12/01/2018 – News / UK / Brexit / Economy / Cyber Security
Pessimism over economy lessens – but Brexit, cyber security and diversity remain key issues for UK boards
A survey of FTSE 350 companies released this week finds economic pessimism gradually lifting, as confidence in global and UK economic conditions starts to return – despite continued concern about the impact of Brexit and an increase in the number of respondents citing Brexit as a principal risk. The latest FT-ICSA Boardroom Bellwether survey by ICSA: The Governance Institute – in association with the Financial Times – also reveals that concerns about cyber risk and boardroom diversity remain a worry for UK PLC.
The key findings of the winter 2017 survey, which canvasses the views of the FTSE 350 on the business environment and key governance issues such as board diversity, regulation, and risk and compliance, are as follows:
The UK economy
Expectations of improvement have returned to the levels seen in December 2016 (eight per cent), up from five per cent in summer 2017 – the lowest level since the surveys began in 2012. However, the current level of expectation for economic improvement is still down from the 13 per cent that immediately preceded the EU Referendum and well below the 40 per cent that was seen in the six months before that in winter 2015.
Confidence is on the rise, with 27 per cent of respondents anticipating an improvement in the next 12 months – up from 16 per cent in December 2016. Those anticipating a slight decline has decreased from 37 per cent of respondents down to 24 per cent in the latest survey.
“Economic confidence remains generally low, but we are starting to see signs of a recovery,” remarked Peter Swabey, Policy and Research Director at ICSA: The Governance Institute. “Capital expenditure and economic confidence often go hand-in-hand, and more respondents are anticipating an increase in Capex than at any time since our summer 2015 survey.”
Just over half (51 per cent) of respondents expect Brexit to cause ‘some’ or ‘significant damage’ to their business – marginally down from the summer 2017 survey (54 per cent), but up from 45 per cent in summer 2016 when the survey was carried out immediately before the EU Referendum vote.
“Some 18 months on, the impact of the UK’s vote to leave the EU continues to be felt with 51 per cent of respondents rating Brexit as potentially damaging and none believing it will have a positive impact,” continued Mr Swabey. “Despite this, only one respondent is considering moving its head office or a substantial part of its business from the UK to the EU. This is particularly interesting given that Brexit is indicated as a principal risk by 43 per cent – up from 34 per cent in summer 2017.”
Key governance findings of the survey include:
Cyber risk remains the top risk management concern with 80 per cent of respondents citing it as so (legal risk and political risk follow at 56 per cent each), with 90 per cent of respondents revealing that their board is increasing spending on mitigation of cyber risk.
“Unsurprisingly we are seeing an increase in the frequency with which boards or their committees consider exposure to cyber risk, with a quarter of respondents telling us that this happens at least quarterly and more than half of the rest at least twice a year,” reports Mr Swabey. “The five per cent that are considering cyber risk less than annually might give shareholders cause for concern,” he suggests.
Tax transparency and the public expectation that companies will not engage in aggressive tax avoidance is another hot topic, with 86 per cent of respondents disclosing that their board had discussed reputational or other risk around tax practices affecting their company. 52 per cent of respondents indicated that their boards felt that current policies and guidelines on sexual harassment in the workplace were fit for purpose, but some 33 per cent of respondents did not know, which suggests that the matter has not been discussed at board level – it should be, says Ksenia Zheltoukhova, Head of Research and Thought Leadership at CIPD.
“Sexual harassment claims emerging across all industries present businesses with a real reputational risk,” she points out. “Yet, people issues are still not on the top of the list in the boardroom conversation, and many senior executives have low understanding of risks associated with ineffective workforce planning, development and management. Boards urgently need to get a grasp on accurate and relevant people data, ensuring that HR has the remit and capability to deliver that insight.”
Elsewhere, progress towards more representative boards remains slow, in spite of high-profile initiatives such as the Davies, Hampton-Alexander and Parker Reviews to improve gender, ethnic and cultural diversity. While gender diversity is showing signs of gradual improvement (71 per cent of respondents rate their board as diverse in terms of gender – the highest figure since ICSA started tracking it in 2012), ethnic diversity remains an area of concern with only 31 per cent of respondents considering their board to be diverse and 53 per cent believing that it is not.
Furthermore, plans to develop a wide and diverse pool of ‘board-ready’ executives seem to be stagnating, with only 43 per cent of respondents believing their pipeline is sufficient – a notable drop from 53 per cent in summer 2017. This suggests that boards should play a more active role in managing their executive pipeline. “The changes to the UK Corporate Governance Code aim to improve succession planning practice through reporting on gender in the executive pipeline and board member contribution to long-term company performance,” says David Styles, Director of Corporate Governance at the Financial Reporting Council. “Company secretaries can influence improved board practices in those areas.”