Governance and compliance management in utilities


By Ashok Kumar Anjan – Chief Compliance Officer, Dubai Electricity and Water Authority (DEWA)



Utilities are organisations that produce and, in some cases, also distribute essential services for society, such as electricity and energy in the form of gas or fuel and water.

The term utility organisation is ideal, as most are not formed as companies, nor are they listed on any exchanges. Given the large investments required for setting up the infrastructure for production and distribution of utilities, such as electricity and water, most around the world are government-owned.

The ownership is either 100 per cent or majority-owned (51 per cent) or, as in some countries, the shareholding can be in partnership with businesses. In some countries utility producers or distributors can be entirely privately owned with the government laying down the regulations for the entities. The major utilities providers will also be serving a quasi-regulatory function by either laying down the regulations themselves or providing advice to the government body laying down regulations.

Guiding tenets

For state-owned enterprises that are neither incorporated as companies nor listed, the governance codes set in place by stock exchanges and capital market regulators may not apply. In such cases, the best practice is to lay down a governance charter and policy and then frame procedures accordingly. It is a practiced, good-governance model. The model should, however, incorporate all the guiding tenets of good governance, namely trust, accountability, transparency and fair practices. A well-designed vision, mission, values, motto and logo, along with a clearly articulated strategy are all essential for this. Utility organisations should also clearly identify their stakeholders, such as shareholders, investors and lenders, customers, partners, associates, employees and the societies in which they function. Stakeholders’ happiness should be a core objective of the organisation. A well-documented incorporation document that sets out the scope of activities and board composition is essential to establish the utility organisation within the government and infrastructure framework of the state.

Governance benchmarks exist in most countries for utilities. The British Standards Institution (BSI) published its code of practice for delivering effective governance of organisations BS13500 in 2013, which provides guidelines for corporate governance. But over the last decade, governance has taken on new mantles. It now includes board governance, internal governance, IT governance, project governance, sustainability governance and water governance, among others. Governance has now evolved across organisations to become the ‘governance of everything’.

International standards

The Organisation for Economic Co-operation and Development (OECD) published the OECD Guidelines on Corporate Governance of State Owned Enterprises in 2015, which serves as a broad compass for state-owned utilities. The International Organisation for Standardisation (ISO) has a wide suite of ISO standards that cover various elements of corporate governance for utilities to adopt and implement. Corporate governance has evolved from being tone at the top and boardroom governance to encompass all aspects of existence and functioning of organisations.

For utility organisations, compliance has a very broad bearing. Mapping all the legal, regulatory and industry-standard compliance is a task that should be taken up early in the life of the organisation and it should be revised and updated constantly to keep the utility in compliance at all times. Any non-compliance or breach of law and regulations as well as standards could have not only legal consequences but could also cause reputational damage. Health and safety standards are strictly to be followed and there can be no compromise on compliance with these standards. Environmental safety and protection should be the priority in all the activities in the utilities industry.

“For utility organisations, compliance has a very broad bearing. Mapping all the legal, regulatory and industry- standard compliance is a task that should be taken up early in the life of the organisation and it should be revised and updated constantly to keep the utility in compliance at all times”

A well-designed compliance charter, compliance monitoring programme, adequate resources, well-designed training programmes and a compliance risk self-assessment framework should be implemented. A dedicated governance and compliance department would also be key to good compliance in utilities.

Management plans

Transparency of policies and performance and a good stakeholder communication process should be one of the key pillars of the organisation. A well-designed business continuity plan, disaster recovery plan and a crisis management plan with the attendant groups set up to manage these events should be ready on 24/7 basis.

Risk management has now become essential for organisations and it is imperative for utility providers to understand risk management in perspective. An enterprise-wide risk management framework and programme are essentials for the functioning of a utilities provider.

The three lines of defence model should be implemented, the management being the first line, the control functions, such as legal, compliance and risk management, being the second and the internal audit and external audit being the third line of defence.

The lesson that comes up from the evolving theory and practise of governance and compliance in utility organisations is, fundamentally, agility. And what is agility? It is to meet changing requirements in a technology-driven world, where every day is a new day for good governance. This means governance professionals are not people who stick to tradition, but rather keep their fingers on the pulse of their industries, market conditions and the societies in which they operate.