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Bellwether Summer 2016

06 June 2016

Bellwether Summer 2016 - read more

With more gloom about the economy and frustrations over too much regulation, the latest FT–ICSA Boardroom Bellwether survey reveals tougher times for the board

Brexit

For the past year we have been asking for views on the importance of EU membership and the impact on companies if the UK is to leave. Despite warnings of years of economic uncertainty, and the polls predicting a close result, responses at the time of this survey – early April 2016 – show that companies are much less concerned about a British exit than before, although there is some evidence that it matters more to the FTSE 100 than it does to the 250.

Just over a third (37%) of companies regard membership of the EU as positive. Nearly half (45%) say that membership of the EU has neither a positive nor a negative impact on their business and a further 10% do not know.

However, only 7% view EU membership as negative for their business.
This change is striking compared with December 2015 figures, which showed 61% viewed EU membership as positive and only 25% were neutral.

Overall, 43% of respondents say that Brexit would be damaging to their business – just over half the 70% who thought it would a few months ago. Breaking down these results further reveals that 65% of the FTSE 100 anticipate that leaving the EU would cause some or significant damage and only 26% of the FTSE 250 agree. In the FTSE 250, 45% say there would be no change.

Despite this apparent lack of impact, when prompted, most respondents list currency and market volatility and an extended period of uncertainty while new arrangements are negotiated as key risks if the UK is to leave. All of these would affect future business performance, at least for a time.

Although these results show the FTSE relatively unmoved by the prospect of Brexit, it may be that as the vote gets even closer we will see opinion changing again.

The business environment

Economic confidence has dropped even further since our last survey in December 2015. Just 16% of respondents anticipate an improvement in global conditions, although in companies’ own industries the outlook is slightly better at 21%. There is only a slight change to the numbers predicting a decline and an increase in the respondents predicting no change.

The UK position is particularly bleak. We found that only 13% predict an improvement – down from 40% in December 2015 – and those anticipating further decline have more than doubled from 11% to 24%.

'Companies need to think about ways of broadening the candidate pool so they consider a diverse range of people with suitable experience'
Laura Carstensen, EHRC Commissioner

Culture, behaviour and trust

It is acknowledged that a rules-based approach will not bring about healthy corporate behaviour. A strong culture in which the values, standards and ethics of the organisation are well understood and communicated is an essential ingredient.

It is encouraging to see an increase in companies addressing culture and behaviour, particularly on the board. However, answers to our question about building public trust are disappointing, revealing a rather formulaic approach and a lack of innovative thought.

Diversity

The ambition to improve board diversity continues to concentrate minds. Our results have stayed fairly consistent over the past two years, with around two-thirds of boards reporting that they are diverse. Progress is still being made in the drive to improve gender balance – there is a small increase in the number of companies who have met or exceeded Lord Davies’ target – and we see a small improvement in the pipeline of potential female board members.

There is improvement in other areas of board diversity, with 34% now considering their board to be ethnically diverse − up from 25% in December 2015.

However, if significant progress is to be made it will be necessary to expand the talent pool further. One suggestion recently mooted has been the public advertising of vacancies, but two-thirds of our respondents do not believe that this will increase the diversity and quality of board appointments, so the search for a solution must continue.

Risk and compliance

With increased focus from regulators on risk and transparency in the years since the financial crash, boards are being forced to become more actively involved in risk management. This survey again shows that nearly all boards receive regular updates from a chief risk officer.

However, when we asked them to identify their greatest corporate governance issue, the overwhelming response is ‘over-regulation’ or ‘compliance for compliance’s sake’. To achieve effective risk management without stifling growth is viewed as a major challenge.

This is a real concern for both companies and regulators – how to provide sufficient assurance without reporting becoming a distraction.

Interestingly, despite the recent implementation of the Modern Slavery Act 2015, only 34% has actively reviewed its supply chain risks – although a further 22% have discussed it, but not determined a clear plan moving forward. A further third plan to review it in the short term.

'There has been a significant uplift in respondents saying that they have actively addressed culture and behaviour on the board'
David Styles, Director, Corporate Governance, FRC

For more highlights or to download the report in full, visit the Research section of the ICSA website.

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