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Bellwether Summer 2017: The views of the FTSE

29 August 2017

Bellwether Summer 2017: The views of the FTSE - Read more

Economic pessimism, political uncertainty and cyber risk mark the latest FT–ICSA Boardroom Bellwether survey of the FTSE 350, taken after the general election.

The business environment

Given the political and economic roller coaster of the first half of 2017, it is hardly surprising to find boards in this survey remain pessimistic about prospects for growth over the next year.

When asking about the outlook in the UK, our survey this summer finds respondents anticipating more misery.

With no clear plan yet revealed by the UK government as to what might happen in March 2019 if there is no deal at the end of the Brexit negotiations; a slowdown in consumer spending as prices rise and wages fail to keep up; infighting within the government; and an embattled prime minister, it is little wonder that confidence is so low.

Just 5% of respondents expect economic conditions in the UK to improve over the next year, down from 13% a year ago.

Over two-thirds (69%) predict a decline in the UK economy, consistent with 72% in winter last year, but representing a massive drop in confidence compared with the results of last summer’s survey, which was carried out in the weeks leading up to the EU referendum.

Then only a quarter of respondents expected the position to get worse, although a further quarter stated that future prospects were dependent on the outcome of the vote.

However, views on global economic conditions are more mixed. There is optimism from 29% of respondents who think the international position will improve, an increase on the 16% who felt the same way in the two previous surveys. This time, however, we also saw 37% anticipating further decline, up from 28% last year.

There is also a bit more hope expressed in the answers about companies’ own industries. Just over a quarter (27%) anticipate a slight improvement, up from the summer and winter surveys in 2016, but over a third (36%) still believe that conditions will decline – an increase on a year ago (31%) but down on winter 2016 (43%).

Brexit

A year after the EU Referendum, this survey suggests that views about the possible impact of Brexit seem to be settling. Overall, half (54%) of respondents thought that Brexit would cause some or significant damage to their business, a small drop from 59% in winter 2016, but still 11% ahead of the scores in summer 2016.

In comparison, 44% responded with ‘no change’ this time, up from 32% six months ago and 39% in summer 2016. There is evidence of some confidence returning to the FTSE 100, with 44% now thinking that there will be some or significant damage to their business, down from the two-thirds who thought so in both our surveys last year.

In contrast, the FTSE 250 is feeling more nervous with nearly two-thirds expecting some or significant damage, up slightly from 55% in winter 2016, and considerably up on the 26% in summer 2016.

Business likes certainty and, while the Brexit negotiations are underway, business confidence is likely to remain shaky until future trade arrangements become clearer. The mood among the FTSE 350 remains depressed as confidence in the UK economy hits a new low and Brexit causes increasing concern.

Diverse boards

The benefits of a balanced and well-integrated senior team are widely acknowledged, particularly when it comes to decision making. As the recently published report from ICSA and Henley Business School, ‘Conflict and Tension in the Boardroom’, points out:

‘Diversity creates healthy tension, particularly in terms of thinking, skills and experience. This translates into an ability to improve decision making and provoke robust debate using challenge and insight, without conflict.’

Yet, despite the desire for more representative boards, which combine a varied range of experience, culture, talent and mindset, the progress remains disappointingly slow. For the last three years we have seen opinions on the extent to which boards are gender diverse firmly stuck at around 66%.

Answers to our other questions to measure diversity have also remained pretty consistent, although there has been some improvement in ethnic diversity.

Most of the respondents to this survey reported that their boards had discussed the Parker Review, which encourages more ethnic diversity and inclusion, and the Hampton-Alexander Review, which continues the drive towards gender balance, so it is to be hoped that further progress will be seen in future surveys.

A company’s ability to improve diversity at senior level is in part connected to the breadth and depth of its talent pool. This time we asked not just what companies thought about the scope and adequacy of their executive pipeline, but how they were addressing any shortcomings.

It was disappointing to find that the 41% who felt their pipeline was insufficient did not seem to be implementing more sophisticated plans to resolve the situation. There is plenty of advice available to boards, nominations committees and HR departments, so we will continue to track progress in future surveys.

Risk

Worries about political risk have grown considerably compared with previous surveys. Two-thirds of respondents now rate political risk as increasing, up from 41% in winter last year and well ahead of reputation risk and social media risk. The most likely explanation here is, of course, the uncertainty around the Brexit negotiations and any transitional arrangements which may follow.

Predictably enough, cyber risk is still causing the most concern. 85% of respondents believe that their exposure to cyber risk is increasing – a slight increase from 82% in summer 2016.

Boards are seemingly also getting to grips with risks in the supply chain, including their exposure to slavery and corruption risk. Virtually all (91%) of respondents have reviewed their exposure (up from 57% in summer 2016) and two-thirds believe that they have been successful in mitigating the risk, compared with 16% last year.

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