How to make your company's ownership strategy transparent and on track
Reykjavik Energy, the world's largest producer of geothermal energy, has been on a lengthy strategy journey to streamline the company's operations, including its ownership structure and ESG agenda. Gudrun Jónsdóttir has led the implementation as Strategy Director and shares here her deep insights into strategic planning and good corporate governance in a utility company - and how to balance the many bottom lines.
Some years ago, Gudrun Jónsdóttir was the CEO of a small energy and utility company in Northern Iceland where she was responsible for corporate governance and strategy. Since then, she has held various board positions and has been involved in formulating strategies and ensuring that they are implemented. When she joined Reykjavik Energy in 2015, she was responsible for implementing the company's ownership strategy. Also, in her role as chair of Iceland's largest utility company, Veitur, Gudrun Jónsdóttir is responsible for formulating strategy and ensuring it is executed.
"The most important thing about strategy is real action and how you make things happen. Without action, we are just thinkers," says Gudrun Jónsdóttir, referring to her favorite quote. "It's important to have a vision, but it's only worth anything when you act to make it a reality. And that's especially important now with the challenges facing the world."
Increased demand for accountability and good corporate governance
Reykjavik Energy is a partnership between three municipalities, of which the largest owner is the Municipality of Reykjavik with 94%. The utility serves a total of 20 municipalities throughout southwest Iceland, where more than two-thirds of the country's population lives. The group operates and cooperates in the supply and distribution of hot and cold water, is responsible for wastewater and distributes electricity and even fiber networks. Electricity and hot water are produced using geothermal and hydropower, and as much as 99% of Reykjavik Energy's energy production comes from renewable sources.
"Our vision is to enhance the quality of life and to do so with social responsibility as our guiding principle. But the question is how to work towards this vision, how to act. There is an increased demand for corporate responsibility and good corporate governance that can build trust between different stakeholders," says Gudrun Jónsdóttir.
"It requires an ownership commitment that has the long view, as focusing on short-term results and interests can be at the expense of the long-term, because owners may have different goals with their ownership. So, if the different owners are not aligned, not only does it reduce stakeholder confidence in the organization, but it also compromises the owners' returns. Governance mechanisms for solutions that promote responsible ownership and collective action by owners in the long term are therefore important, and this is the focus of my Ph.D. research."
The strategy represents the will of the owners and guides the board
After the financial crash in 2008, Reykjavik Energy was close to bankruptcy. The owners met and had a thorough dialogue about why they owned the company, what they wanted from it and what their common long-term focus should be. This resulted in an ownership strategy that unites the owners around a common set of principles and values. The strategy is a governance tool that represents the will of the owners and acts as a guideline for the Board. In fact, it limits the Board's room for maneuvering somewhat, but at the same time, it protects the minority because changes to the strategy can only be made if all the owners agree.
The ownership strategy also defines the responsibilities of the owners and guarantees their participation in key issues and in the formulation of vision and strategy vis-à-vis management. This of course brings the challenge of monitoring that the organization and its managers are doing their job and implementing the corporate strategy, as well as that the ownership strategy is being adhered to. In this light, one might ask: Who would want to sit on a board with a lot of responsibility but where one's mandate is limited? Gudrun Jónsdóttir's Ph.D. research shows that the limitation is perceived as a positive thing.
The ownership strategy is limiting but also guiding
"The fact that the ownership strategy limits the mandate of the board also means that it gives them direction. The board can easily work in line with the will and vision of the owners, which makes strategic decision-making more efficient. At the same time, it does not come at the expense of the possibility to express dissent," Gudrun Jónsdóttir points out.
As the person most responsible for ensuring compliance with and execution of the ownership and corporate strategy, Gudrun Jónsdóttir has had the same considerations as countless others in her position. There is no silver bullet to implementing strategy, which is why Reykjavik Energy has developed its own approach to the process.
The ownership strategy guides all strategic planning in the organization. It states that all strategic planning within the Group must be consistent with the parent company's corporate strategy and overall operating policy. As each subsidiary has an independent Board, it is the Board of Reykjavik Energy that is responsible for monitoring the implementation of the overall strategy and compliance with the ownership strategy. All this is incorporated in Reykjavik Energy's strategic corporate governance.
In November 2022, a conference on how the energy crisis and utility strategies are now one of the biggest challenges for all companies, was held at the Danish Parliament. To get all valuable insights from this conference, feel free to download the Magazine with everything that you need.