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Market forces in utilities industries benefit company and not society

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24.09.2007

Liberalised companies in the utilities sector are expected both to earn profits, and to take the interests of the public to heart, such as by ensuring reliable and affordable power or by providing rail services with high on-time rates.

Recent discussions with regard to top salaries in the energy sector and the privatisation of Schiphol Airport indicate that politicians, as well as average citizens, are concerned about these seemingly conflicting interests. In her inaugural address as professor of Law and Infrastructures at TU Delft, Prof. Helen Stout asserts that market forces nor legislation is satisfactory. “Public interests can best be safeguarded in utilities industries by strengthening the desired standards and values within companies and organisations.” Prof. Stout is scheduled to deliver her address on Friday 21 September.

Market forces can, in the liberalised utilities industries such as the telecom, electricity, gas and public transport branches, endanger the interests of the public. A realistic concern. Nowadays, the overcapacity on the electric power system ensures that the chance of a power failure is very small. But just who looks after the interests of the public if privatised utility companies decide to cut down on overcapacity?

Market forces are, therefore, according to Helen Stout, insufficient motivation to encourage companies to take responsibility for public values. In Prof. Stout’s opinion, legislation and rules are also ineffective. Stout: “A system of licences, such as is now the case in the railway industry, completely negates the benefits of liberalisation. The price and quality of rail services are not achieved in the give and take between supply and demand, but rather is decided unilaterally by one side.” In her speech, Stout calls for the institutionalisation of public interests in the company itself.

According to Stout, institutional anchoring can be achieved on three levels: the executive board, the board of commissioners and the shareholders meeting. In her opinion, the inspiration for this can be drawn from the Corporate Governance Code of the Tabaksblatt Commission of 2003. Concrete examples include the requirement for the board of directors to report their compliance with this type of code in its annual report; the creation of a permanent consultation circuit with representatives from government, users and social organisations; a “broad” base profile, laid down by statute, of a member of the board of commissioners; and permitting social organisations to own stocks.

All of this, Stout says, can be implemented without the need for additional legislation. Stout is optimistic about the possibilities of changing the culture within companies. “To an increasing degree, businesses are starting to describe themselves as entities that are both aware of, and dare to take, their social responsibilities. Rein Willems, CEO of Shell Netherlands, expressed a similar sentiment recently in the NRC Handelsblad, saying: “Life is about more than simply earning a living.”

Maarten van der Sanden | Source: alphagalileo
Further information: www.tudelft.nl

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