London, 12 December 2015 – the latest biannual FT-ICSA Boardroom Bellwether survey of FTSE 350 companies finds business and economic confidence falling away, after a short-lived recovery in the summer. Seven months after the Conservative’s election win, respondents are much gloomier about prospects at home and abroad. Turmoil in world markets and the EU in/out debate are having a negative effect. Economic risk is a top concern and Brexit is viewed by most as damaging to business.
While companies fix their eyes on the middle distance, risks closer to home linked to reputation and poor succession planning are being ignored.
- UK economy: A slight improvement in UK economic conditions is anticipated by 40% of respondents
- Global economy: Only 28% of respondents anticipate an improvement in global economic conditions
- Brexit: An increased majority of respondents see UK membership of the EU as a positive
- Boardroom diversity: Only 25% of respondents feel their board to be ethnically diverse
- Succession planning: Just 37% have a sustainable pool of talented and diverse board members
- Risk: Economic risk came out on top followed by operational and reputational
- Social media: Only 25% describe social media strategy as important to the board
- Corporate culture: 75% of respondents are actively addressing culture and behaviour.
The main findings of the survey are:
- UK economy: 40% of respondents anticipate a slight improvement in UK economic conditions, a long way from the 74% who expected improvement in the summer. Those anticipating a decline amount to 11%, up 3% from the summer but slightly better than the 16% reported in December 2014.
- Global economy: Only 28% of respondents see an improvement in global economic conditions in the coming 12 months, down from 57% in the summer and 33% in December 2014. Just 28% of respondents have plans to expand during the next 12 months. In terms of capital expenditure, only 32% of respondents expect an increase, a marked reduction compared to 53% in summer 2015.
- Brexit: 61% of respondents (compared to 42% in December 2013) report that UK membership of the EU has a positive effect on their business. Views are becoming more entrenched - 70% think Brexit would be damaging and only 2% rate it as positive. Despite this only 26% of boards are considering the implications of a UK exit and only 4% are prepared to speak out publicly for or against.
‘Understandably, the focus on the EU referendum is beginning to concentrate minds. The findings in this report echo what most, though not all, CBI members tell us – the majority want to remain within a reformed EU,’ says Paul Drechsler CBE, President of the CBI - Boardroom diversity: Most of the attention has been around gender diversity rather than other indicators such as educational background and ethnicity. There is little change in the responses to diversity questions, suggesting that nomination committees still have a way to go to address the imbalances. Only 25% of respondents feel their board is ethnically diverse.
- Succession planning: It is surprising that this is still neglected, given board composition and forward planning should be major considerations for any board. Just 49% of respondents have a written board succession plan and only 37% feel their executive pipeline provides a sustainable pool of talented and diverse board members (a mere 18% for the female pipeline).
‘Considering the pressure to improve diversity and given the current Financial Reporting Council discussion document on succession planning, we might expect more nomination committees to take a proactive role in planning board composition,’ says Peter Swabey, Policy & Research Director at CGIUKI. ‘As David Styles, Director, Corporate Governance Codes and Standards Division at the FRC, points out: “The absence of a considered succession plan, can undermine a company’s effectiveness and pose a significant risk.”’ CGIUKI believes that a transparent long-term succession plan should be a governance priority to build trust and enable effective board performance.’
Other key findings include:
- Risk: There is no change to the top three risks identified by our sample. Economic risk came out on top followed by operational and reputational. Cyber risk and political risk are rated joint fourth.
- Cyber risk: A higher than ever 82% believe the threat of cyber attack is increasing. Three quarters have assessed and are mitigating this rise, with external help if needed. Nearly half have discussed the government’s ‘Ten Steps’ guidance, but less than a quarter, the Cyber Essentials scheme.
John Ludlow, a director at the IRM, commented: ‘Companies should undertake a cyber threat analysis by asking the question “who is out to get us, why could we be a target and what vulnerabilities would they exploit”. Simply assuming that the IT Department or the Chief Information Officer (CIO) is aware of all the threats and is in a position to respond to those threats is inadequate”. - Social media: Companies are concerned by reputation but do not seem to connect social media to this risk. Only 25% describe social media strategy as important to the board. With most companies using social media channels to build customer engagement, boards should be more aware of this.
- Corporate culture: 75% of respondents are actively addressing culture and behaviour in the wider organisation but less than half (44%) provide training on ethical behaviour and culture.
‘Corporate culture and tone is set in the boardroom and it can play an important role in restoring public trust in business. It can only work properly if it is completely embedded in an organisation and CGIUKI is currently involved in research about the role of the board in creating and maintaining a good culture. As Paul Drechsler comments in our Bellwether report “Companies will always be judged on how they do business and how they behave, not on their promises”,’ says Peter Swabey.
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Notes to Editors:
1 CGIUKI is the professional body for governance. We have members in all sectors and are required by our Royal Charter to lead ‘effective governance and efficient administration of commerce, industry and public affairs’. With more than 120 years’ experience, we work with regulators and policy makers to champion high standards of governance and provide qualifications, training and guidance.
Website: www.cgi.org.uk
2 The Winter 2015 FT-ICSA Boardroom Bellwether report can be viewed in full at www.cgi.org/bellwether
