Northern Electric: regional leadership by a young company
June 01, 1996
Community involvement is meant to help build company loyalty among all stakeholders. The current turmoil in the privatised electricity industry offers a good opportunity to test this theory.
Northern Electric is a young company. Operating in the private sector for just five years, it has the doubtful distinction of being the first regional electricity company to suffer a hostile takeover bid. After a spirited defence, the raid by Trafalgar House lapsed in March 1995 following the announcement of tighter regulation by the Director General of Electricity Supply. Ironically Trafalgar House has now been taken over, while Northern Electric remains independent. The company believes that its track record of community involvement in the region since privatisation played an important part in sustaining loyalty among local shareholders, opinion formers and customers.
Privatisation
The impact of privatisation on British corporate social responsibility is mixed. At the national level, BT is generally judged to have made a success of it, now ranking as the largest corporate community contributor; by contrast, British Gas’s programme, after a good start, is now suffering the consequences of the company’s current commercial difficulties. Regionally, the picture is very varied, and bodies such as the Directory of Social Change have been critical of the general record of the privatised regional utilities.
Water and electricity in essence are private monopolies providing what economists call public goods. The heavy regulation instituted by government is recognition that these companies should be accountable not just to shareholders, as there are wider obligations too. Active community involvement programmes should be one way to recognise those obligations and demonstrate public commitment and responsible operations.
An added factor is regional identity, where often the utilities are among the largest private companies headquartered in the region. In areas of high unemployment, there is strong expectation of support for the local economy, joining initiatives to promote inward investment and helping to retain business in the region, through their purchasing power. Electricity companies have a direct commercial interest in the level of economic activity.
The north east has a particularly strong sense of identity and Northern Electric has worked hard to establish itself across a wide range of community activities.
In the immediate pre- and post-privatisation period, the utility companies needed to raise their profiles, both among the general public and in joining the various business and partnership networks in their regions. So there was a flurry of activity, not all of it well judged or satisfactorily maintained.
Northern Electric is considered to have been more successful than most. In a recent MORI survey of regional electricity companies, carried out by the Electricity Association, customers in each region were asked to rate their electricity company in terms of their responsibilities to society and the community in general. Northern Electric had the strongest rating of the 12 companies and within the north east was rated higher than Marks & Spencer, that informal benchmark used by many companies.
Regional emphasis
While companies generally have adopted an increasingly tight focus to their programmes, Northern Electric’s range remains broad, across the arts, education, environment, sport, economic regeneration and social welfare projects. This is deliberate, arising from its sense of responsibility, as a leading regional company, to the whole community. Some 150 organisations are supported each year, which means the average individual contribution is inevitably smaller. The larger amounts tend to go to bodies and flagship projects which address regional interests, such as developing indigenous talent and attracting inward investment.
Programme spend is around ?800,000 pa with running costs and in-kind contributions, principally secondments, bringing the total community contribution to ?1.2 million, approaching one percent of profits. This makes Northern Electric one of the more generous community contributors among the electricity companies by size.
Flagship activities
The arts is the biggest single funding category. As well as itself sponsoring a broad range of art forms, such as the Royal Shakespeare Season in Newcastle, North Electric plays a leadership role, encouraging other companies to do more: it run an arts awards scheme, in conjunction with Northern Arts and Tyne Tees Television, to recognise excellence and promote sponsorship; it was also one of the original players in setting up a Sponsors Club, now with 18 company members, who use their own money to match new corporate sponsors, sometimes alongside the government’s Pairing Scheme, run by ABSA.
Northern Electric is a strong supporter of the North East Per Cent Club which encourages regionally based small and medium sized companies to make the same commitment as the national scheme. It is leading an effort to persuade large national companies to spend a fair proportion of their community affairs budget and programme in the region.
The company is also a big supporter of community foundations, providing endowment funding to ensure a permanent grant-giving capacity. The Tyne & Wear Foundation is the biggest such body in England and foundations are now also operating in Cleveland and County Durham.
In sport, its second biggest funding category, the company has set up a Foundation for Sport to provide financial help to up-and-coming youngsters from the north east to develop their talents. The Northern Electric Schools Sports Awards, run with the National Playing Fields Association, also encourages schools to undertake sports and physical activity.
In education, projects tend to have a science and technology focus, and on green issues, the company’s own campaign, Envirocare 2000, promotes awareness and encourages energy efficiency. Voluntary organisations supported include the Wildlife Trusts and BTCV.
The leadership role is also apparent in economic regeneration. Northern Electric supports development and enterprise agencies, both with funding and the time and resources of its managers, the latter especially on inward investment promotions.
Organisation
The programme is headed by David Faulkner, director responsible for the combined function of personnel and corporate affairs, reporting to the chief executive. He is supported by a full-time community affairs manager.
Three times a year a community affairs panel meets to oversee the programme and assess major projects. This comprises David Faulkner, the chief executive and the director of marketing, along with two external representatives to provide an outside view from the community.
Employee involvement
In recent years the trend in employment has been downwards. So retirees are a resource and there have been several examples of successful transitions to retirement or a second career in the voluntary sector. At any one time, there are three or four full-time secondments, representing a significant proportion of total community contribution budget. Northern Electric is seeking to publicise opportunities for community involvement, introducing a measure of competition for limited places and company resources and so heightening their perceived value.
There is commitment from top, with both chairman and chief executive personally and publicly involved. Tony Hadfield, the chief executive, chairs BITC’s Tyneside committee and chairman, David Morris, is co-chairman of the North East Per Cent Club.
Future developments
Externally, the public affairs environment is changing rapidly, and all regional electricity companies need to be even more concerned about their public profile and reputations. The Labour Party sees them as fair game and is threatening a windfall tax. The image of corporate fat cats remains potent. After 1998 domestic customers will enjoy an element of competition, and social responsibility is one area where an individual company can achieve some brand differentiation despite an identical product; at least it can help to retain customer loyalty.
Shareholder loyalty too is a factor when a renewed takeover bid is possible. Of 111,000 Northern Electric shareholders, 94% have holdings of less than 500 shares and around one fifth of shareholders live in the region. Large fund managers may look mainly at the short-term financials but individual shareholders are believed to take a more balanced long term view.
The threats from takeover and competition mean that the focus and range of community organisations supported by Northern Electric needs to be kept under review. Despite its leadership role and responsibility to the region, the company cannot escape the same conclusions others have reached: that supporting fewer organisations with larger donations can be more effective, both for the groups themselves and for the company.
As Community Affairs Briefing has reported before, current business trends point to increasing attention on corporate social responsibilities. For privatised utilities, these pressures will be even greater. Having achieved one of the better reputations in the sector and in its region, Northern Electric cannot now risk resting on its laurels. As it matures from youth to a well established company, the community programme must develop too.
FactFile
Northern Electric plc
Year ended 31 March 1995
Chairman: David Morris
Chief Executive: Tony Hadfield
Main business: the regional electricity company for Northumberland, Tyne & Wear, Durham, Cleveland and North Yorkshire, distributing and supplying electricity to 1.4 million customers, along with some large business customers in the rest of England and Wales; also limited activity in gas supply, sale of appliances and electricity generation.
Turnover: ?1.1 billion
Pre-tax profit: ?140.7 million
Employees: 4,456
FT UK Top 500 ranking: 181 (30/09/95)
Charitable donations: ?200,000
Total community contributions: ?1.2 million
Percentage of profit: 0.14% (charitable), 0.85% (total)
Memberships: BITC, Per Cent Club, ABSA
Director of Personnel and Corporate Affairs: David Faulkner
Address: Carliol House, Market Street, Newcastle upon Tyne NE1 6NE
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