11 December 2016 by Henry Ker
After the fallout from Brexit and with prolonged uncertainty in world markets, this latest FT−ICSA Bellwether survey shows business confidence is at an all-time low
Our last survey, carried out in the run-up to the EU referendum in June, saw roughly a quarter of respondents anticipating a decline in economic conditions both globally and in the UK. This time the outlook is even gloomier. About a third of boards (32%) now predict further decline in global economic conditions, with 16% – unchanged from May 2016 – anticipating improvement over the next year. Most are predicting no change.
In the UK the stance is much worse, with nearly three-quarters (72%) of these respondents firmly expecting that economic conditions will deteriorate further. This is a massive shift compared to the 24% who expected a decline six months ago and 11% in December 2015. Hardly any respondents (8%) think there will be any improvement, down again from 13% six months ago and a substantial drop compared with 40% last year.
Plans for capital expenditure remain broadly unchanged against last year but there are a few hopeful signs. Around a third of respondents suggest an increase and 15% a reduction, slightly more optimistic than the 21% from July 2015. Nearly half (48%) do not anticipate any change.
There is some suggestion that the FTSE 100 is more optimistic than the FTSE 250. Only 15% of the 100 expect a decline globally, compared with 44% of the 250.
In the weeks immediately before the EU referendum in June – and perhaps because many were expecting a ‘remain’ result – respondents were relaxed about the prospect of leaving the EU. Nearly half (45%) stated that membership had a neutral effect on their business and 39% stated that there would be no change if the UK were to leave.
Predictably, there is more concern now, with nearly 60% saying that leaving the EU will cause damage to their business.
The FTSE 250 is slightly more positive than the FTSE 100 about the prospect of leaving, although the majority still rank leaving as having a negative effect. Surprisingly, less than half (43%) of all respondents report Brexit as a principal risk.
These numbers contrast with those reported in the autumn 2016 QCA/YouGov Small and Mid-Cap Sentiment Index report, where 31% of respondents perceived Brexit as negative – but this may reflect the slightly different audiences.
Despite suggestions in the press in the days immediately after the referendum result, the vast majority (92%) are not considering moving their head office or a substantial part of their business from the UK to somewhere in the EU, with only 1% contemplating a move.
The structure and composition of boards remains in the spotlight and the drive to improve diversity continues. Although good progress has been made on increasing the number of women on boards over the last three years, results this time are disappointing.
Across the FTSE 350 just over half of our respondents have met or exceeded Lord Davies’ target, with a further 20% nearly there. This leaves 28% who have achieved less than 20% representation. Predictably the FTSE 100 is much further ahead, but a worrying 40% of FTSE 250 companies admit to being below the target.
Although the growth in ambition to improve representation is encouraging, it is taking a long time to reach the target. 61% of companies report they have plans to meet it (up from 52% in December 2015), but over half (up from 40% last year) believe that it will take at least another year to get there. This view is supported by our question about the sufficiency of the female pipeline, where 63% of respondents report it is insufficient. This is a significant increase compared with previous surveys, although this may point to a rising awareness of its importance.
The responses to our questions about other aspects of board diversity are disappointing, revealing lower ratings across all categories compared with the results from six months ago and this time last year. The number of companies rating their boards as ethnically diverse has dropped to 22% from 25% in December 2015 and 34% six months ago.
The government’s new commitment to ‘responsible capitalism’ and how to achieve it set the context for some new questions this time. We asked about the idea of worker representation on boards and/or remuneration committees. This is not popular, with 85% of respondents against it. In light of the collapse of BHS and the investigation into Sports Direct, we also asked whether boards think company law is sufficiently clear about directors’ duties – nearly everyone believes that it is.
“It is disappointing that many companies believe their talent pipelines aren’t improving. This should be a wake-up call to all businesses to nurture and develop new talent. Unless they do so we will never deliver on our collective ambition to make our boards diverse.”
David Isaac is Chair of the Equality and Human Rights Commission
As risk and compliance is also an increasing focus, we have continued to ask about perceptions of risk and how some of the newer regulations have been received. Cyber risk remains the risk perceived to be increasing by most respondents, with social media second, by some margin. Given the uncertainty over Brexit it might have been expected that political risk would rate more highly.
We also asked about the new Market Abuse Regulation (MAR) requirements, which were introduced in July 2016. Most respondents are managing the new rules without too much difficulty, but are critical about the support provided by the regulator and rely on guidance from professional bodies and advisory firms instead.
For more highlights or to download the FT−ICSA Boardroom Bellwether in full, visit icsa.org.uk/bellwether