London, 27 August 2019 – Boards lack confidence in the economy, with 69% of respondents to a survey of FTSE 350 companies published today by The Chartered Governance Institute believing that the UK economy will decline in the coming year. Just 7% expect an improvement and only 10% expect an improvement in the global economy. Despite the gloom, fears appear to be lessening over Brexit with fewer companies now rating an exit as damaging. UK PLC is on the fence about the effect of no-deal Brexit, however, with 40% believing it would be damaging, 40% believing it would not and 20% unsure.
The key findings of the summer FT-ICSA Boardroom Bellwether survey, a biannual survey in association with the Financial Times which canvasses the views of the FTSE 350 on the business environment and key governance issues, are as follows:
- UK economy: Confidence is low with only 7% of respondents anticipating an improvement in the next twelve months and 69% predicting a decline – a slight improvement on winter 2018 when 2% predicted improvement and 81% predicted a decline. Confidence is significantly lower than seen in the pre-EU Referendum survey of spring 2016 when just 24% of respondents expected a decline and 13% predicted an improvement. However, predictions about the outlook for companies’ own industries have rallied slightly with 43% predicting a decline (50% in winter 2018) and 35% predicting no change, up from 26% six months ago.
‘The continuing uncertainty about what a post-Brexit Britain might look like, muddled even further at the time of the survey by the Conservative party leadership contest and differing views with regard to a no-deal Brexit, has undoubtedly contributed to the pessimism that people are feeling,’ says Peter Swabey, Policy and Research Director at The Chartered Governance Institute
- Global economy: The majority of respondents (51%) predict a decline in global conditions, with just 10% predicting an improvement and 23% expecting conditions to remain the same.
‘Few predict an improvement in global economic conditions. With the trade war between the US and China still playing out, over twice as many people now fear a decline than was the case in summer 2018 when just 24% predicted a decline.’ (Peter Swabey)
- Brexit: Parts of the FTSE seem to be rallying in terms of how they view the impact of leaving the EU. Now 3% of respondents view leaving as positive, the first time we have seen an expression of this sentiment since summer 2017 when 2% of respondents saw an exit as positive. Fewer companies now rate an exit as potentially damaging (59% compared to 73% in winter 2018) and the number of respondents predicting no change for their business has increased from 28% to 38%. That said, the number of companies considering moving, or already having moved, a substantial part of their business from the UK to somewhere in the EU has increased – 12% as opposed to 4% six months ago and 3% a year ago. The number not considering this option, but that already have an EU subsidiary has risen from 25% in summer 2018 to 32%.
‘The fact that more companies have contingency plans in place might explain why just 29% of respondents are increasing inventory to prepare for a no-deal Brexit and fewer than half (49%) regard Brexit as a principal risk. That said, the number who consider Brexit to be a principal risk has increased since summer 2018 (up from 39%). Furthermore, plans to increase or decrease job numbers in the UK over the next year are unclear. A third of respondents expect to increase numbers, while a further third expect to decrease job numbers and 29% are unsure. With companies unsure of what trade and non-trade barriers might be in place come the end of the year, it seems evident that they are acting with a certain amount of caution.’ (Peter Swabey)
- Political environment: The perception of the UK Government as business-friendly has fallen from 29% in summer 2018 to 15% this summer. What is more, the number of respondents viewing the Government as not business-friendly has risen sharply from 13% in winter 2018 to 42%. Despite this, the opposition has not benefited with 81% of respondents viewing Labour as not business-friendly and not one respondent considering that it is, the lowest result since winter 2015 when 2% believed them to be business-friendly.
‘The survey was carried out before Boris Johnson was chosen as the Conservative leader, but it does seem that the business-bashing of recent times has taken its toll. The Government must remember that business plays a key part in creating wealth and employment.’ (Peter Swabey)
The key governance findings include:
- Boardroom diversity: The number of boards considered to be gender diverse has reached the highest level yet. Some 83% of respondents consider their boards to be gender diverse, up from 71% a year ago and almost two-thirds more than the 33% that believed so in winter 2016. Just 8% consider that their board is not gender diverse, up from 21% in summer 2018. Ethnic diversity remains the most concerning issue with just 26% of respondents considering their boards to be diverse, similar to summer 2018 (25%) but down from 32% in winter 2018.
‘It is disappointing that no real progress has been made in terms of ethnic diversity. While boards have become more diverse in some areas, such as gender, they are less diverse in others. Fewer than half of respondents (46%) consider their boards to be diverse in terms of geographical spread, down from 61% six months ago, and the number of directors with wider business experience is also dropping (77%, down from 89% in winter 2018). As a separate piece of research with London Business School’s Leadership Institute and Elisabeth Marx Associates showed in July, diversity of thought is at risk with the percentage of FTSE 100 directors with a financial background increasing and 25% of directors being alumni of Oxbridge or Harvard. (Peter Swabey)
- Risk management: Cyber risk is no longer the top concern for British businesses. Now 69% of respondents consider their cyber risk exposure to be increasing, a sharp drop from winter 2018 (87%). It might be that cyber risk is becoming less of an issue as 89% of respondents have increased their spending on mitigating it. Whatever the reason, cyber risk was only chosen by 25% as the major factor causing an increase in risk exposure, with 28% of respondents opting for other concerns, 19% selecting global economic risks, 13% choosing geo-political tension and just 9% opting for Brexit. For the first time we asked if respondents see climate change as a major risk. Just 6% do so, although it is clearly an issue that boards are grappling with as 72% of the boards that responded to the survey have discussed issues relating to climate change at least once in the past year.
- Workforce engagement: 42% of companies responding to the survey prefer the designated non-executive director option to get workforce voice into the boardroom. 26% opt for a combination of the other options put forward by the FRC. None of the companies that responded are planning to have an employee on the board.
- Executive pay: Remuneration committees now consider a variety of measures when deciding on executive pay. 95% consider pay structures and incentives across the wider workforce, up from 89% six months ago. The number considering the pay ratio between the chief executive and the average employee has increased substantially. Now 71% take this into consideration and just 29% do not, compared to 46% and 54% respectively a year ago. Consideration of the gender pay gap has also improved: 68% take it into consideration compared to 37% a year ago.
- Pay gap reporting: The number of companies taking action to reduce the gender pay gap has been relatively consistent (68% this survey; 65% six months ago and 69% a year ago). The number of companies that have made changes to policies and strategies as a result of reporting on the issue has increased from 9% in winter 2017 to 29%. According to Matthew Fell, CBI Chief UK Policy Director ‘Action by companies to close the gender pay gap is only part of the solution. Many of the causes lie outside the workplace, including a lack of affordable, high-quality childcare and better careers advice. The best way to deliver the long-terms, lasting change that’s needed is by business and government working together in partnership on these issues.’
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Notes to Editors:
- The Chartered Governance Institute 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 over 125 years’ experience, we work with regulators and policy makers to champion high standards of governance and provide qualifications, training and guidance. Website: www.icsa.org.uk
- The Financial Times is one of the world’s leading business news organisations, recognised internationally for its authority, integrity and accuracy. The FT has a record paying readership of one million, three-quarters of which are digital subscriptions. It is part of Nikkei Inc., which provides a broad range of information, news and services for the global business community.
- The full report, which is based upon the responses of 65 FTSE 350 companies, is available to download at www.icsa.org.uk/bellwether