European corporate governance: Are you prepared for the end of the Brexit transition period?
On January 31st this year, the UK officially left the EU. Organisations can therefore be forgiven for thinking at the time that Brexit would be the big-ticket issue dominating European business headlines in 2020.
As we all now know, Covid-19 had other plans. The novel coronavirus had (and continues to have) an unprecedented impact on peoples’ lives, bringing businesses and the wider economy to a standstill in many countries. Despite this, we’ve been encouraged to see how quickly and efficiently our clients have risen to the unique challenges posed by the pandemic.
But the end of the Brexit transition period is looming. At the time of writing, the UK Government is yet to agree a trade deal with the EU, and discussions have become increasingly prickly between the respective negotiating teams.
Both sides have claimed they are fully prepared for a ‘no-deal’ Brexit if they cannot come to a mutual agreement in the coming weeks. How much of this brinkmanship is just political posturing? That’s yet to be seen.
And while the transition period doesn’t officially end until December 31st, 2020, it will take several weeks for the 1,000+ page treaty to go through the ratification process in both UK and European Parliaments.
Are businesses prepared? What challenges do they face in a post-Brexit world? And how can European firms strengthen their governance systems and teams ahead of the split?
Preparation falters as Covid-19 takes hold
With so much uncertainty still surrounding Covid-19 and Brexit, it’s hardly surprising that many businesses feel unprepared for the end of the transition period.
On September 23rd, Michael Gove, the chancellor of the Duchy of Lancaster, told the House of Commons that just 24% of companies believe they are fully ready. In fact, 43% still thought the transition period would be extended, despite the legal deadline for an extension passing months ago in June.
Small and medium-sized enterprises (SMEs) in the UK are especially struggling. Mr Gove claimed that in a worst-case scenario only 20% would be ready to export to the EU once the transition period ends. The Federation of Small Businesses had similarly sobering news; it’s survey data, published in late September, shows only 21% of SMEs have made preparations for a no-deal Brexit, with 63% saying they feel unable to plan at all.
“Ongoing uncertainty is to blame for preparations hitting the skids, with the picture still not clear as to how the UK will leave the EU,” said National FSB Chair Mike Cherry.
What will happen to businesses that aren’t prepared for the end of the transition period? That’s the million euro question. Unpredictability has been the hallmark of Brexit ever since the EU Referendum result in 2016, so we’re reluctant to make any firm forecasts here.
What we do know is there are still multiple different scenarios that could play out. We would urge businesses to continue making arrangements to the best of their ability to mitigate as many nasty surprises as possible over the coming months.
Post-Brexit challenges for European governance
Much of the national research on post-Brexit preparedness backs up what we’re seeing on the ground here at Barclay Simpson.
Across the core disciplines of corporate governance – risk, compliance, legal, internal audit and treasury – large firms have been making the necessary investments to prepare for the UK-EU split for some time. In many cases, strengthening infrastructure and operations in Europe had been a part of the long-term roadmap for growth anyway.
Nevertheless, large businesses that are currently using the Temporary Permissions Regime are still working hard to ensure they are ready to move to more permanent arrangements at the end of the year when passporting rights fall away. Getting the right infrastructure, people and resources in place for this has been easier said than done, given the added pressures of dealing with the pandemic.
European governance preparations have often been even trickier for SMEs. Some have simply not had the financial ability to make sweeping upfront changes, particularly as any money, time and resources expended could be wasted if these efforts don’t align with the final arrangements.
Unfortunately, the arrival of Covid-19 slowed UK-EU negotiations considerably and put some post-Brexit planning and decision-making completely on hold, including hiring intentions. Businesses that, understandably, opted for a wait-and-see approach may now be running out of time.
As I’ve mentioned, the true costs of failing to prepare adequately for the end of the transition period are difficult to quantify until the final arrangements are better understood. However, firms could potentially face serious business disruption and reputational damage, as well as legal ramifications, if governance structures aren’t compliant with the relevant regulatory regimes.
Governance recruitment in Europe
The good news for businesses looking to strengthen their European governance teams is that activity has returned to the recruitment market, having rebounded quickly from an inevitable drop in hiring when nations first entered lockdowns throughout February and March.
Most governments across Europe made significant economic interventions to support businesses and employees, and we’ve seen notable upturns in vacancies advertised across key financial hubs such as Frankfurt, Paris, Amsterdam, Luxembourg and Dublin. Madrid, Lisbon and Milan are also emerging as lower-cost locations that are benefiting because of passporting arrangements within the EU 27, which allow far greater ease of coverage and shared functions between companies and individual teams operating across borders throughout EU and EEA states.
In terms of hiring intentions, we have witnessed two broad categories of recruitment. Firms that haven’t quite cemented their Brexit plans continue to seek core governance hires, such as heads of compliance, operational risk, treasury and legal. These positions are essential for being granted a licence to operate and trade in certain jurisdictions, so placing these candidates has become a matter of some urgency.
Meanwhile, businesses that are a little further along with their post-Brexit preparations have begun to expand their existing European operations. They already have a solid regulatory spine in place and are now concentrating on adding substance to these teams, which typically comprises a second or even third layer of mid- and junior-level roles that will be needed to cope with increasing workloads.
All of that said, challenges still remain for businesses. Finding the right governance professionals is tricky at the best of times, but this task becomes even more difficult during times of uncertainty.
In some instances, we’ve seen candidates show some reluctance to make a big move at the moment due to concerns over the pandemic and market stability. A notable exception is the continued unfettered movement of non-UK EU nationals from London to all parts of Europe.
How Barclay Simpson can help
UK-EU trade talks have a ‘hard’ deadline of October 31st, although many believe negotiations will go into extra time, with mid-November considered the absolute latest point at which a deal could feasibly be struck (and ratified) before year-end.
As the clock ticks down, can businesses risk further delaying their hiring until the final arrangements are confirmed?
At Barclay Simpson, we have a dedicated European division to help clients and candidates overcome these challenges and achieve their goals on the continent. With 30 years’ experience within the corporate governance recruitment market, our business has a comprehensive understanding of the core functions of risk, compliance, internal audit, in-house legal and treasury.
Our team leverages this experience and knowledge to help clients and candidates navigate the complexities of the various recruitment markets across Europe, delivering key insights into the demands and expectations of different jurisdictions.
We offer hiring support on a retained or contingent basis, which are both available exclusively. Our consultants can also help shape what a particular role should look like, providing important information about regional talent pools, salary expectations and regulatory frameworks.
If you would like to discuss your post-Brexit hiring needs in more detail, or are hoping to take the next step in your European governance career, please contact us on 020 7936 2601 or email me at firstname.lastname@example.org for more information.