The governance of a Trusted Infrastructure Company might enshrine a variety of measures such a commitment to long term stable returns, investing in infrastructure sustainably, customer and stakeholder representation on the board, aligning management pay with long term performance, limitations on financial engineering, and a commitment to working with not against the public sector and stakeholders.
What measures should be enshrined to build trust? Obviously, these will be company specific, and need to address the issues that are of concern in the sector, but they need to be transparent and reflect the duties of stewardship that private ownership of public infrastructure implies. They could include:
• To provide long term stable returns to investors - The point being management will not focus on measures to create short term gain, such as aggressive refinancing or maximising earnings unsustainably to increase sale price, but on building long term value and relationships
• To invest in the upkeep of infrastructure on a long term sustainable basis - management would be endorsing the 'inter-generational bargain', i.e. to leave infrastructure in as good a condition at the end of a concession as the beginning, or constant upkeep in the case of utilities - this would institutionalise companies having a clear focus on long-term asset management
• To provide customer flexibility - this would imply a greater focus on finding the needs of customers or cooperation where government is the client, with a capital structure that can price in and easily accommodate change
• To ensure customer representation in management decisions - this might imply customer appointments on the board or in a supervisory position, or perhaps shared equity stakes with public sector clients, where the taxpayer therefore benefits equally with good performance or capital gains
• To widen share ownership - to address the public's mistrust of profit, a commitment to making customers part owners of the business. For instance, offering shares to long term customers of the business; gas and electricity payers, so that they share and associate with corporate profit
• To engage with communities - this could involve co-planning and extensive consultation
• To link management pay with long term outcomes - the level of management pay is a constant source of controversy and is particularly toxic when excesses seem to shortly precede problems. If a material portion of management pay were not paid in year but only in later years, following continued satisfactory performance, there would naturally be a greater management focus on long term performance, asset management and controls that ensure this will be the case. This might similarly include the incentives of the immediate fund managers with controlling interests in infrastructure companies, whose incentives should echo the long-term investment horizons of both the infrastructure company and the long-term investors sitting behind them
• To maintain a prudent financial structure - Such a constraint might limit the degree of financial engineering undertaken
The measures should be designed to institutionalise resistance to corporate excess, short term shareholder pressures and demonstrate commitment to the long-term asset management. Their introduction could avert the perceived need by the public sector to resort to increasingly onerous contractual and regulatory levers, which it is argued here will in fact worsen performance in the long term.
To emphasise, where a company chooses to enshrine such long-term goals in its governance, it is still very much a private sector company, able to take risk, pay dividends, and where shareholders can rightfully exit from ownership, with gains relative to performance. But the company's ethics, its primary purpose, is to deliver sustained infrastructure. Its employees, management, stakeholders and shareholders will be aligned to that goal.
With more aligned governance, regulators could focus more on systemic risks and less on individual company performance. There could be a less adversarial regulatory and contractual relationship between the private sector and government.
What is being proposed here is not unprecedented. Examples already exist in the likes of Community Interest Companies, cooperatives and social impact investing. It is simply a question of how extensively such public-sector, customer-oriented ethos should be adopted across the infrastructure sector.