Southern Water really should be a watershed moment for corporate crime

A fine for a major company is neither here nor there. Only convictions and prison sentences for those responsible will strike home, writes Chris Blackhurst

Southern Water entered 51 separate guilty pleas, covering long-term, widespread breaches of environmental law (AFP/Getty)

Last July, Southern Water was fined £90m after pleading guilty to dumping raw sewage into rivers and coastal waters in Hampshire, Kent and Sussex. Oysters and shellfish could not be nurtured, harvested and consumed, surfing schools were hit, and other businesses suffered as people were told to stay out of the filthy water.

The prosecution represented the biggest investigation in the Environment Agency’s 25-year history, as the authority wrapped together offences from 16 wastewater treatment works and a storm overflow. The penalty imposed on the company was a record amount.

Southern Water entered 51 separate guilty pleas. They covered long-term, widespread breaches of environmental law. They included deliberate failings, causing major harm to protected areas, conservation sites and oyster beds.

Passing sentence, Justice Jeremy Johnson said: “Each of the 51 offences seen in isolation shows a shocking and wholesale disregard for the environment, for the precious and delicate ecosystems along the north Kent and Solent coastlines, for human health, and for the fisheries and other legitimate businesses that depend on the vitality of the coastal waters.

However, he went on: “Each offence does not stand in isolation. It is necessary to sentence the company for the totality of the offences to which it has pleaded guilty. But even that does not reflect the defendant’s criminality. That is because the offences are aggravated by its previous persistent pollution of the environment over very many years.” Southern Water’s record took in 168 past offences and cautions.

In all, the company admitted to causing 6.971 illegal discharges over five years, which lasted a total of 61,704 hours, the equivalent of 2,571 days. There was more: the court was told how Southern Water had deliberately misled the watchdog, hindering proper enforcement and regulation of the company.

Southern Water was a serial offender that had failed to learn from past convictions, seemingly not changed its ways, and hindered officials as they attempted to go about their duties. The judge said the overall stance of the company in regard to the investigation was obstructive. “Cooperation was grudging, partial and inadequate,” he said. It’s hard to imagine a corporate rap sheet more damaging.

The Southern Water case is a recent, egregious example of an issue that has long been dogging business: when crimes are committed, the penalties are insufficient, and reputation and standing are damaged

The penalty does not seem so onerous when put against that. It seems less heavy still when compared with Southern Water’s latest operating profits of £213m. And even lighter when you consider that the reason the company was so keen to dump between 16 billion and 21 billion litres of toxic waste into rivers and the sea was to avoid financial penalties and the cost of having to upgrade and maintain its water treatment infrastructure.

One estimate puts the saving at £230m. So the company incurred a charge of £90m, but saved £230m. That’s not a punishment but a 250 per cent return on investment.

Soon afterwards, it was revealed that Southern Water’s chief executive, Ian McAulay, had received a bonus of £550,900. His total remuneration was more than £1m.

Southern Water said the sewage dumping was the result of “deeply regretful” mechanical and technological faults. The company apologised and said it was now absolutely committed to transformation, transparency and change.

I’d like to believe that is true, but the company’s history does not inspire confidence. The Southern Water case is a recent, egregious example of an issue that has long been dogging business: when crimes are committed, the penalties are insufficient, and reputation and standing are damaged.

We’ve seen it across all industries. Banks, food manufacturers, oil producers, chemical companies, retailers – take your pick. A fine for a major company is neither here nor there. Only convictions and prison sentences for those responsible will strike home; nothing else hurts them, and nothing else will force others to take note and drive a change of behaviour.

This week, MPs on the Commons Environmental Audit Committee published their wide-ranging report into improving water quality in rivers. What happened with Southern Water featured heavily in their inquiry. Among the recommendations concerning assessing water quality and monitoring processes was this: “We further recommend that, in the interests of promoting public confidence in the criminal justice system and reducing the likelihood of reoffending, the Sentencing Council review the sentencing guidelines for water pollution offences. In our view, penalties for such offences should be set at a level that will ensure that the relevant risk assessments are routinely on the agenda of the boards of each water company.”

They further recommended that the industry regulator, Ofwat, “examine the scope of its existing powers in respect of water company remuneration, with a view to limiting the awards of significant annual bonuses to water company senior executives in the event of major or persistent breaches in permit conditions”.

It’s a shame these two recommendations were not made more prominent. But they are there, which is something. What must occur now is that the committee’s report is taken up, and that ministers accept and embrace its findings.

The MPs have rightly identified that change must occur where company transgressions are concerned. But this is not a matter confined to the water industry and its authorities. Southern Water was subjected to a record fine, but look at the level of offending. See too the past record, the effects of what it did, and the degree of calculation involved.

Crucially, weigh up its punishment versus the financial reality: £90m bought a saving of £230m. Excuse the pun – none is intended – but where corporate crime and punishment are concerned, Southern Water really should be treated as a watershed moment.