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FT–ICSA Boardroom Bellwether 3 July 2013 www.icsaglobal.com

FT–ICSA Boardroom Bellwether 3 · dr 3 2 The FT–ICSA Boardroom Bellwether is a twice-yearly survey which seeks to gauge the sentiment inside UK boardrooms. The aim is to develop

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Page 1: FT–ICSA Boardroom Bellwether 3 · dr 3 2 The FT–ICSA Boardroom Bellwether is a twice-yearly survey which seeks to gauge the sentiment inside UK boardrooms. The aim is to develop

FT–ICSA Boardroom Bellwether 3July 2013

www.icsaglobal.com

Page 2: FT–ICSA Boardroom Bellwether 3 · dr 3 2 The FT–ICSA Boardroom Bellwether is a twice-yearly survey which seeks to gauge the sentiment inside UK boardrooms. The aim is to develop

FT–ICSA Boardroom Bellwether 3

w w w . i c s a g l o b a l . c o m2

The FT–ICSA Boardroom Bellwether is a twice-yearly survey which seeks to gauge the sentiment inside UK boardrooms. The aim is to develop a definitive business barometer, which shows 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 allow for trend analysis.

This report summarises the key findings of the third survey, and has been generated by responses from 53 companies from 20 sectors. The findings are considered representative of business sentiment across the FTSE 350, although circumstances differ from company to company.

The commentary that follows highlights some key areas of interest, and confirms the ongoing complexity of businesses’ operating environments, as companies seek to deal with issues of wider public policy at the same time as satisfying investors.

Company secretaries, in their role at the heart of the boardroom, enjoy a unique perspective of the way their boards are thinking and, through the advice that they offer, help their boards to navigate complex and sensitive issues.

We would like to thank everyone who made time to complete the survey, and welcome comment on the findings.

Seamus Gillen FCISDirector of Policy, [email protected]

About the FT–ICSA Boardroom Bellwether 3

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w w w . i c s a g l o b a l . c o m 3

Developments since March 2012 4

Risk, including cyber risk 5

The business environment 6–7

Engagement with investors 8–9

Gender diversity 10–11

Skills 12

Tax 13

Conclusions 14

Contents

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FT–ICSA Boardroom Bellwether 3

w w w . i c s a g l o b a l . c o m4

The most striking change captured by this recent survey, in comparison to the findings of 2012, is the perceived improvement in global and UK economic conditions – up from a mean score of 3.04 and 2.87 a year ago, to 3.51 and 3.43 now. These are statistically significant rises. Interestingly, when asked for respondents’ perceptions of their own industry, the rising trend is more muted.

Despite this, and disappointingly for the Government, there is an expectation of reducing UK headcount compared to increased recruitment overseas.

Capital expenditure looks set to rise slightly, but the mechanisms for capital raising (debt and/or equity) and expansion (acquisition and/or organic growth) remain substantially unchanged.

The figures confirm that the lowest area for intended growth, and the highest for retrenchment, is Continental Europe, despite increased confidence in the stability (i.e. no break-up) of the Euro zone.

The Government might take some comfort from the improved access to bank finance – one of their cornerstone policies – but the perception of the business-friendliness of both the Government and the opposition have barely changed since the last survey, and that of the Government remains marginally negative.

While there has not been a great deal of change in the perceived difficulties encountered by companies in recruiting staff of sufficient calibre, significant problems remain. However, those who consider that the Government should be focusing investment on education and skills have fallen by 50% in a year, and a third since the last survey.

Calls for investment in transport have substantially increased, where concern has more than doubled. Much of the latter increase is undoubtedly due to the debate on airport capacity in the south east of England, particularly London.

Immigration controls are seen as significantly less of an issue than at the time of the last survey.

Developments since March 2012

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w w w . i c s a g l o b a l . c o m 5

Risk is reported as being the principal area of training for the whole board in the last 12 months, due to the continuing fall-out from the financial crisis, and fuelled by constant media reports of failings inside companies.

On another risk-related question, 93% of respondents felt that board positions – both executive and non-executive – now carried a higher level of reputational risk compared to five years ago.

Against this background, it is noteworthy that almost all boards think their company’s specific exposure to cyber risk is increasing – yet only 21% of companies have taken action and significantly mitigated the risk. Boards do not appear to be giving this high-profile and increasingly-visible risk the attention it requires, with only 13% of boards having discussed and acted on the Government’s published Cyber Security Guidance, and with around 75% reporting that boards had either not discussed/nor even seen this Guidance.1

20%

10%

20%

30%

40%

50%

60%

70%

47

28

48

13

Has your board actively discussed the Government’s Cyber Security Guidance (‘The Ten Steps’)?

No 47%

Have not seen it 28%

Not applicable to us 4%

Yes, but have not acted on the guidance 8%

Yes, and have acted on the guidance 13%

0%

10%

20%

30%

40%

50%

60%

70%

13

1925 23 21

Has your board actively sought to identify the company’s key information assets and thoroughly assessed their vulnerability to cyber attack?

No required 13%

Not yet, but plan to 19%

Have discussed, but no clear way forward determined 25%

Yes, but require external assistance to progress 23%

Yes, and we have been successful in significantly mitigating the risk 21%

“ Only 21% of companies have significantly mitigated their exposure to cyber risk.”

1 ICSA published a Guidance Note on cyber risk in June 2013. The Guidance Note was commissioned by the Department of Business, Innovation and Skills and was prepared with the help of industry experts. It is aimed at helping boards understand the risks associated with cybercrime, and particularly focuses on: issues to address, including identifying potential adversaries; conducting comprehensive risk assessments to understand the risks particular to each individual company; why cyber risk is different from other kinds of risk; and actions for the board and audit committee: www.icsaglobal.com/resources/guidance/getting-wise-to-cyber-crime

Risk, including cyber risk

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w w w . i c s a g l o b a l . c o m6

0%

10%

20%

30%

40%

50%

60%

70%

2

2530

36

4 4

Over the next 12 months, how do you anticipate your company headcount changing in the UK?

Increase significantly 2%

Increase slightly 25%

No change 30%

Reduce slightly 36%

Reduce significantly 4%

Don’t know/not applicable 4%

0%

10%

20%

30%

40%

50%

60%

70%

2

3026

15

2

25

Over the next 12 months, how do you anticipate your company headcount changing overseas?

Increase significantly 2%

Increase slightly 30%

No change 26%

Reduce slightly 15%

Reduce significantly 2%

Don’t know/not applicable 25%

The business environment

There is greater optimism in respect of global economic conditions, compared to the UK, with headcount projected to grow accordingly, particularly overseas.

Companies continue to seek out the higher levels of growth being experienced in Asia Pacific (42%), Brazil (30%) and China (28%), with the Middle East, North America, South America and India following closely. The largest increase year-on-year would appear to be in the Middle East at 26%, compared to 19% in December 2012, with Russia slipping slightly to 13% from 16% in December 2012. Continental Europe continues to stall.

Companies plan continued reduction in their presence in Continental Europe (13%) and the UK (8%).

“ Greater optimism in global economic conditions compared to the UK.”

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w w w . i c s a g l o b a l . c o m 7

“ Companies seek higher levels of growth in Asia Pacific, Brazil and China.”

UK ContinentalEurope

NorthAmerica

MiddleEast

AsiaPaci�c

Africa SouthAmerica

Brazil Russia India China0%

20%

40%

60%

80%

100%

8 813

8

13

7

14

5

16

2

16

0

15

2

19

0

19

0

18

2

14

0

18

85

74

80 7982

85

79 81 82 84 82

Do you plan to reduce your presence in the following geographical areas over the next 12 months?

Yes

No

Don’t know

0%

10%

20%

30%

40%

50%

60%

70%

43

53

4

0

17

57

1313

28

43

11

17

26

47

8

19

42

28

1317 17

51

8

25 26

43

9

21

30

38

11

21

13

49

11

26 26

45

9

19

28

40

UK ContinentalEurope

NorthAmerica

MiddleEast

AsiaPaci�c

Africa SouthAmerica

Brazil Russia India China

1715

Do you plan to expand your presence in the following geographical areas over the next 12 months?

Yes

No

Don’t know

Not applicable

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FT–ICSA Boardroom Bellwether 3

w w w . i c s a g l o b a l . c o m8

Engagement with investors

Following a commission by the 2020 Investor Stewardship Working Party, a group of six institutional investors committed to supporting long-term investment, the Institute produced guidance on ‘Enhancing stewardship dialogue’ in March 2013.2 The guidance was developed jointly by companies and institutional investors, and aimed to create, for the first time, a guide to good engagement practice, and processes for improving feedback on the quality of meetings.

One of the main recommendations in the guidance was that companies should have a stewardship engagement strategy in place, although the survey reveals that 40% of companies have not yet taken this important step.

The survey also covered two other areas of company/investor activity. On the first, the role of proxy advisors, 40% of companies considered the influence wielded by these bodies as ‘negative’ or ‘very negative’, reflecting a wider concern about the outsourcing by investors of activities related to their voting responsibilities.3

On the second question, the issue of quarterly reporting, 53% of boards said they wanted to see an end to quarterly reporting, reflecting the emphasis in the Kay Review on policy initiatives to encourage and support long-term thinking. Some companies, most notably Unilever, have already taken steps to challenge the quarterly reporting convention.

2 www.icsaglobal.com/engagement-with-investors3 In February 2013, the European Securities and Markets Authority (ESMA) published its Final Report on the Proxy Advisor Industry. The report found that there was no current market failure, related

to proxy advisors’ interaction with investors and issuers in the EU, which would require regulatory intervention. However, ESMA identified a number of concerns regarding the independence of proxy advisors, and the accuracy and reliability of the advice provided, and recommended that the industry develop a code of conduct.

0%

10%

20%

30%

40%

50%

60%

70%

60

40

Does your board have a strategy in place to engage with major ‘stewardship’ investors about long-term company strategy (as recommended in the ICSA guidance on ‘Enhancing stewardship dialogue’)?

Yes 60% No 40%

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w w w . i c s a g l o b a l . c o m 9

0%

10%

20%

30%

40%

50%

60%

70%

28

4

25

32

84

Is your board in favour of the specific Kay Review recommendation that companies’ quarterly reporting obligations be removed?

Yes, very 28%

Positive 25%

Neutral 32%

Somewhat 4%

No, not particularly 8%

Not applicable 4%

“ 53% of boards said they wanted to see an end to quarterly reporting.”

0%

10%

20%

30%

40%

50%

60%

70%

8

32

42

17

0 2 0

How do you perceive the influence of proxy advisors on shareholder engagement with your company?

Very negative 8%

Negative 32%

Neutral 42%

Positive 17%

Very positive 0%

Don’t know 2%

Not applicable 0%

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FT–ICSA Boardroom Bellwether 3

w w w . i c s a g l o b a l . c o m10

Gender diversity

The survey results show that respondents considered their board to be more diverse in terms of gender than in December 2012. Despite this slightly more positive outlook, indications are that companies may still not be making sufficient progress in an area which continues to form a key part of the Government’s agenda. Indeed, most recent commentary suggests a definite slowing in momentum.

The survey suggests that still only one third of companies expect to meet Lord Davies’ target of 25% for women on boards by 2015, leaving two thirds not expecting to achieve this objective. If the target is not met, the UK would need to implement the EU Directive to address gender imbalance on boards if the current proposals are approved. The Directive includes provisions for targets, but only 11% of companies think that the UK Government will introduce quotas.

Companies also now appear less confident that the female executive pipeline will provide a sustainable pool of talented, board-ready women, with results slightly lower than in 2012. This points to an emerging policy dilemma for the Government in terms of the further action it may consider necessary to deliver the diversity agenda.

0%

10%

20%

30%

40%

50%

60%

70%

21

13

34

21

11

To what extent do you think your board considers its membership to be diverse in terms of gender?

Not at all diverse 13%

Not very diverse 34%

Somewhat diverse 21%

Diverse 21%

Very diverse 11%

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“ Two thirds of companies will not meet Lord Davies’ target of 25% of women on boards by 2015.”

0%

10%

20%

30%

40%

50%

60%

70%

21

04

19

4

53

How sufficient do you think your female executive pipeline will be in providing a sustainable pool of talented, board- ready women?

Entirely sufficient 0%

Nearly sufficient 4%

Sufficient 21%

Not very sufficient 53%

Not at all sufficient 19%

Don’t know 4%

0%

10%

20%

30%

40%

50%

60%

70%

9

32

21

8 9

21

Do you expect to meet Lord Davies’ 25% target for women on boards by 2015?

Yes, completely 32%

Nearly 21%

Possibly 9%

Unlikely 21%

No, not at all 8%

Don’t know 9%

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FT–ICSA Boardroom Bellwether 3

w w w . i c s a g l o b a l . c o m12

Skills

Companies continue to struggle to recruit people with sufficient skill set and calibre throughout all levels of their business – from the ‘shop floor’ to the board. 31% of respondents reported difficulty in recruiting sufficient people in the UK with the standard of education and skills required.

Similarly, 46% of respondents reported considerable difficulty in recruiting board level candidates of sufficient calibre. Undoubtedly part of this problem stems from the perception of 93% of respondents that board positions – both executive and non-executive – now carry a higher level of reputational risk compared to five years ago.

It is also possible that the shortage of board-ready women is a contributory factor in allowing companies to recruit sufficiently skilled candidates to the board (see pages 10–11).

“ Companies have difficulty in recruiting high-calibre board level candidates.”

Does your company find it difficult or easy to recruit sufficient people in the UK with the standard of education and skills that you need?

0%

10%

20%

30%

40%

50%

60%

70%

8

2123

36

6 8

Very difficult 8%

Difficult 23%

No special difficulty 36%

Somewhat difficult 21%

Very easy 6%

Don’t know 8%

0%

10%

20%

30%

40%

50%

60%

70%

0

42

2528

4 2

Would you say your board finds it easy or difficult to recruit board level candidates of sufficient calibre?

Very easy 0%

Not difficult 25%

No particular difficulty 28%

Somewhat difficult 42%

Very difficult 4%

Don’t know 2%

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w w w . i c s a g l o b a l . c o m 13

Tax

Two of the Prime Minister’s priority areas for discussion at the G8 summit held in Northern Ireland in June 2013 related to the sensitive issues of tax and transparency. The controversy surrounding the tax affairs of companies such as Google, Starbucks and Amazon have left companies feeling exposed and caught in no-man’s land between investors and civic society. The UK also has a special interest in ‘tax havens’, and agreement on initiatives relating to transparency in this area of the economy were hammered out within the UK just before the summit began, and subsequently on a global basis during the summit.

It is therefore not surprising that tax simplification is the area in which companies would most like to see the Government introduce regulatory reform, although this is likely to mean different things to different respondents. For example, in response to the question ‘What initiative do you think your board would most like to see introduced in the UK Government’s next financial announcement?’, there was a call for the removal of business rates. Business generally would like to see a tax regime which it considers fair and transparent, and one which allows companies to make profit without being exposed to the risk of public censure.

“ The majority of companies want tax simplification.”

0%

10%

20%

30%

40%

50%

60%

70%

0

8

55

8

17

94

In which area of regulation would you most like to see the UK Government introduce reform?

Employee rights 8%

Tax simplification 55%

Immigration 0%

Environmental policy 9%

Health and safety 4%

Other 8%

Don’t know 17%

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FT–ICSA Boardroom Bellwether 3

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Conclusions

UK companies continue to battle against strong economic headwinds and relentless competition. They also operate under a spotlight shone by politicians, regulators and other stakeholders, and their efforts to satisfy investors take place against a backdrop of wider public policy issues.

In the FT–ICSA Boardroom Bellwether 3 we have looked at some of the key business issues – including cyber risk and gender diversity – with which companies are grappling.

For the full results of this survey, please go to www.icsaglobal.com/bellwether.

Follow the debate at www.ft.com/bellwether.

The next survey, FT–ICSA Boardroom Bellwether 4, will take place in November 2013.

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w w w . i c s a g l o b a l . c o m 15

About the FT

The Financial Times, one of the world’s leading business news organisations, is recognised internationally for its authority, integrity and accuracy. Providing essential news, comment, data and analysis for the global business community, the FT has a combined paid print and digital circulation of more than 600,000 (Deloitte assured, Q1 2013). Mobile is an increasingly important channel for the FT, driving a third of FT.com traffic and 15% of digital subscriptions. FT education products now serve 25 of the world’s top 50 business schools.

About ICSA

ICSA is the Chartered Membership and qualifying body for professionals, including company secretaries, working in governance, risk and compliance.

Our Members operate in all sectors and at every level of seniority. With over 100 years’ experience, we help them champion good governance through our high-quality guidance, support and thought leadership, and by influencing regulators and policy-makers at the highest levels.

Follow the debate

@ICSA_News#FTICSABellwether

www.ft.com/bellwether

Page 16: FT–ICSA Boardroom Bellwether 3 · dr 3 2 The FT–ICSA Boardroom Bellwether is a twice-yearly survey which seeks to gauge the sentiment inside UK boardrooms. The aim is to develop

The Institute of Chartered Secretaries and Administrators (ICSA)16 Park CrescentLondonW1B 1AHUnited Kingdom

Phone: +44 (0)20 7580 4741E-mail: [email protected]

www.icsaglobal.com