28 March 2016 by Henry Ker
The vote on whether the UK should exit the European Union (Brexit) will take place on 23 June. Despite this potentially huge shake up of the UK’s relationship with the rest of Europe, there does not seem to be much movement by businesses in public support of one result or another.
We asked the Governance and Compliance/Core community whether their board had considered the implications of Brexit. This question has been regularly asked in the FT−ICSA Boardroom Bellwether survey – the Winter 2015 edition found that only 26% of FTSE 350 boards have considered it. The respondents to this Quick Question had a much higher engagement percentage, with 41% answering ‘yes’, 47% ‘no’ and 12% did not know. This may be due to the closer proximity of the referendum, but it is surprising that nearly half of boards have still not considered the outcome. Although, as one respondent commented ‘The board believes there would be a long lead in, so plans could be considered and made [after the result].’
We then asked what effect Brexit would have on our respondents’ organisations. A significant proportion are ‘unsure’ of what it would mean. Yet nearly a third thought it would have little or limited negative effect on their organisation. The respondents said that the effect would depend on the sector the organisation operates in: ‘Our company is within the insurance broking sector and has mostly US or UK based clients, so I do not think it would have too much of an effect’. The size of the company’s market also played a part in this, for example being entirely UK based: ‘Limited impact as we operate wholly in the UK transport sector. We might lose some development grants that are currently available to us’ and another said ‘98% UK trade sales − unlikely to have much effect’. Alternatively, operating in a global market would see similar results: ‘Minimal as we are a global financial services organisation’ and another ‘Operations are on a global scale and therefore Brexit would not cause the significant problems that both in/out parties are forecasting!’
Two respondents felt there would be positive changes in the event of Brexit, one said: ‘[it]… relates to some of the EU regulations on certain grants and tax relief, such as EIS and R&D tax credits. We have relied heavily on EIS relief for investors over recent years, and having qualified for this relief know it is a big attraction to investors. In recent years EU regulations have made it increasingly difficult for companies to qualify for this relief.’
Of those who felt there would be a adverse effect on their organisation, there were varied responses as to why. A common concern was cross-border business in the financial sector: ‘Brexit would restrict trading severely. Cross selling/passporting of funds could be hindered’. This led into the effect of likely changes to law and regulation: ‘Although there would be greater autonomy under UK laws and regulations, passporting and distribution of funds could become more challenging; EU domiciled subsidiaries or branches would need to be formed; contingency planning would need to be overhauled; meeting EU regulations and requirements could present challenges when conflicting with UK law; AIFMD and MiFID requirements would need to be reviewed. Costly to implement new rules’. Others stated: ‘Biggest impact will be volatility in markets from uncertainty key for providing returns to our pension and protection policyholders’.
Despite views on the effect of Brexit from all sides, the reality remains unclear. As one respondent said: ‘The simple truth is, at the moment, no one knows how the landscape will look after the referendum.’
Simon Osborne, Chief Executive of ICSA, commented on the survey, 'Whilst not all organisations operate within Europe, it is surprising that boards are not at least considering the knock-on effect that an exit could have on the underlying economy. If sterling goes into freefall this will have an impact regardless of whether or not they have import or export agreements with Europe. Boards really need to be thinking about some of the potential implications like staff supply, grants, access to markets and regulatory arbitrage now, whatever the sector. We will be covering the issue of Brexit in some detail in our next Boardroom Bellwether survey which is due to be published on 23 May, just one month before the referendum.'
If you are a company secretary or governance professional at a leading UK business, and you would like to take part in or comment on future surveys, email firstname.lastname@example.org
Conducted in association with The Core Partnership