Severn Trent Water has been fined £2m for lying about the rate of leakages, with bosses saying they deeply regretted the mistakes of previous management. Brian Duckworth, the firm's former managing director, puts his side of the story
In most courts of law there is a clear division between the prosecution and defence teams. That's how we see courtroom dramas unfold everyday on our TV sets.
But yesterday, at the Old Bailey in London, both prosecution and defence appeared to be on the same side, but for widely differing reasons.
In the case of Regina v. Severn Trent Water (STW), the Serious Fraud Office (SFO) was prosecuting STW for 'knowingly and/or recklessly providing false information' on water leakage to OFWAT in 2001 and 2002. Central to the prosecution's case were allegations of wrongdoing made about former directors of the company, including myself, at a time when I was managing director of the company.
STW had already pleaded guilty to the charges and agreed to pay £200,000 of the SFO's costs. So the key task for the defence was to try and mitigate any fine which the judge might impose as part of his sentencing. Central to STW's defence was running a set of critical comments about the way the former directors had managed the business.
Fortunately I was not in court to hear all this, but none of the reports from the court came as a surprise. In the four years since I retired from the company, I've become used to the regular criticisms from Severn Trent: its new management claims to have an 'ethical culture', publicly promising to resolve all the 'failings' of my team!
I wasn't in court for the very simple reason that I had no place there. Whilst I had been interviewed by the SFO in April 2007, I was neither arrested nor charged with any offence. At that one meeting with the SFO no allegations of dishonesty or recklessness were put to me. Neither were criminal charges of 'intentionally misleading the regulator' ever subsequently put to me.
It was therefore outrageous that the SFO sought to implicate me in court, without giving me the opportunity to challenge its assertions. The SFO took the view that it would be complex, costly and lengthy - and therefore against the public interest - to prosecute individuals from the company.
Conveniently, this ignored the likelihood of the SFO failing to prove at trial that I acted in any way dishonestly. It did achieve the SFO's objective of prosecuting a financially sound company, irrespective of the personal implications for former directors.
When STW's board decided to plead guilty, they did so in the full knowledge that I resolutely denied any suggestion of personal wrongdoing. Public statements have sought to distance its new management by apportioning responsibility, and therefore guilt, at the hands of the 'previous regime' - in circumstances where there has been absolutely no opportunity for us to legally defend ourselves and thereby publicly clear our names.
Yet how could the current directors of Severn Trent decide in 2008 to plead guilty to charges of providing false information and recklessness dating back to 2001 when none of those directors held office at that time? How could they make such a decision when those then in charge - the so called 'controlling minds' - denied the company's guilt from the outset, and continue to do so?
Leakage monitoring, control and reporting are very complex issues, all part of a very imprecise science. There are many uncertainties associated with trying to estimate the amount of water leaking from millions of tiny holes in thousands of miles of pipes buried underground several decades ago. No water company will be able to measure customers' precise consumption until all homes have a water meter; until then estimating both consumption and leakage will continue. At the time of the alleged offences there was much uncertainty about the validity of leakage data. The key components could not be relied upon for accuracy. With hindsight, it seems some reporting mistakes were made by the company in 2001 and 2002 - but that's a far cry from criminal dishonesty.
It is also important to say that neither the company nor any individual gained from this so-called 'fraud'. Similarly, it is plainly wrong to suggest customers were overcharged as a result. If anything, it was the reverse. Had Severn Trent increased the reported leakage figures, the company would have made its case to OFWAT much earlier, for a significant acceleration in the costly programme of renewing water mains. It is these costs which would have increased customers' bills.
Throughout my 30 years with Severn Trent I passionately argued for strong regulation to ensure that customers had sufficient protection in an industry dominated by monopoly companies. So I am deeply saddened that yesterday's sentence may leave some of Severn Trent's customers feeling they have been let down.
I still do not understand the SFO's case or the company's guilty plea - both I found utterly baffling. In my view, the criminal prosecution was ill-conceived and manifestly unfair. STW itself branded the prosecution pointless.
Although it will no doubt be trumpeted by the SFO as a great success, others in the legal profession are much more sceptical. It has already been suggested that the SFO's decision to accuse individuals in court, who have no opportunity to defend themselves, goes against one of the fundamental tenets of law; the presumption of innocence.
Additionally, large fines and a patently inept regulatory regime do nothing to address the real issue - that of improving customer service and reducing water leakage. That's what really matters - to consumers and shareholders alike; and I suspect it will become a real issue for the company when it holds its annual meeting on July 22 at Birmingham's International Convention Centre. Regrettably, the only result of this long-winded and expensive investigation is a leakage of much needed Severn Trent funds to Mr Darling at the Treasury. Clearly the £2 million fine would have been much better spent on further improvements to water services in Nottinghamshire and other parts of the Midlands. That's the real outrage of this case.
Source: Nottingham Evening Post
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