A Board’s Eye View on Brexit

Faces 29 06 16

Last week, the UK’s referendum delivered a historic vote to leave the European Union. Since then, political uncertainty and market fluctuations have ensued. As the dust began to settle, Criticaleye spoke to a number of executive and non-executive directors to get their views on the recent turn of events.

“Many business leaders were surprised by the decision 51.9 per cent of the UK population took to leave the European Union. Even those that penned intricate contingency plans will now be in a period of uncertainty. What’s needed now is strong leadership and a calm, considered, long-term approach,” says Charlie Wagstaff, Managing Director at Criticaleye.

While predictions are difficult to make, it’s important to assess the situation. As such, we spoke to a number of executives, non-executive directors and advisors to get their thoughts on the forthcoming Brexit.

Steven Cooper, CEO for Personal Banking at Barclays

There is a lot of speculation about the impact of the vote on our industry. Our job is to be there for our customers and ensure our colleagues feel calmly supported – that’s exactly what we’re doing.

The business did contingency planning for either outcome and thank goodness we did because I don’t think many imagined it would come out the way it did. That planning has enabled us to respond without panic and provide reassurance to customers and colleagues.

This is a time for rational decision-making, calmness and focusing on the fundamentals of your business, not getting distracted by short-term volatility. We don’t yet know what leaving Europe actually means and it could be quite a long process.

We’re tracking things like call volumes on the hour. We’ve seen record levels of stock trading but there’s been no additional activity in branches or call centres – people aren’t calling up more or asking for more cash. We were prepared for that but it hasn’t happened.

It’s likely that the UK will go into a modest economic downturn for a reasonably short period of time. Have one eye on it but don’t be distracted from the day-to-day running of the business.

I think there will be some opportunities from this; for example some people are taking the current market positon as a buying opportunity.

Jane Furniss, Criticaleye Board Mentor, Senior Independent Director at the Solicitors Regulation Authority and Non-executive Director at the National Crime Agency

I’m not surprised at the decision, I think the Remain campaign lacked conviction and inspiration, UK governments have been constantly critical of the EU so naturally citizens have grown to believe it’s not a club we should stay in. I’m very sad about the vote as I think the ‘EU project’ has broadly been a force for good.

In terms of the organisations I am involved in, leaving the EU could have a dramatic impact on the freedom of lawyers and law firms to operate across Europe. It could also make cross-Europe co-operation between law enforcement organisations harder.

On the other hand, if we come out of the single market it might be easier to control the movement of criminals into the UK, and reduce the numbers of homeless or jobless people who come from poorer EU countries.

Whatever happens next will take time and the period of uncertainty in the short term could damage public confidence. No one actually knows from experience how to exit the EU, or even what it means.

The referendum is a democratic imperative, not a legal one. In theory the Government could ignore it. If I were still a civil servant, I would advise the Prime Minister to take their time negotiating positive arrangements for our withdrawal, and then get Parliament’s and the country’s agreement before triggering Article 50 of the Lisbon Treaty.

Bill Payne, Criticaleye Board Mentor, Chairman of Primedoc and Non-executive Director at Tekcapital 

I feel some shock [at the referendum outcome] but nobody really knows where this will go.

There are many questions. Will the UK remain in the single market? Will Scotland want independence from the UK and to remain in the EU? Or will the exit negotiations be so horrible that the UK Parliament votes to reject them, triggering a General Election and perhaps a new referendum? Anyone got a crystal ball?

My fear is that investment from Asia will significantly reduce. Asian companies have always seen the UK as a good place to do business, in particular as it gave full access to Europe.

The organisations I’m involved with haven’t made extensive plans. There are no real guidelines or ideas of what the future will look like. So, all you can really do is hunker down and be cautious while carrying on.

In terms of advice to others, I would say prepare scenarios for a number of business cases… full access to EU market, significant trade tariffs, or look to alternative markets. Finally, it is what it is and life goes on.

Simon Warr, Communications Director at National Air Traffic Services (NATS)

Personally, [I feel] disappointed and worried about what Brexit will mean for the country in the years ahead.

The relevant teams [at NATs] examined the voting scenarios and ramifications as far as they could. This was discussed at both executive and board level and where appropriate, contingency plans were put in place.

There will be little immediate effect on the business, apart from any potential impact the economic shock waves will have on air traffic volumes, although these are largely covered through risk sharing mechanisms in our licence.

The longer term will depend entirely on the future relationship the UK forms with the EU and, in particular, whether the UK continues to adhere to the requirements of the EU’s Single European Sky legislation [EU legislation to improve air traffic] as this determines much of what we do.

It will be some time before we can complete a proper assessment. In the meantime, we will maintain dialogue with our customers, regulator and the Government on the options for the future of air traffic control outside the EU.

Leslie Van de Walle, Criticaleye Board Mentor, and Chairman of SIG and Robert Walters

In the short term the impact is uncertainty; people will stop investing and growth will slow down, especially in the UK but also in Europe.

I think the next Q4 and next year’s Q1 will be difficult for UK companies. For international businesses, I think those that have used the UK as their European headquarters will rethink whether or not they want to stay in the UK. For example, Chinese organisations saw London as one of the best places to invest because they wanted to be within the EU. Now they will decide between France, Germany and other places.

Businesses looked at the impact of leaving the EU and had contingency plans, but they were for an orderly world. People are now realising that Brexit has created a political and an economic crisis. Nobody expected David Cameron to step down so quickly; there are lots of decisions that will be postponed until there is a new Prime Minister in place.

At SIG we signed a refinancing contract that was cleared just before the referendum results. [I suspect in future] there will be a problem of liquidity, which at some point might impact on borrowing and the ability to refinance.

There is a lot of noise but people should just continue to run their business and focus on what they can control.

Sally Shorthose, Partner at international law firm Bird & Bird

I don’t think businesses are completely prepared for this eventuality. Even for the leaders of the Remain and Leave campaigns, it was not the result they expected. Of course, the implications could be very far-reaching.

Clients have been asking if they should make allowances and changes to prepare for Brexit. Actually, we’re having to think quite carefully when drafting agreements about a number of things – for example, references to directives and regulations [as] they are likely to fall away in the next few years. Care will also need to be taken in defining the ‘territory’ and with choice of law and dispute resolution clauses to ensure that these survive Brexit, and are even flexible enough to include a broken up UK.

In due course, I would suggest a review of IP portfolios to see if any action needs to be taken – but we need to see what is proposed regarding European Union Trademarks (EUTMs), Community Registered Designs and of course the future of the Unified Patent Court (UPC).

We’ve had a dedicated Brexit [team internally] here at Bird & Bird for about six months; I think it’s very useful [for businesses to] have key people who keep abreast of what’s happening. It’s likely things will change quickly and decisions need to be made. Those people could have a job for much longer than first anticipated.

 

Do you have a view on Brexit that you would like to share? If so, please email dawn@criticaleye.com

Follow Criticaleye on LinkedIn 

 

Advertisements

Sustainability and the Walking Dead

Talk of embedding sustainability into business strategy is all well and good, but executing on that is an altogether harder proposition. The corporates that lead the way adopt a longer-term approach to doing business, discussing issues such as human rights, the environment, labour and anti-corruption when making decisions. As a result, sustainable thinking is ingrained in the plans, policies and procedures of the organisation.

The United Nations (UN) Global Compact, the world’s largest voluntary sustainability initiative for corporates, has made a difference. Part of the success is because it’s based on concepts that businesses are familiar with, such as due diligence and risk management, but they’re applied in the context of human rights. Despite its achievements, a large number of companies still have a long way to go.

At the last UN Global Compact Leaders Summit, the majority of the executives attending recognised that sustainability was important for the future of their businesses. However, according to Chip Pitts, Criticaleye Thought Leader, Lecturer in Law at Stanford Law School and Professorial Lecturer at Oxford University, they need to take their initiatives to the next level.

He says: “Some companies, mistakenly in my opinion, think they’re doing everything they can, but a lot of the time they haven’t really. What they’re doing is often not completely in accord with the current human rights norms, or environmental sustainability norms. The key to getting sustainability right is really getting the commitment from the top and at all levels of the company, then focusing on the tough work of truly integrating and embedding it at every level.”

A common problem is a failure to align different parts of a business. For instance, the CSR department won’t have contact with procurement, and different incentive structures can encourage conflicting behaviour. For Chip, it’s all about execution and unless the thinking around sustainability is joined-up, the impact a company can make will always be limited.

“There’s a difference between the formal policy, the stated commitment and the ability to implement effectively on the ground where it counts, where it affects people’s lives and the environment,” he says. “Often, there’s a real failure in the implementation, but the companies that are doing it well are starting to align these concepts.”

Peter Lacy, Managing Director of Strategy Practice & Sustainability Services for Asia Pac at Accenture, says: “Sustainability should be managed not as a standalone, isolated corporate responsibility, but as an integral part of business strategy. It is a chance to manage reputation and grow revenue, while understanding risk more effectively.”

It’s a case of companies beginning to integrate sustainability into their products and service mix, in terms of R&D, marketing and branding. “Businesses such as Vodafone and Unilever are also putting pressure on their supply chains to drive significant environmental gains and efficiencies in their operations,” he says.

Lean and green

The idea of a business being able to do more with less has gained real traction in the boardroom. Sandy Stash, Group VP for Safety, Sustainability and External Affairs at Tullow Oil, says: “At the heart of sustainability is efficiency. An efficient business is a sustainable business.”

When it comes to best practice, Sandy says that companies from different industries can benchmark ideas: “We’ve learned a lot from the airline industry. You’d think there’d be no similarities between running oil platforms and onshore oil facilities and airplanes, and yet in the psychology and practice of running a safe and sustainable operation, there’s a lot our industry can take on board.”

The main barriers to sustainable thinking within corporates often come from basic misconceptions and short-termism at board level. Kevin Craven, Chief Executive Officer of UK Central Government at Serco Group, an international outsourcing company, says: “Sustainability is not about tree hugging but rather good business sense where everyone can benefit. Both clients and employees are really looking hard at businesses which genuinely integrate sustainable practices into their working ways – you cannot fake this by greenwashing your polices…

“Your planning horizons cannot be about the one-year or even the three-year cycle – they need to be longer so that the impact of your business on a community or the environment can be considered. Planning, rather than reacting, is always more economical.”

Gareth Llewellyn, Executive Director of Safety and Sustainable Development at Network Rail, says: “Being part of a sustainable business is about making money. From a commercial perspective you have to be profitable, otherwise you’ll go out of business and that can have quite a big economic and social impact on those who work for you.

“You also need to make sure that whatever product you use or manufacture doesn’t have a major or persistent environmental impact, because if it does you’ll be regulated out of existence whether you like or not. The other piece to this is the social impact: if society believes that you’re delivering your business in an unethical manner, Enron perhaps being a good example here, you will be forced out of business.”

Ultimately, for sustainability to be taken seriously, senior executives have to demonstrate how it will help deliver overall business targets. Andrew McCallum, former Director of Corporate Affairs and Business Support for Dana Petroleum, comments: “From a risk perspective, companies need to identify the social, environmental and economic considerations that might impact the successful delivery of the business strategy.

“There’s definitely a role for businesses to be involved in the communities where they operate. Helping to tackle relevant social and environmental issues should benefit the company and the community.”

If a sustainable approach is going to be more than an adjunct of the organisation, it needs to be driven from the top. After all, there is little point in discussing long-term intentions for society and the environment when the culture of a business is very much about hitting short-term targets. “Businesses need to execute on integrated leadership,” says Chip. “That means sustainability is embedded horizontally and vertically throughout the extended enterprise.

“Everyone needs to understand that it’s the ways things are done… The companies that don’t get this are truly the walking dead, they just don’t realise it yet.”

You have been warned…

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

How to Achieve Community Engagement

Comm update_25 June

Social responsibility and strategic goals are not mutually exclusive. The more enlightened directors sitting on the boards of corporates understand that there is a moral imperative to engage with local communities, plus other stakeholders, before embarking on projects which have the potential to disrupt lives. It’s a pity that far too many businesses around the world continue to struggle with this basic concept.

For some, it’s a classic case of prioritising profits above everything else; for others it’s a lack of awareness about how to plan and then communicate appropriately. Anne Stevens, Vice President for People and Organisation at Rio Tinto Copper, says: “Before you’ve even applied for permits or licences of any kind, you need to engage the full range of affected parties at the earliest opportunity.

“That means consulting with the local community, local and national government, NGOs and all of the other key stakeholders… Where there is lack of early engagement and less of what I would call ‘a collaborative approach’, there is an increased risk of local resistance and we have even seen examples of community outrage within the mining industry.”

Sandy Stash, Group Vice President of Safety, Sustainability and External Affairs at Tullow Oil, comments: “A common error is assuming that government speaks for all the stakeholders. Clearly, you need to do your homework and look at every dimension of how you can engage with everyone, including government, as early as possible. This needs to start with the planning process – you can’t wait until implementation.”

A company shouldn’t be too prescriptive in its approach if it wants to know what makes a local community tick, especially when operating in different countries. Anne says: “A common mistake made by leaders is to go in with their own mindset and… apply the same recipe or approach that was successful before in a different [place], without really engaging and understanding the requirements of the local environment.”

Face Time

If trust is to be gained – or at least a workable compromise found – then leaders within the business need to be on the ground and talking to the relevant parties. Luke Wilde, founder and CEO at business consultancy twentyfifty, says: “Communities need time to get to know the company and face to face communication is going to be critical in that.

“It’s unlikely that any CEO is going to be able to give that sort of time, [so it would be] better for a senior local manager to give the company a ‘human face’, to demonstrate the time and willingness to listen and to be available for the community to raise concerns with at any time.”

Sandy comments: “The CEO needs to foster a culture where people are interested in and engage with the communities where the organisation has an impact, but the local business managers need to take responsibility and be the sponsors for making community engagement work.”

Without that interaction, tensions can quickly bubble to the surface. Kevin Craven, CEO of the Services division at infrastructure provider Balfour Beatty, says: “We have found, to our cost, that if our local management is not really attuned to the local community’s needs, then you do get problems.

“For instance, although I’ve done about eight street lighting PFIs [private finance initiatives], there was one location… where we hit a road bump because the local community was very particular [about the aesthetics of the lighting]… so we decided to put somebody in as a dedicated community officer and arranged town hall meetings with residents.”

Business leaders shouldn’t underestimate the importance of delivering on promises that were made in order to receive the green light for a project. Bob Davies, a portfolio NED and former CEO of Renold and GE Druck, both manufacturers, comments: “Mistakes are often made where expectations are set incorrectly. There are so many different conversations with different entities—local governments, local unions, local newspapers—that a false image can be created of what you’re actually trying to do, so it’s vital that the CEO ensures absolute clarity of what is planned.

“This might not be a big issue on day one but two years down the line, when the local government was expecting you to employ 400 people and your plan was always 40, can be where the angst starts to give rise.”

Community engagement forms one part of what’s required to be a socially responsible organisation as it feeds into employment law, health and safety, corporate governance, supply chains and the environment. While few get it completely right, the intense spotlight on companies means none can afford to pay lip service to the notion of behaving in a way which shows respect to others.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk