Researcher Sue Jaffer of La Trobe University, Melbourne, argues that the failures did not lie with regulation alone. While regulators undoubtedly made mistakes, they were fighting against powerful incentives built into the way many companies were governed. Her work suggests that corporate governance, the rules and priorities guiding company leaders, is the missing piece of the puzzle. Without governance that genuinely serves customers, employees, communities and the environment, even the most determined regulator faces an almost impossible task.

When the water industry in England and Wales was privatized, the hoped-for improvements appeared achievable. Private investment was expected to modernize ageing infrastructure, improve efficiency and reduce pressure on public finances. Because water companies operate as natural monopolies, regulators were established to protect customers from excessive prices while ensuring companies invested for the future and maintained environmental standards.

On paper, this seemed like a balanced system. Companies would earn reasonable returns, customers would benefit from better services, and regulators would ensure everyone played by the rules. Over time, however, the reality became far more complicated.

One of the biggest challenges was separating genuine efficiency from simple underinvestment. Regulators encouraged companies to operate more and more efficiently, rewarding those that delivered services at lower than predicted cost. Yet water networks are enormously complex. Much of the infrastructure lies underground, projects unfold over decades, and regulators can never know as much as the companies themselves.

This information gap created opportunities. If companies spent less than regulators expected, they appeared impressively efficient. In reality, some savings reflected delayed maintenance or postponed investment rather than smarter management. Money that might otherwise have strengthened ageing infrastructure could instead flow elsewhere.

Financing decisions created further problems. Many companies accumulated substantial debt while paying large dividends to investors. Rising borrowing costs later exposed how vulnerable some businesses had become. Instead of concentrating on improving services and preparing for future challenges, management increasingly faced pressure from financial obligations that left little room for resilience when circumstances changed.

Environmental performance became the most visible sign that something had gone wrong. Public concern grew as illegal sewage discharges and pollution incidents came to light. Investigations revealed widespread failures that damaged trust in both companies and regulators. In several cases, regulators had relied heavily on companies to monitor and report their own compliance, making it much harder to detect problems before they became serious.

The growing public anger was not simply about sewage in rivers. It reflected a broader feeling that the system itself had lost sight of its purpose. Customers pay water bills because they expect reliable services, safe waterways and responsible stewardship of an essential public resource. When these expectations are repeatedly disappointed, confidence in both industry and regulation begins to erode.

Sue Jaffer argues that these outcomes cannot be understood simply as isolated management failures or weak enforcement. They are the consequence of a model of corporate governance that places overwhelming emphasis on delivering value for shareholders. In industries where competition is limited and society depends upon long term investment, that emphasis can encourage behaviour that conflicts with the interests of customers, the environment and even the long term health of the companies themselves.

Rather than viewing regulation as the sole solution, Jaffer’s research invites readers to ask a more fundamental question. What if the real challenge is ensuring that the people running these companies are guided by a broader sense of purpose from the very beginning?

The answer proposed by Sue Jaffer is a shift towards corporate purpose. Instead of asking leaders to maximise short term financial returns above everything else, a corporate purpose approach expects companies to strive to meet the needs of customers, the environment, employees and long term financial resilience. In a sector that provides an essential public service, this means success should not be measured only by profits, but also by cleaner rivers, reliable infrastructure, responsible investment and public trust.

Recent reforms by the Water Services Regulation Authority move in this direction. Executive pay is being linked more closely to performance, dividend payments face greater scrutiny, and boards are expected to demonstrate that their decisions serve wider public interests rather than just narrow financial goals. These changes acknowledge that governance shapes behaviour every bit as much as regulation. Even so, Sue Jaffer cautions that it is too early to know whether these reforms will create lasting cultural change. Strong incentives built over decades cannot be transformed overnight, particularly while some companies remain financially fragile and face enormous investment needs.

The wider lesson reaches far beyond the water industry. Whenever markets are imperfect and customers cannot easily switch providers, regulators face inherent limits. Many other public services, for example health and aged care, face similar problems.  Regulatory rules alone cannot guarantee good outcomes if company leaders are rewarded for pursuing objectives that conflict with the public interest. Effective regulation and effective corporate governance must work together rather than pulling in opposite directions.

That is why this research offers an important perspective on one of the UK’s most pressing infrastructure challenges. Clean rivers, dependable water supplies and resilient utilities ultimately depend on more than technical expertise or stricter enforcement. They require organisations whose purpose genuinely reflects the responsibilities that come with managing an essential public service. If governance can be aligned with the needs of customers, the environment and society, regulators will no longer be pushing a boulder uphill. Instead, they will be working with companies to reach a shared destination.