The forthcoming UK Referendum on UK membership of the European Union (EU) presents a clear risk for UK companies, as well as for companies with interests in the UK. How can Boards mitigate this risk? What, if any, are the implications for Board composition? As a Board Development and Search consultancy these questions are very much on Fidelio’s radar screen. To find answers we therefore hosted a recent Board breakfast with key note speaker David Thomas MBE, Executive Chairman of the Council of British Chambers of Commerce in Europe.
Fidelio’s timing for the breakfast was spot on. GREXIT appeared very possible and the UK government, freshly returned to power, had still to reveal its strategy regarding the Referendum. In addition to our eminently qualified speaker, Fidelio was joined by a number of senior executives and Non-Executives from a range of sectors, all of which will be adversely affected if the UK leaves the EU.
Much ink will be spilt over the macro-economic and political implications of a potential BREXIT. We asked our speaker to focus specifically on the role of the Board in the run up to the Referendum by addressing the following three questions:
- Question 1: Does it matter to business if the EU does not survive the next 10 years?
- Question 2: What should Boards and business leaders be doing to mitigate this risk?
- Question 3: What are the implications for Board composition?
Setting the EU scene
David set the scene for the run up to the Referendum. With potential GREXIT, BREXIT and general dissatisfaction within Member States, including grumblings in the EU-stalwart, Germany, the question of EU survival is now on the radar screen in Brussels. The possible demise of the EU was not previously up for debate but now there is acknowledgement, including in Brussels, that EU survival in its current form is no longer a God-given truth.
David alluded to alternative structures that according to some Eurosceptics could potentially supersede the EU. For example, The European Alliance (EA) is a possible format for facilitating trade in a cheaper and less interventionist manner. However, David and our guests agreed the EU is much more than a trade facilitation arrangement.
The threat to the UK economy and UK business from a no vote in the Referendum is recognised. But as David reminded us BREXIT would also have significant repercussions for the EU, not least because the UK is a major contributor. BREXIT would raise a very practical funding question for beneficiaries across Europe ranging from French farmers to countries that have recently joined the EU.
David warned of the danger of allowing the debate to become a binary UK vs. EU argument. He strongly made the case that it would be more effective to work with the new-found general appetite for reform across Europe. The risk of BREXIT can best be mitigated by framing the UK Agenda in the context of a broader campaign for reform, not simply “the Westminster demand list.”
Having the United Kingdom in the European Union gives us much greater confidence about the strength of the transatlantic union.
– US President Barack Obama, 23rd July 2015, speaking to The BBC
The role of business
The UK government is currently in a very public dialogue with EU leaders. However, the unexpected turns of the Scottish Referendum provided a salutary warning to Boards that they cannot rely on politicians to represent the business voice. Most UK business leaders consider a messy divorce from the EU a major risk to be avoided, although a minority argue that the UK would be better off outside the EU. Our largely pro-EU breakfast guests did acknowledge, however, that the UK had benefited from being outside the EURO currency.
But the question remains how can business steer the discussion away from confrontation and polarisation? If Boards want to influence the debate around the forthcoming Referendum, they need to engage now. There is a narrow window of opportunity before other voices dominate.
A fluid situation
In terms of timeline, our speaker advised that the future of the EU will not be a “one year issue” but will dominate and disrupt for 3-5 years. During this period there is likely to be “massive volatility” which companies and Boards will not escape.
The unravelling of the EU will threaten cross border trade and require a much more sophisticated approach to both corporate Treasury, as well as supply chain management. If we look at the financial services industry we are already seeing the cost of holding substantially increased capital at the local level. The fragmentation of the EU would result in a multiplicity of regulation.
Analytical mastery of currency and trading risk will become an advantage in the boardroom. Boards which have the flexibility and expertise to master periods of dramatic change will be well placed to lead through the turbulence ahead.
Given the fluidity of the situation, an annual Board strategy review is clearly an inadequate tool for navigating Referendum risk. Boards need to consider multiple scenarios and at the very least binary outcomes where:
- the EU survives intact and Transatlantic Trade and Investment Partnership (TTIP) is signed
- the EU membership unravels and events start a downwards spiral
But equally Boards will be well served by those who can identify opportunity in upheaval.
We would like to be a part of the process that is going on in Great Britain at the moment and we would like to be a constructive partner in this process.
– Angela Merkel, Bundeskanzlerin, 29th May 2015, BBC News
Board composition and the Referendum
It is a given that in a time of heightened forex risk and financial uncertainty, Board composition needs to embrace complex financial risk and strategic risk management skills. As we approach the EU Referendum in the UK, Fidelio expects successful Boards to have the following attributes:
- Increased agility to respond to fast changing risks
- Greater financial understanding of exogenous risks
- And potentially for companies with operations across Europe, diversity of nationality for local perspectives on key EU issues
But beyond these attributes, there is a further Board skill that needs to be mastered in the run up to the Referendum. Boards need to ensure effective representation of their companies’ interests with governments, stakeholders and regulators. Traditionally this has been carried out at executive level. In times of political uncertainty we argue that Boards need to understand how influence is exercised, whether directly or indirectly. Trade associations and industry bodies have a role ahead of the Referendum, but companies will also have to stand up and be counted. Anti-business sentiment is rife and a wise Board needs to exercise influence effectively.
So, we conclude that yes, Boards should be mitigating Referendum risk by greater financial, risk management and strategic expertise. But the Chairman would also do well to bolster stakeholder engagement skills in the Board. As the Referendum approaches, the Corporate Affairs director, with a good understanding of government relations, will be a major asset in the boardroom.
Fidelio High Notes
- Fidelio’s inaugural Board Development Programme, “A Seat at the Table” is designed for Senior Female Executives and will take place at the Royal Military Academy Sandhurst in September.
- Fidelio hosts Board breakfasts with Kuseni Dlamini, Chairman of Massmart, the leading African retailer, and Margaret Casely-Hayford, Chairman of ActionAid UK.
- Fidelio will host a breakfast for Communications Leaders in September to discuss the skills and expertise needed for effective stakeholder engagement ahead of the UK referendum.
- Fidelio supports Chairmen in increasing Board effectiveness – key topics include activism.
- Fidelio is currently conducting Executive Searches on a Pan-European basis with a focus on senior Communications, Finance and IR roles, including Advisory.
Please contact us with comments or for more information at info@fideliopartners.com