February 12, 2018
Welcome to FTI Consulting’s Brexit in the Boardroom survey report.
With the Brexit deadline of 29 March 2019 now looming, the reality is starting to hit home and businesses across Europe now believe that it really is going to happen. In Phase 2 of the negotiations, discussions have turned to the UK’s trade arrangements and what the transition period will look like, but much uncertainty and speculation still remain.
In our latest survey, Brexit in the Boardroom, we spoke with over 2,500 leaders of large businesses across four major EU economies (France, Germany, Spain and the UK) to better understand how their organisations are reacting to events and planning in this time of high uncertainty.
It is encouraging to see that many businesses across Europe are taking action to understand and deal with Brexit, or will be in the near future: 83% of organisations have Brexit taskforces in place.
It is surprising, however, to see that the overriding sentiment from our survey was one of business confidence – 68% of firms overall feel that they are ‘prepared’ for Brexit despite the deep political uncertainty over what form it will take. In addition, most are feeling positive about their business performance in the 12 months following Brexit. This air of confidence in the future is in marked contrast to the assessment of many economists and analysts who see significant post-Brexit issues for both UK and EU27 economies, and a lack of clarity in the outcome that is making business decisions challenging.
From what we are already seeing in our clients’ businesses, taking early action to deal with the impact of Brexit is essential to being able to mitigate the consequences, plan ahead, manage disruption to customers and maximise potential to benefit from new opportunities. For businesses to be able to make optimal decisions about their future in the post-Brexit world, it will be important that they have a full understanding of all potential outcomes, and the required time to take action. In this regard, the proposal of a minimum two-year transition period may have calmed collective nerves, and postponed some of the more radical contingency plans; but in our view, now is the time for businesses to ensure they have the full picture and don’t just plan for the optimal outcome. We believe the phrase ‘plan for the worst and hope for the best’ is highly relevant at this time.
I hope that you will find the survey results interesting. Please get in touch if you would like to discuss how we can help your business prepare for the Brexit challenges ahead.
– John Maloney, Head of Brexit Taskforce
Our findings show that while 64% of businesses across Europe are concerned about the UK’s departure from the EU, the vast majority are also relatively optimistic about the likely impact that Brexit will have on their business growth. Yet with much still to be determined around the outcomes of Brexit, and our results showing that much is still to be done for businesses to be ready, is this sentiment overly optimistic?
This survey was conducted during and following Phase 1 of the Brexit negotiations in December 2017. We asked over 2,500 companies in the UK, Germany, France and Spain for their thoughts about Brexit and its likely impact on their business.
The questions have been divided into three parts: (i) what businesses think will happen in the negotiations; (ii) what they believe the impact will be on their business; (iii) how they are preparing themselves.
Key findings include:
We are therefore left with a slightly contrasting set of conclusions. On the one hand, companies are telling us that they believe the outcome of Brexit may not be substantially different from the status quo and that the impact will be less severe than many others have predicted. On the other hand, they are also clearly taking it seriously enough to allocate resource and money to internal teams that are preparing for and managing events as they unfold.
This duality should be of concern to both policymakers and business leaders. It’s an indication that the potential severity of Brexit has not yet been fully factored into business planning – perhaps because the outcome of negotiations is still unclear at this stage, because businesses simply believe that a ‘soft Brexit’ deal will be done, or because the wider macroeconomic conditions appear relatively positive so any impact is offset by general economic improvement.
Whatever the reason, the data our survey has produced will provide food for thought for UK authorities and the EU institutions, as well as those companies who have potentially not addressed the full range of issues that are arising from Brexit or the maximum range of outcomes. We believe that if they have not done so already, they should now consider doing so.
We end the report by highlighting a range of different business structures adopted by companies across a variety of sectors in response to Brexit. There is no one-size-fits-all approach, but best practices can be identified to ensure that firms are well placed to address the various operational, financial and legal issues that will inevitably arise.
The first set of questions we asked businesses related to what they think will happen on Brexit in terms of the timeline and outcomes, as well as whether they think Brexit will have a positive or negative effect.
A surprisingly large number of companies expect to have clarity about the future relationship between the UK and the EU by early Spring 2018. Over half (55%) of all firms across the four countries said that they expect to have clarity by March 2018, with that number increasing to 75% by June 2018.
Given that, historically, negotiations with the EU tend to run up to the “11th hour”, as Secretary of State for Exiting the EU, David Davis, told the UK Parliament’s Brexit Select Committee in October 20171, this optimism is surprising. Negotiators on both sides have frequently referred to the need for clarity for businesses ‘as soon as possible’, but it’s unlikely that either the UK or the EU could offer any assurances that such clarity will be given in the timeframes put forward in our survey.
There is also some disparity between the opinions of business people across the four countries we surveyed on this subject. French businesses seem to be far more confident than their counterparts in saying when there will be clarity on Brexit. In fact, 31% of French businesses say they have clarity now – compared with 19% in the UK, 15% in Spain, and 14% in Germany. This is even more pronounced in financial services, where 40% of French firms say they have clarity on the future UK-EU relationship now, as opposed to 22% in the UK, 20% in Germany, and 17% in Spain.
Companies also expressed the need to make ‘irreversible’ changes to their business in similar timeframes to when they expect to have clarity on Brexit. When asked for a timeframe, 53% of respondents said they would make such changes by March 2018, and 73% by June 2018. Indeed, just over a fifth of all companies said they had already made those decisions. And, again, French businesses appear to have done more than their counterparts. For example, in financial services 36% of French firms said they had already made irreversible decisions, against 27% in Spain, 26% in the UK and just 14% in Germany.
From these results, we can see that businesses are generally expecting to deal with Brexit – both in terms of knowing what will happen and making the key decisions needed – in the short term, and certainly a lot sooner than either UK or EU negotiators have indicated. This may suggest that there is some complacency within businesses concerning the potential impact of Brexit, or that they believe an outcome to be within easy reach. In more practical terms, it could simply be a reflection of the necessity of making irreversible decisions soon in order to secure the future prosperity of the company, regardless of the outcome of negotiations. What is clear from these responses is that the next few months are critical for the Brexit negotiations to provide the kind of clarity that businesses need. It is therefore important that businesses engage directly with political leaders and officials from both sides, and outline the challenges they are facing now, if their concerns are to be factored into the negotiations.
When asked about the UK leaving the EU, a small majority of companies in the UK, Germany and France believed that it was ‘best’ for the UK to leave the EU. However, Spanish firms tended to see Brexit as more negative – with majorities across the main sectors saying that the UK remaining in the EU was preferable.
What is interesting to note is the change when it comes to personal perspectives. When asked this question, individual respondents tended to be more in favour of Brexit than when they answered in relation to their business, their country’s economy or the EU economy. UK respondents were slightly less positive than the other three countries but, as chart 4 shows, significant majorities in all countries said it was best for the UK to leave the EU – at an average of 67%. This compares to 52% saying Brexit was best when asked in relation to their business or the economy. This could indicate that, when unshackled from their managerial responsibilities, company leaders are more relaxed about Brexit and – in fact – just want politicians to ‘get on with it’ so that they can return to a stable business climate. It is also interesting to note the differences here between those responding to our survey and the public interventions by business representative bodies in those countries. The Bundesverband der Deutschen Industrie (BDI) and Mouvement des Entreprises de France (MEDEF) – the equivalents to the UK’s Confederation of British Industry (CBI) – have made plain their serious concerns about Brexit. Why so many of the businesses in these countries seem to take a different approach when asked individually is unclear.
Most businesses agree that Brexit will actually happen. On average, 30% of companies across the four countries said that Brexit will definitely happen, with a further 47% saying it has a greater than 50% chance of happening. French businesses were most certain, with a mean percentage chance registering at 72%, against 68% in the UK, 66% in Germany, and 65% in Spain. These numbers were fairly consistent across the sectors. French financial services businesses were the most certain Brexit will happen (at a mean of 79%), whilst Spanish manufacturing firms were the least certain (at a mean of 55%).
Secondly, we asked a series of questions about what deal the UK will have after it has formally left the EU – regarding tariff-free access for goods; free movement of EU citizens; financial passporting into the single market; and jurisdiction of the ECJ.
Oddly, most businesses believed the UK would have all these elements, with tariff-free access for goods scoring the highest at 65%, against 59% for free movement, 58% for financial passporting, and 52% for ECJ jurisdiction.
Perhaps unsurprisingly, UK businesses were more optimistic than their counterparts. 75% of all UK firms said they would have tariff-free access for goods, whilst 64% of German, 63% of French, and only 59% of Spanish firms agreed.
On the more contentious issue of financial passporting, UK financial services firms were again far more optimistic about securing these rights than their counterparts. A huge 71% of financial services firms believed that they would have financial passporting rights post-Brexit (lowering slightly for all UK businesses to 67%), with 59% of German, 56% of Spanish, and only 51% of French financial services businesses saying the same. Even though these numbers are lower than in the UK, they are still remarkably high considering the fact that senior EU officials have made it clear that the UK leaving the single market means a loss of financial passporting rights as part of a future trading relationship. As Michel Barnier, the EU’s chief negotiator himself, said in November 2017: “The legal consequence of Brexit is that the UK financial service providers lose their EU passport.”2
What is even more surprising is the number of businesses who believe free movement of EU citizens and ECJ jurisdiction over the UK will be maintained. For example, 76% of Spanish financial services firms believed free movement would be maintained. Tellingly, 65% of British financial services firms believed that ECJ jurisdiction would continue – reflecting the fact that passporting rights are intricately linked to ECJ jurisprudence and a vast array of EU regulation.
Given the difficulties and compromises both sides faced during Phase 1 of the negotiations, it is interesting to see the levels of confidence amongst business leaders. This could offer potential comfort to Brexiteers, who might argue that this shows that businesses are operating rationally and not seeing Brexit as some sort of cataclysmic event. On the other hand, others may view these figures with some dismay at the lack of concern across the four countries we surveyed – particularly when the rhetoric from both sides seems to discount a number of options that businesses would favour.
As we will see in the next sections, however, businesses are in fact taking significant actions to mitigate the risks of Brexit and ensure the change is managed effectively.
This research was conducted by FTI Consulting’s Strategy Consulting & Research team from4-19th December 2017, involving n=2,568 senior decision makers in large corporates across the United Kingdom, Germany, France and Spain.
The country-specific breakdown is as follows:
• United Kingdom: n=642
• Germany: n=632
• France: n=646
• Spain: n=648
Please note that the standard convention for rounding has been applied and consequently some totals do not add up to 100.
Further information on the results and methodology can be obtained by emailing email@example.com