20/10/07
Everyone who works for a water company in England and Wales has been put on the spot about industry profits. It happens most often (but not exclusively) when companies report financial results and when economic regulator Ofwat publishes its review of financial performance.
Why ARE profits misunderstood? Is it SO hard to see that to attract investors all businesses must make a surplus proportionate to their need for capital?
The easy answer would be that misleading reporting and media bias feeds public ignorance. Easy answer it may be, but a BBC report on its own business coverage has shown that it is also true (1). Water UK monitoring of the Corporation's coverage of this year's floods confirms the charge.
To be fair, the BBC report rejects any "systematic bias" against business. But its meaning could not be clearer. Look for example at extracts on relations between companies and customers.
"Much business coverage is seen as a battle between "unscrupulous" company bosses and their "exploited" customers."
"The polarisation of views between business and consumer means that much of the ground in between is overlooked. This includes the role of business in society, the international context and the workplace."
Not difficult to whip up mistrust
It matters to private sector water companies that "the role of business in society" should not be overlooked. They provide the most critical of public services. Society demands maximum reliability. Individual citizen-consumers want more and better customer care. With stakes this high, it's not difficult to whip up mistrust. Companies don’t want special treatment, but have a right to expect coverage by public service broadcasters to be impartial and informed.
The same is true about BBC reporting of company profits. Here are two more extracts:
"This default position of seeing issues from the consumer perspective can lead to imbalance in covering stories dealing with company profits."
"If a company achieves large profits the story is more likely to focus on at whose expense the profits have been made rather than examining the benefits to staff and society of a British company doing well."
Business a foreign country
It seems that one cause of the problem (especially in general news as against business programmes) is lack of knowledge. For some of Auntie’s finest, business seems to be a foreign country; when they go there they depend on stock phrases and attitudes rather than learning the language.
Water UK can confirm the existence of a default position on company profits.
On 28 July the Daily Telegraph interviewed Environment Agency Chief Executive Baroness Young about the floods in the Midlands. In a long feature it was Baroness Young’s comment that water bills would have to rise to pay for upgrading infrastructure that made the front page – and every broadcast news for the next 24 hours. Two national TV interviews show how an off-the-shelf view of profits keeps anti-business bias going.
Default position on profits
In the evening of the same day, Brian Hanrahan put to Baroness Young the following:
"One question on the subject of drains and taking away flood water is that when water companies were privatised fifteen years ago one of the big arguments was that the money they would make would be turned back into modernising the infrastructure that was desperately necessary because everybody knew that we were dealing with drains that were 150 years old. That doesn’t seem to have happened. They’ve taken the money and turned it into profits and gone off with it." (2)
To her credit Baroness Young replied: "This isn’t true. There have been high programmes of investment by the privatised water companies."
The following morning (29 July) Peter Sissons, evidently in receipt of the same briefing as Mr Hanrahan, observed to the Communities Secretary, Hazel Blears: "Water companies pocketed the profits not invested as required at privatisation."
In response Ms Blears said merely (and accurately) that "there are lots of irresponsible stories about." (3)
(1) Report of the independent panel for the BBC Trust on impartiality of BBC business coverage, April 2007
(2) News 24 28/07/07
(3) News 24 Sunday, 29/07/07
A version of this article appears in Water & Wastewater Treatment Magazine October 2007.
In June 2007 Water UK published a Rough guide to water industry finance and investment
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