointments: Chair - Office of the Water Services Regulation Authority’, accessed 8 April 2022

9 “Iain Coucher announced as preferred Ofwat Chair candidate”, Department for Environment, Food and Rural Affairs press release, 8 April 2022

10 Department for Environment, Food and Rural Affairs, Appointment of Chair to the Board of Ofwat, Ref No. APPT02-21, October 2021