Boards at the UK’s largest public companies have become more worried about political risk after the June general election and as they face continuing uncertainty over the post-Brexit trading environment, according to research to be published on Monday.
The most recent Boardroom Bellwether, conducted twice a year by ICSA, the governance body, in conjunction with the Financial Times, found that two-thirds of FTSE 350 company secretaries surveyed believed political risk was increasing, compared with 40 per cent last December.
Peter Swabey, ICSA policy and research director, said the most likely explanation was uncertainty around Brexit negotiations and any transitional arrangements that might follow.
“But the result may also reflect some nervousness about the stability and longevity of the current UK government,” he said.
Sir John Parker, chairman of Anglo-American, said domestic political volatility led to increased risk aversion at board level.
“There is a greater aversion to capital spending, and there is certainly greater caution around capex spending and investment generally,” he said, although he pointed to recent decisions by JLR, Britain’s largest car manufacturer, to increase the hiring of engineers and BMW to build the electric version of the Mini in the UK, as counterpoints to such caution.
Sir John said “greater alignment and minimum division” among senior politicians would be helpful.
“There should be a big focus from government on how we retain our key companies and how we still make the UK an attractive place to invest,” he said.
Although rising political risk was rated as a greater concern than reputational risk or risks associated with social media for FTSE 100 companies, cyber risk was still of greatest concern. Eighty-five per cent of respondents believed that their exposure to cyber risk was increasing, up from four-fifths a year ago.
Boards remained pessimistic about the prospects for economic growth over the next year. Just 5 per cent expected the UK economy to improve over the next 12 months, down from 8 per cent in December and 13 per cent a year ago.
More than two-thirds predicted an economic decline, a large drop in confidence compared with the previous year’s survey, which was carried out in the weeks before the EU referendum. Then, only a quarter of respondents expected the economy to worsen, with another quarter saying future prospects depended on the outcome of the vote.
“With no clear plan yet announced by the UK government as to what might happen at the end of March 2019 if Brexit negotiations have not yet been resolved, a slowdown in consumer spending as prices rise and wages fail to keep up, plus infighting within the government and a precarious prime minister, it is little wonder that confidence is so low,” said Mr Swabey.
Despite these findings, only half of boards believed that Brexit would damage their own companies’ prospects, with 44 per cent expecting it to have no impact, up from a third six months ago.
Among the FTSE 100 respondents, 44 per cent thought there would be some or significant damage to their business, down from two-thirds in December and last summer. However, nearly two-thirds of FTSE 250 respondents expected their own companies’ prospects to be damaged, up from a quarter last summer.
Views on international economic prospects were less gloomy, with 29 per cent believing that these would improve over the next 12 months, up from 16 per cent in the two previous surveys. However, over a third — 37 per cent — expected international economic conditions to decline.
A quarter of the FTSE 100 and 34 FTSE 250 company secretaries responded to the survey.