Boards expect their general counsel to play a pivotal role in Brexit planning. But does reality match expectations?
Despite recent Brexit developments, uncertainty remains over the UK’s future relationship with the EU. Large companies are responding to this uncertainty by triggering their contingency plans.
According to a survey of 100 large UK listed and unlisted companies, more than half (51 per cent) of businesses have already triggered Brexit contingency plans for a no-deal scenario. A further 40 per cent expect to do so by the end of 2018 if no trade deal or transitional arrangement has been agreed.
A quarter of boards would like their general counsel to take a greater role in Brexit planning
What contingency plans will be triggered first? The survey data reveals that many are being evaluated, from relatively minor changes to supplier arrangements to moving operations out of
Indeed, some 35 per cent of boards (and 39 per cent of general counsel) expect their non-UK subsidiaries to switch to EU-based suppliers and away from those based in the UK.
In parallel, 23 per cent of boards and 34 per cent of GCs say their businesses will likely reduce investment in the UK as a result of Brexit. Furthermore, 15 per cent of boards say their businesses are likely to move job roles out of the UK.
Risk assessment is vital
Detailed risk assessment and scenario planning need to take place before any contingency plans can be put into action. And the survey data reveals that boards want a range of Brexit risks to be assessed.
Two-thirds (64 per cent) want risks associated with restrictions on transfers of customer data between the UK and EU to be assessed. The same proportion want the impact of customs duties and tariffs applied to supplied goods imported into the UK/exported to the EU to be evaluated.
Most board members also expect risks related to supply chain disruption (58 per cent) and diminished ability to attract highly skilled workers (54 per cent) to be considered.
Boards do not just want the overall impact on their business to be analysed, but the effect on individual contacts.
Indeed, some 77 per cent of board members want their legal teams to review existing contracts for risk exposure, half of which only require this in relation to a sample of high-value or long-term contracts.
Five must-dos for GCs
- Boards want GCs to take a leading role. Take control of Brexit and plan for a range of scenarios.
- Ensure a broad range of business functions are represented at scenario planning sessions. Consider bringing in external expertise to inform your Brexit scenarios and provide a broad sector perspective.
- As a minimum, assess the impact of five key areas of risk on your business: customs duties and tariffs; supply chain disruption; labour shortages; restrictions on transfers of customer data; and risk exposure in contracts.
- Where major risks are identified, report these to the board immediately.
- Brexit-related disclosures in annual reports should become more specific as Brexit draws closer. Ensure the board and company secretary understand these risks when drafting and approving annual reports.
What is expected of GCs
What role should GCs play in all this? Quite a big one, according to boards.
The majority (57 per cent) of surveyed board members see GCs as important strategic advisers in preparing for Brexit. More than two-thirds (69 per cent) are satisfied with the level of their GC’s involvement in Brexit planning, while 25 per cent would welcome them taking a greater role.
There is therefore an opportunity for GCs to work more closely with their boards to help navigate the uncharted territory of Brexit successfully.
In addition to being strategic advisers, boards also want their GCs to take responsibility for specific Brexit planning initiatives. For example, nearly all (95 per cent) board members expect their GCs to notify them of any contractual, operational or legal risks arising from Brexit that might affect the financial performance of their business.
61 per cent of board members want their GCs to be responsible for Brexit scenario planning
In addition, some 61 per cent of board members want their GCs to be responsible for Brexit scenario planning and 37 per cent want them to take responsibility for co-ordinating the business’s response to Brexit.
Act now to meet the Brexit deadlines
Although most boards are happy with their legal teams’ efforts on Brexit, the survey data reveals that GCs must work at full throttle to meet boards’ timelines.
Of the board members that expect a detailed risk assessment from their legal team, 70 per cent expect this to be shared with them by June 2018. In contrast, only 47 per cent of GCs expect to share their risk assessment with their board by this deadline.
The key is therefore to ensure an open and regular dialogue between the boardroom and the GC’s office to bridge any mismatch in expectations.
About the research
This article is an extract of a larger report produced by The Lawyer and Pinsent Masons. Two distinct surveys were conducted for this report. In the first, The Lawyer surveyed 100 GCs at FTSE 100 and FTSE 250 companies. In the second, YouGov surveyed 100 board members of FTSE 100, FTSE 250 and private companies of equivalent size. The surveys were conducted at the same time, during January and February 2018.
Pinsent Masons operates a highly regarded cross-border, multidisciplinary Brexit Advisory Team which draws on the strength of our market-leading Government Affairs and Public Policy offering. Our clients operate in a broad range of sectors and we support businesses to understand the implications of Brexit and what practical steps can be taken to prepare for change.
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