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FT窶的CSA Boardroom Bellwether 4 Insights into what UK boards are thinking from the survey of FTSE 350 company secretaries
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FT窶的CSA Boardroom Bellwether 4
Introducing the Boardroom Bellwether 4 The FT窶的CSA Boardroom Bellwether is a twice-yearly survey which seeks to gauge the sentiment inside UK boardrooms. The findings show how boards are positioning themselves to address the challenges of the economy, and the wider business and social climate in which they operate. The survey canvasses the views of the company secretaries of the FTSE 350, and the data is analysed in an aggregated and anonymised form. Questions cover a range of general business and topical issues, as well as more specific governance matters. While some questions change from survey to survey, the core remains the same to reveal trends and shifts in opinion. This report summarises the key findings of the fourth survey, undertaken in November 2013.1 If you have any questions or comments or thoughts to share on any of the issues it raises, please do get in touch.
Peter Swabey FCIS Policy and Research Director, ICSA pswabey@icsa.org.uk #FTICSABellwether
1 For the full results visit www.icsa.org.uk/bellwether. w w w. ic sa . o r g. uk /be llwe the r
DECEMBER 2013
Contents Contents Overview: themes and trends
1 2–3
Economic confidence
4
The impact of Scotland and London
5
Business confidence in political parties
6
Autumn statement wish list
7
The impact of EU membership
8
Reputational risk and board calibre
9
Gender diversity
10–11
Wider diversity
12
Remuneration
13
Shareholder engagement plans and quarterly reporting
14
Proxy advisors and audit
15
Cyber risk
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FT窶的CSA Boardroom Bellwether 4
Overview: themes and trends Economy
Political
Wider developments
More confidence in UK economy
Growing perception that the Coalition Government is more business-friendly than the Opposition
EU membership
Perception of the economic outlook has improved again across global, UK and own industry segments, although of the three, respondents more confident about UK and then global markets. See page 6.
For the first time the Government is perceived as business friendly, with the perception of the Opposition falling even further. See page 8.
Increase to 42% who considered that EU membership has a positive impact. See page 7.
Remuneration Shareholder relations Shareholder engagement is improving, maybe because of the high profile of issues such as remuneration at the AGM, and the growing awareness of the need to (be seen to) do something. Possibly the debate around the controversial role and activities of proxy voting agencies is encouraging companies to strengthen direct relationships with investors. The number of companies with a plan for engaging with investors has risen markedly, from 60% to 87%. 24% of respondents said they were likely to continue with quarterly reporting. See page 16.
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There is still some way to go before public trust restored in company pay arrangements. Despite the new remuneration guidelines, 76% did not feel public concerns would be allayed. Most companies are planning changes to some aspects of pay. See page 15.
DECEMBER 2013
Board
Reputational risk
Capital expenditure
Diversity (all types)
Not putting off good calibre candidates
Companies looking to increase cap-ex and happy with credit rating
65% of respondents did not think that increased reputational risk made it harder to recruit candidates of the right calibre, nor are talented executives transferring to private equity owned businesses. See page 11.
Notable increase in respondents expecting to increase cap-ex. A surprising 82% believed their credit rating was correctly set, despite many complaining about ability to access debt markets.
Gender diversity is improving, as is confidence in achieving targets and pipelines in the future which is good, given the reduction in confidence that the Government will not introduce quotas. Wider business experience and geographical diversity are also improved. See pages 12 and 14.
Audit
Cyber More companies are taking the risk seriously and taking action to evaluate and mitigate their own risk. Over three-quarters of respondents think that exposure to cyber risk is increasing, and the number of companies which have discussed the Government guidance has jumped from 21% to 67%. See page 18.
Proxy agencies The number of respondents who considered the influence of proxy advisers to be negative had increased from 40% to 62% (and those believing they have a positive impact had reduced from 17% to 5%). See page 17.
Companies relaxed over tendering requirements Over 50% of respondents were relaxed about the requirement to tender their audit every ten years (possibly because they will retain control over the process and final outcome), and 55% don’t plan on going out to tender or changing auditor in the next two years. See page 17.
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FT窶的CSA Boardroom Bellwether 4
Economic confidence Respondents perceive that the economic outlook is improving globally, in the UK and within industry sectors. The greatest overall increase is in the UK this survey, as well as since the survey began, with 80% of respondents now believing that UK economic conditions are improving.
Expectations of changes to economic conditions over the next 12 months
80%
69%
Improvement
56%
Improvement
Improvement
5% Decline
Global economic conditions 4 ﾂｷ w w w. ic sa. org. uk /be llwe the r
2%
13% Decline
Decline
UK economic conditions
Your industry
DECEMBER 2013
Scotland and London The impact of Scotland If Scotland voted for independence in the referendum on 18 September 2014, none of the respondents felt that it would benefit their business. 67% thought that it would have no impact, and 13% anticipated that it would be detrimental.
The impact of London 60% of respondents were unsure if London was winning or losing in competition with other global financial centres. The lack of conviction confirms the strength of the competition from other jurisdictions. The remaining 40% of votes were equally split between winning, losing and neither.
The potential impact of Scottish independence on business
The case for and against London as a competitive global financial centre
67%
For London: Influx of foreign capital
13% 20% Detrimental
Not sure
Against London: Too much national and EU regulation
Strong, recession-proof demand for commercial and residential property
Undue penalisation of banks
Easy to do business
Poor transport links
No impact
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FT–ICSA Boardroom Bellwether 4
Business confidence in political parties The Government is being seen as generally good for business by 33% of respondents; a record high in this survey, up 14% since July. It is also the first time in the survey where the perception of business-friendliness of the Government has outstripped perceptions of business-unfriendliness. There was a corresponding shift in perceptions of the UK Opposition, with 68% of respondents currently feeling that it lacks business-friendliness. This is a 24% increase on July’s ‘business-unfriendliness’ rating for the Labour Party. How business-friendly does your company consider the UK Government to be?
Business-friendly
Neutral
Not business-friendly
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How business-friendly does your company consider the UK Opposition to be?
33% 45% 17%
Business-friendly Neutral
Not business-friendly
2% 20% 67%
DECEMBER 2013
Autumn statement wish list Respondents identified a range of key initiatives that their companies would most like to see introduced in the Autumn Statement on 5 December 2013, including:
Tax and spending reforms
Business rates
Pensions ¡ Wider compulsion on pension provision, i.e. pension savings
¡ Green tariffs through general taxation not energy bills ¡ Increase spending on infrastructure
¡ Reform of business rates relief
¡ Tax breaks to stimulate growth
¡ Review of business rates on commercial properties
Regulation ¡ Increase enterprise in the UK by streamlining legislation and regulation
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FT窶的CSA Boardroom Bellwether 4
The impact of EU membership 42% of respondents consider EU membership to have a positive impact on their business. This represents an increase from 21% since July 2013. However, only 40% of respondents have a view about a referendum on Europe, and are equally divided between those who support the idea, and those who do not.
The impact of EU membership on your business
15% Negative
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38% Neutral
42% Positive
DECEMBER 2013
Reputational risk and board calibre 65% of respondents don’t think that increased reputational risk makes it harder to recruit high calibre candidates. Similarly 64% consider that the risk of losing talented executives to private equity is low. These results are particularly interesting in the light of the 93% of respondents to the last survey believing reputational risk to be higher than it was 5 years ago, and 46% of previous respondents believing that it was (very) difficult to recruit candidates of sufficient calibre. It would appear that issues of reputational risk do not deter directors from assuming board appointments, and that the perceived shortage of skilled candidates is due to other reasons in addition to perceptions of reputational risk. Reputational risk as a barrier to quality boardroom appointments
Yes
24%
No
65% w w w. i csa . o r g .u k/ b ellwet h er · 9
FT窶的CSA Boardroom Bellwether 4
Gender diversity 51% of respondents consider that their board is diverse in terms of gender. This represents a clear increase from the 32% who were able to say this in July 2013.
The female executive pipeline It is also pleasing to see significant growth in the view that the quality of the female executive pipeline is sufficient to meet future need (from 4% in July 2013 to 26%). However, the doubters remain in the majority with 47%.
Gender diversity on the board
The effectiveness of the female executive pipeline
Diverse
51%
Not diverse
24%
Neutral
24%
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22% Neutral
25% Sufficient
47% Insufficient
DECEMBER 2013
Targets and quotas Pessimism about hitting Lord Davies’ target of a minimum of 25% female board member representation by 2015 has reduced, as have the respondents who believe that they will not meet the target.
This positive outlook matched by confidence that the Government will not introduce quotas, although one in ten think they will.
Companies expecting to meet Lord Davies’ target in 2015
Companies expecting the Government to introduce quotas
Will or will nearly hit target
57%
Won’t hit target
20%
Neutral
16%
67% No
11% Yes
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FT窶的CSA Boardroom Bellwether 4
Wider diversity It is noteworthy that the survey reports the business experience of boards increasing to 89% from 83%, and geographical diversity to 45% from 39%.
The wider business experience and geographical diversity of boards
45%
89%
Diverse
Diverse
2%
Not diverse
business experience 12 ﾂｷ w w w. i c s a. org. uk /be llwe the r
16% Not diverse
geographical diversity
DECEMBER 2013
Remuneration Despite the introduction of new remuneration guidelines, 76% of respondents don’t feel that the guidelines will allay public concerns about perceptions of excessive executive pay. A significant number of respondents are planning changes to various aspects of pay, though it’s not known to what extent such changes are being driven by investor, or wider political and public opinion, concerns.
Plans to change executive pay over the next 12 months*
31% 24%
Reviewing overall level of remuneration
Greater alignment of directors’ and shareholders’ interests
36%
Simplifying remuneration models
18% 4% Establishing a stronger link between pay and performance
35% Deferment of a larger proportion of pay over longer periods
Another approach
* Some respondents identified more than one strategy in response to this question. w w w. i csa . o rg.u k/ b ellw et h er · 1 3
FT–ICSA Boardroom Bellwether 4
Shareholder engagement plans and quarterly reporting The number of companies with a plan for engaging with investors has risen markedly since the last survey in July 2013, from 60% to 87%. Now that the EU has introduced provisions to abolish quarterly reporting, only 24% of respondents are likely to continue producing quarterly reports, possibly for non-EU regulatory reasons. 20% say they wouldn’t, and the majority, 53%, are undecided.
Companies likely to continue producing quarterly report
Yes
24%
No
20%
Don’t know/Haven’t decided
53%
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DECEMBER 2013
Proxy advisors and audit Respondents who consider the influence of proxy advisors to have a negative impact have grown from 40% in the last survey to 62%. Additionally, those who believe that they do have a positive impact have reduced from 17% in July 2013 to just 5%.
Twice as many respondents (51% compared to 25%) say that the quality of their audits would not suffer as a result of the requirement to re-tender the engagement of the auditor every ten years.
Perceptions of the influence of proxy advisors on shareholder engagement
The estimated degree to which audit quality will suffer from re-tendering requirements
16% Neutral
62% Negative
33% Neutral
5%
Positive
25% Yes
51% No
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FT–ICSA Boardroom Bellwether 4
Cyber risk Awareness of cyber risk is clearly growing, as 76% of respondents who believe that cyber risk is increasing demonstrate. Companies’ ability to address it is also improving – 31% feel that they are successfully identifying and mitigating risk, compared to 21% in July 2013. There was also a marked increase of companies, from 21% to 67%, who have discussed the Government’s Cyber Security Guidance, and a large reduction (from 28% to 2%) of those who have not seen it.
Companies’ assessment of their cyber risk management
Significantly mitigating the risk
External assistance to progress required
No clear way forward
Have not Don’t looked know/ but Not plan to sure
31%
16%
36%
9% 7%
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DECEMBER 2013
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