Power Plc (‘PP’) is one of the UK’s largest energy companies supplying the domestic and commercial markets. Faced with the climate change crisis and a significant reduction in gas prices, in 2011 the board hired a new CEO to radically transform the business from one based on fossil fuels to one based on renewable energy, and to find a business model that was both environmentally and financially sustainable.

PP’s generation system was known as one of the dirtiest in the world, with fossil fuels being the predominant resource for electricity generation. In 2012, the board agreed a new strategy to be a top-to-bottom renewable energy company, formulating its 85:15 strategy which aimed to reach an 85:15 ratio of renewable energy to fossil fuel generation by 2040. This accompanied their target of becoming carbon neutral by 2025.

Alongside the new strategy, PP introduced a new vision to create a world that runs entirely on green energy. The board, which includes a number of employee representatives, has been responsible for leading the cultural change within the organisation.

One of the key strategic goals to enable the shift to green energy was to reduce the cost of offshore wind power and scale up production. To achieve this, PP sold a number of its fossil fuel businesses and invested heavily in research and development and technology to reduce the cost of offshore wind power by 60%.

Organisationally, the company faced significant challenges through its strategic implementation phase. During the transformation, the board implemented a new functional structure which improved product-line organisation and provided more structured and transparent project governance. Prior to that, the wind-power unit had been operating independently much like a start-up which had led to inefficiencies and a lack of accountability. The new structure involved a change in the composition of the board and the new directors who joined were selected for being leaders with the right mindset to support the culture. They were also tasked with meeting ambitious diversity and inclusivity targets on the board and throughout the organisation.

Many staff were resistant to change and reluctant to engage with the new strategy and the cultural shift towards green energy. With fossil fuels having been a core competence of the business and the focus of the growth strategy, staff were sceptical about the reality of taking the company in an entirely new direction and staff morale was impacted. In response, the board created employee project groups and management team forums led by the CEO to cultivate open discussions and build networks across all levels of the business to help embed a new culture and deliver the strategy. Employees from these groups act as company ambassadors and role models instilling the values of PP. From a staff turnover rate of 30% amidst the restructuring in 2015, PP’s staff turnover rate reduced to 8% last year.

PP also introduced a new stakeholder engagement strategy to facilitate dialogue with the key stakeholder groups to enable the board to better understand their positions, concerns and expectations. PP endeavour to translate these dialogues into local solutions to the issues raised and work with stakeholders to address the climate change crisis.

By 2021, PP became the world’s largest producer of offshore wind energy and reached its target of generating 85% of its energy generation from renewable sources.

QUESTION 

Referring to appropriate models or tools, critically evaluate two factors that have contributed to the successful delivery of PP’s 85:15 strategy.

The UK Corporate Governance Code (‘UKCGC’) provides that boards should promote the long-term sustainable success of the company to generate long-term value for shareholders and contribute to wider society.

Critically evaluate how PP’s strategy evidence compliance with the UKCGC and how any other regulatory, statutory, cultural or ethical factors constrain or influence PP’s Board to ensure long-term sustainable success.