Governance Watch - Issue 53

Limbo and Further Limbo

Endless Brexit uncertainty was always going to be bad for corporate governance in the United Kingdom. But on one level, it seems it can be big business. The Financial Times reports that asset managers have paid UK politicians an awful lot of money for speeches and advice over the past year, to help with investment decisions. 

Politicians are required to disclose any additional income in the publicly available register of members’ financial interests. There have been payments on both sides of the Brexit vote. But, as the FT points out, the biggest payment (by far, it seems) by an investment company was made to Boris Johnson, “the former foreign secretary and a probable contender for leadership of the Conservative Party, who received £95,507 from GoldenTree Asset Management, a New York hedge fund manager, for a speech in November. He also received travel and accommodation, details of which are not disclosed.” 

The report quotes Mick McAteer, co-director at the Financial Inclusion Centre, a consumer advocacy group: “The image of a cosy financial relationship between the City and Westminster politicians will do nothing to improve trust in either.” Ah yes, trust – often covered here, as in the previous column

On an anecdotal level, it was even suggested to me months ago by a very distinguished businessman that I start a little Brexit business aimed at Indian companies, keeping them informed with a weekly newsletter, and consultancy. “But I don’t know anything – and neither does anyone else” I ventured. “Yes, but you could facilitate meetings with the great and the good” was the response. Hmm – quite apart from the dubious ethics of such a venture, it seems clear that they don’t know anything either. Facilitating such meetings would merely add to the burden of a civil service already struggling with living in a parallel universe. 

Limbo is taking its toll on business, as survey after survey reveals. According to the Deloitte 2019 CFO survey out this week, eight in ten CFOs (81%) say they expect the long-term business environment to be worse as a result of the UK leaving the European Union. This is the highest level since the EU referendum in 2016. It suggests that decisions which cost money and are seen as non-essential, will remain on hold. 

The survey took place between 26th March and 7th April, 2019. It finds 50% of CFOs now expect a decline in revenues in the next 12 months (up from 18% in Q1 2018) and 79% expect operating costs to rise in the next year. Almost a fifth of CFOs (18%) now report that credit is hard to get, up from 4% two years ago. 

“Large businesses are clearly looking to protect themselves against risk by raising cash levels and bullet-proofing balance sheets. While last week’s announcement on a further deferral of the UK’s departure from the EU removes an immediate unknown, the continuation of uncertainty is causing much frustration for UK businesses…..Businesses remain in a period of further limbo” said David Sproul, senior partner and chief executive of Deloitte North West Europe.


We continue to debate productivity in the UK, with good reason. We also speak a great deal – and spend business resources on corporate governance ‘expertise’, on employee engagement and increasingly on employee well-being, including a greater awareness of mental health. The common ground there is the employee, the worker, the human capital of the business.

Figures just out from The Conference Board, a US non-profit research group, paint a stark picture of UK productivity. Productivity growth measured as output per hour has been on a slowing growth path over the past three years, from 0.8% in 2017, to 0.5% in 2018 and now projected at just 0.2% in 2019. “Nowhere among large mature economies was the drop in productivity growth rates between 2000-2007 and 2010-2017 bigger than in the UK, namely from 2.2% to 0.5% respectively (Table 3).”

While strong employment performance was in part offsetting the UK’s productivity growth between 2010-2017, says the report, the growth rate of hours worked has rapidly declined recently (Table 3). It adds that the level of labour productivity in the UK remains relatively low compared to the United States (76% of the US level in 2018) or even Germany and France (96% and 94% of the US level in 2018 respectively). 

Whether or not you can blame Brexit for a problem that has been around for over a decade is debatable, but it is clearly not helping the ‘disconnect’ felt by many, and productivity is certainly likely to be influenced by that. As businesses struggle on in this limbo, they are likely to want to look for new ways to tackle familiar issues. 

Deloitte’s reading of the mood among CFOs may scream ‘risk averse’ but it has often been the case that innovation yields the more cost effective solution. For some thoughts on finding a way to join the dots between better governance, engagement and better business and experimenting with some fundamental changes of thinking on leadership and ethics, see my latest post on Board Talk. 


It is safe to say that we are in a mess about what to do about audit, and the debate is ongoing. The recent BEIS Select Committee report has suggested the Big Four be broken up. Auditors have protested, while investors now say they will take directors and audit partners to task for their role in accounting scandals. 

It seems BDO has already started scenario planning to split its UK audit and non-audit businesses, as has KPMG

Meanwhile, Grant Thornton, the fifth largest audit firm in the UK, is now being investigated by the Financial Reporting Council (FRC) in connection with its audits of the collapsed outsourcer Interserve conducted in 2015, 2016 and 2017. It is also under regulatory scrutiny for its audit of collapsed bakery chain Patisserie Valerie. 

But it is not alone. The FRC is investigating KPMG over last year’s Carillion collapse, and Deloitte over the audit of Mitie in 2017. As the FT points out, Interserve’s advisers (including Grant Thornton) received £90m in fees over 12 months, which was more than the stock market value of the company before it collapsed. 

Something clearly isn’t working, but we might need to come out of limbo before it gets sorted out. 

Follow us on Twitter @ABExcellence

You can find us at Advanced Boardroom Excellence on LinkedIn