We talk to Cathryn Ross just as she departs Ofwat after almost four years as CEO, heading for the private sector and a different regulatory market at BT. Cathryn reflects on the successes she has achieved and the challenges she has faced at Ofwat and outlines her belief that there is a bright future for the regulatory market in the UK.
As the CEO of Ofwat for almost four years, you have been described as a ‘transformational leader’. What would you say are the key skills that the leader of a regulator requires to effect change?
In any leadership role the key to change effectiveness is always the people. You can’t deliver change in any organisation without getting people to come along on that journey with you. The ability to empower and inspire to deliver the change that you want to see is critical. That isn’t particular to regulators however, or any other sector, I don’t believe.
In terms of core skills, a leader needs to have a clear level of adaptability. To be able to accept that where you end up may not have been where you first had in mind, and that ultimately that is okay. In fact, it is probably quite a good thing as it means that people have influenced the process and that the leader has learned and adapted on the way.
The other thing needed from someone trying to bring about a major change is a considerable degree of personal resilience. Change doesn’t happen overnight. At Ofwat we started to make changes four years ago when I came into post and I wouldn’t say it is completely finished today. The resilience also requires a relentless approach, as without progress change can start to go in the opposite direction.
Nobody ever became a regulator to be popular; it just isn’t one of those jobs. However it does bring a great deal of satisfaction knowing that regulated sectors are critical to people’s lives and that you have the potential to make them better. Leaders in the regulation sector need to keep the courage of their convictions and focus on the goal of making the world a better place. It does bring criticism, there is no doubt, but it also brings a great deal of satisfaction too.
What would you describe as your biggest achievements during your time at Ofwat?
Cultural transformation is a significant achievement. Ofwat feels like a very different place to work than it did four or five years ago. This comes through in our people surveys and more general feedback and you can even just sense it in the daily office environment. It is that culture that empowers people to make the best contribution they can possibly make and understand what it is that we are trying to achieve. We celebrate those who go outside the organisation, create a debate, foster new ideas and make better decisions or choices as a result of this. This culture gives people a feeling of having a genuine stake in the organisation and its decision. It has been an amazing experience to be part of that transformation.
Linked very closely to that is more about the organisation of Ofwat itself, and how it has been able to evolve with its people. It has always had tremendously high potential with incredibly bright people who are utterly passionate about what they do and a lot of what I have been trying to do is to enable this to flourish. I don’t believe you can turn an organisation into something that inherently it isn’t, but you can turn it into the best version of itself. I am very proud to see that the culture and transformation work we have been undertaking is starting to deliver this at Ofwat.
The other area I would highlight as an achievement is the relationship with our stakeholders. A few years ago Ofwat was characterised as a closed organisation, and I think that maybe that came from a lack of confidence, or as a response to criticism. The response was to close ranks or be defensive. That does not create a dialogue with stakeholders that enables you to pull in the best ideas, create the debate and identify the direction of travel that everyone can buy into and deliver. I don’t think that is just about Ofwat. I was very fortunate when I came in about four years ago that all of our stakeholders desired change in terms of the relationship with the regulator. Ofwat has been able to catalyse that, and it is an immensely better environment.
This greatly enhanced relationship is demonstrated in Ofwat’s current work in publishing the methodology for the next price review which will happen in 2019. This has been developed through a genuine process of co-creation with the sector we regulate, with government, environmental NGOs and consumer bodies. We haven’t gone away and worked it up in a vacuum and then visited it upon an unsuspecting sector.
When we put the consultation out in July, most people felt it was what they were expecting. That was actually very pleasing and people recognised the co-creative process. The water sector is going through a huge period of change just now. The markets are opening up, there are big challenges from climate change, population growth and new technologies to manage networks and customer interface. If you are in a period of substantial change you are in the position where nobody has the right answer. In that sort of environment that process of co-creation and quality of conversation amongst everyone who has some insight and experience is absolutely critical.
Is there any unfinished business which you regret having to leave behind?
I don’t think so. I don’t feel I am looking back thinking I should have nailed something and I didn’t.
I am leaving at quite a pivotal point for Ofwat. We are currently delivering our approach to the next price review (December 2017) and from September 2018 Ofwat will be receiving company business plans and that will set the price for the customer package from 2020 to 2025 as well as detailing the incentive framework companies will work within during that same period.
I shall be watching with appropriate detachment, but seriously keen interest, as to how the methodology which I am delivering at the moment is actually going to be put into place. It will govern the evolution of the sector right up until 2025 which, given everything I have said about the extent and profound nature of change going on in the sector, is going to be a really key period.
As you join BT you are moving from the public to private sector. What do you believe will be some of the key differences, positive and challenging, that you might face in this transition?
To be honest I am genuinely not quite sure what to expect. I have been Chief Executive of a regulator for four years and I have worked in regulation for the past twenty years. I feel like now is the right time to try and do something very different. The very nature of that means I am not entirely sure what I am getting into, but that is part of the challenge and also a huge part of the attraction too.
One thing I would highlight and one that very much impressed me about BT, was its very strong sense of social purpose. It is very important for me to try to make the world better for those in it. I may not always succeed but that is what I am trying to do and I don’t think I could work anywhere that didn’t embody that. It is obviously a private company and shareholders need to make an appropriate return, but BT is trying to do that by making the world a better place.
Obviously, they do have some very significant challenges in terms of their regulatory environment and I think it is very interesting to observe telecoms regulation grappling with the some of the challenges that water has been contending with for a longer period. The early days of telecoms regulation was very much about regulating a network which already existed. Today it is about regulating to create an environment which has to support massive transformational investment in 5G and fibre to the premises, for example. Water regulation has been trying to create a favourable investment climate for a long time, so I am hoping to be able to add something to the debate there.
However, I am going in with an open mind and expect my few months will very much be a learning phase in the job.
Do you think the regulatory landscape, post-Brexit, will diverge significantly from its current approaches? Are there many areas of regulation due to return to the UK in this period?
Sectors do differ massively in terms of the impact of European law and policy on regulation. In water, for example, there isn’t a single European market so it will not have much of an impact there. However, in aviation there will be a big impact, and in energy and telecoms where a substantial proponent of the economic regulatory regime comes from EU law.
As we begin the exit from the EU I think it is only right to take a wider view and think about what opportunities we might have to create frameworks for that are better suited to the UK’s needs. I would be surprised if we don’t do that and I would be surprised if that doesn’t bring about a degree of change, however a lot of the EU regulatory law was very heavily influenced by the UK in the first place.
Considering the water market more specifically, the biggest impact is going to be in relation to agricultural-environment policy. Coming out of the common agricultural policy will provide a huge opportunity to change how stewards of the landscape are recompensed for doing those things that benefit our natural capital. That is a very different way of talking about payments into the rural economy than the current farm subsidies and it could bring about huge changes to how the rural economy works
One thing that is certain is that it will take years to think through, so I am not sure what immediate impact it is going to have on the economic regulatory regime.
How confident are you that we are going to be able to meet the demands for fresh talent in the sector?
As we look at this future regulatory landscape in the UK there is massive need for talent, far more than we have seen in the past. Partly because of all these changes that will need to be thought through by government and regulators in a Brexit context, and also in part due to the unprecedented public scrutiny being faced in regulation at a time of immense change.
We need fantastically bright, passionate and motivated people to think through these issues. The good news is that regulatory bodies are becoming incredibly attractive places to work. They undertake work that matters, offer intellectually challenging opportunities, and increasingly offer much desired flexible and agile working arrangements.
Ofwat’s experience over the past few years suggests that, if you put your best foot forward as a regulator and really articulate what you have to offer, you don’t struggle to attract great people.
What is the single most effective initiative you have seen in action to build diversity within the regulatory sector?
I think the single most important thing is to value diversity of thought. One of the biggest enemies of diversity in any sector is a closed culture and a tendency to consider challenge as something to be suppressed. To successfully embrace diversity, organisations should encourage a culture of openness and learning, where challenge and different perspectives are seen as genuinely useful in helping to make better and more robust decisions every day.
At Ofwat I think we really managed to achieve that in the past few years. We put in place a new set of values and behaviours which was very much driven by our people. A key part of that was a focus on learning which has encouraged and welcome the opportunity to challenge and debate, showing respect and value in all different types of experience and perspective.
I don’t have a great deal of sympathy for a tick box approach to diversity. It is useful to look at observable indicators of where people come from, but challenging outside the typical sources, going beyond the organisation when required and exposing yourself to different ways of thinking is a much more effective approach in my experience.
How do you see regulators adapting to a world of proactive industrial strategies and increasing public scepticism towards the value of markets?
I do think it is a very important question. For me the key to this is not only focusing on the legitimacy of regulation but also building on and maintaining the regulator’s role in demonstrating the legitimacy of the sectors we regulate. The fact of the matter is that if a sector has a regulator it is providing a really important public service. This function makes them politically salient and they matter to parliamentarians because they matter to society. Therefore, I think it is entirely unsurprising and right that politically a lot is being said about them. Any notion that independent economic regulation was somehow ever going to work in a political vacuum was delusional.
How well do you think government is working with regulators at a time of unprecedented change?
A very positive step is the initiative which has seen government give regulators strategic policy statements. The idea is that the government sets out what its strategic priorities and objectives are for the sector. It is not a shopping list or instructions, but a high level strategic statement about what the public wants from its regulators. It is a transparent and consulted-upon vehicle that enables government to say clearly to a regulating body what matters to the country. It avoids less visible and less consultative approaches which can undermine the operational independence of regulators and also destabilise the investment value of these sectors by creating political risk.
We have the potential for a very constructive relationship between government and regulators and I think these strategic policy statements are a very good example of that.
What impact does increased public scepticism bring to the regulatory sector?
The market has shifted considerably in twenty years. If you look back at the 1990s and sector privatisation, much of that was undertaken with attempts to roll out competition and deregulate and liberalise markets.
I think that public mood has shifted away from that to some degree and it is really important in that context that regulators think very carefully about whether customers are getting what they expect from these markets. Not only in terms of value for money, but how service providers are behaving. I think if you unpick some of the debate at the moment about re-nationalisation and remove some of the ideological aspects to that, the key issues are a combination of value for money and the belief that the delivery is not seen as commensurate with essential public service characteristics. That then raises issues of transparency, accountability and executive pay.
I think if regulators are really going to look after the legitimacy of their sectors they have to think much more broadly than a narrow technocratic exercise in assessing value for money and look at how service providers in their sector are behaving. That goes much further beyond price controls, determinations and licence enforcement. It is about the conversation that regulators initiate to remind and reinforce the importance of legitimacy.
Cathryn Ross Biography
In January 2018 Cathryn joined BT as Director of Regulatory Affairs. Prior to that she was the Chief Executive of Ofwat, the independent economic regulator for the water and waste water sector in England and Wales.
In that role she was responsible for ensuring that Ofwat held a £120 billion industry to account in delivering against the expectations of customers, wider society and the environment. She has seen through the delivery of a new strategy for Ofwat, focused on a vision for the sector of trust and confidence in water and waste water services. This involves a new model of regulation, to better help the sector deal with the challenges of the future. This model gives the sector greater flexibility, including through use of markets, but also requires it to provide information and assurance about its performance and resilience.
Cathryn is an experienced regulatory and competition economist and has worked across a number of different sectors advising on economic, regulatory and competition issues. Previously, Cathryn was Executive Director of Markets and Economics at the Office of Rail Regulation (ORR). She was Executive Director of Markets and Economics at Ofwat between 2008 and 2011. She also served with the Competition Commission (now Competition and Markets Authority), and worked in economic consultancy.