EUKN - European Urban Knowledge Network - Market forces in the utilities sector enrich the companies and not the community

Market forces in the utilities sector enrich the companies and not the community

Introduction

Liberalised utility companies have to combine profitability with serving the public interests. The constant debate on this issue indicates that politicians and citizens are concerned about these apparently contradictory interests. In her inaugural speech as Professor of Law and Infrastructures at the Delft University of Technology on 21 September 2007, Prof. Helen Stout posited that neither market forces nor legislation or regulation are satisfactory. "Public interests in the liberalised utilities markets could best be guaranteed by reinforcing the desired norms and values within the businesses", according to Stout. She claims that institutional anchoring can be realised at three levels, the Board of Directors, the Board of Commissioners and the shareholders meeting.

Description

Liberalised utilities companies have to combine profitability with serving public interests, such as ensuring reliable and affordable supplies of electricity or trains that run on time. The debates about executive compensation in the energy sector and the privatisation of Schiphol indicate that politicians and citizens are concerned about these apparently contradictory interests. In her inaugural address as Professor of Law and Infrastructures at the Delft University of Technology, Prof. Helen Stout stated that neither the market forces nor legislation and regulation are satisfactory. "Public interests in the liberalised utilities markets could best be guaranteed by reinforcing the desired norms and values within the businesses", according to Stout.

Market forces in the liberalised utilities sector, including the telecom, electricity, gas and public transportation branches, can endanger the public's interests. This is a realistic concern; today the chance of power blackouts is very small due to overcapacity in the electricity grid, but who will serve the public interest if privatised utilities companies begin to cut costs by reducing overcapacity?

According to Helen Stout, market forces are therefore not suitable for making companies take responsibility for social goals. She claims that legislation and regulation do not work either. Stout: “A system of permits, as used today in the rail system, negates the advantages of liberalisation. The price and quality of railroad services are not determined by the effects of supply and demand, but are unilaterally imposed." In her address, Stout argued for the institutionalisation of public interests within the company itself.

Conclusions

According to Stout, institutional anchoring can be realised at three levels: the Board of Directors, the Board of Commissioners and the shareholders meeting;
The Corporate Governance Code by the Tabaksblat Commission from 2003 can serve as a source of inspiration;
The Code shows that businesses can choose their own code for their specific branch in order to subject the management to a number of rules; some concrete examples include: requiring the Board of Directors to include a report on the company's code in the annual report; the creation of a permanent dialogue platform with representatives from the government, users and social organisations; including a statutory 'broad' basic profile for a member of the Board of Commissioners, and enabling social organisations to obtain shares. According to Stout, these can all be implemented without the necessity of new legislation or regulations;
Stout is optimistic about the possibility of changing the culture inside of companies: "Businesses increasingly profile themselves as entities that are aware of their social responsibilities and dare to accept them."

Contact info

Delft University of Technology, Law & Technology section
Delft
The Netherlands
Prof. Helen Stout, tel. 0031 15 2784798

Publication date

21/09/2007

Researcher

Prof. Helen Stout

Links

More information on the Delft University of Technolgy

Document type

research

Themes

Urban Policy

Keywords

Institutional characteristics
Academic/Research