The evolution of the utility company

The evolution of the utility company

The UK’s net zero by 2050 target has led to a rapid increase in the pace of transformation across the utilities sector. For utility companies to achieve this goal, business plans are having to be altered, placing sustainability higher up on the corporate agenda.

Environmental pressures are one of the factors causing corporations to reassess their position when it comes to the concept of “success”. The public perception is that success was all about profit, and complying with laws and social norms was an added extra. However, this has never been the whole story, in the nineteenth century, companies were set up for more altruistic reasons, and that is something the UK appears to be returning to.  Companies in general and utilities in particular, are re-examining their corporate purpose.

So, how can utility companies go about implementing a corporate purpose that benefits wider society, as well as shareholders?

What is success?

There are already different measures of success.  For example the ‘triple bottom line’ is where profit is not the only measure of success. Instead, there are, typically, three measures:

• Profit
• Social impact
• Environmental impact

Several companies and stakeholders are now taking an interest in this approach, recognising the value of including public purposes in business plans. For example, in 1997, Shell produced its first sustainability report, entitled ‘People, Planet and Profit’. 20 years on from this, The British Academy launched their ongoing programme to redefine the future of corporations, which looks to expand the corporate purpose of companies to include public purposes.

What are the legal issues?

For companies wishing to develop and re-define their corporate purpose, they must balance a level of societal value against the pure financial interests of shareholders.

The Companies Act 2006 states that directors must “act in the way he 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 part of this duty, directors should also “have regard” to a number of factors, including employees, the community and environmental impact. Nevertheless, these do not override the principal purpose of benefitting members.

What is the process?

It is possible to broaden corporate purpose by amending articles of association.  Without this change to the articles directors may well be in breach of their fiduciary duties if they are guided by a broader corporate purpose.  We have seen capital provider which themselves have a wider societal purpose insisting that companies they invest in define their corporate purpose more widely than just profit so that directors are forced, by their fiduciary duties, to have a wider view of their decisions...

Amending articles of association usually requires a 75 percent majority on the votes cast on the resolution, but once agreed, the new corporate purposes would become the purposes for which the directors are required to operate, instead of shareholder value.

To some extent, the public purpose has moved onto the corporate agenda organically. However, particularly in the wake of COVID-19, the requirement for companies to widen their societal purpose may be more vital. Transformation does not look set to slow any time soon, so utilities companies must ensure they understand both the more altruistic route being taken and the law as it currently stands if they wish to keep up with the evolution of the sector.

Contact us

To find out more, contact Richard Wrigley, corporate partner in our energy team.

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