FT–ICSA Boardroom Bellwether survey

Business environment

The improvement in business and economic confidence which we reported in summer 2015 has proved to be temporary, with respondents much gloomier about prospects at home and abroad. Turmoil in world markets and the continuing EU in/out debate are doubtless contributory factors, and there has been no increase in confidence in the new majority government compared with views on the Coalition in December 2014.

Despite the pessimism about the economy, there was some stoicism in the responses to questions about expansion and capital expenditure. Just over a quarter of respondents declared they had plans to expand during the next twelve months. Only 5% said they are intending to reduce their presence in emerging markets. 

Not surprisingly, with increased discussion about a possible exit from the EU and the in/out referendum looming in 2017, this survey sees a much increased majority of respondents (61% compared with 42% in December 2013) reporting that UK membership of the EU has a positive effect on their business. Views are becoming more entrenched with 70% of respondents declaring that Brexit would damage their business and only 2% rating it as positive. Yet despite this depth of feeling only 26% of boards are considering the implications of a UK exit and only 4% are prepared to speak out publicly either for or against it. 

Composition

Despite a continuing focus on board diversity in the press and elsewhere, our results across several indicators – educational background, wider business experience, geographical spread of experience and gender – have tended to remain fairly constant over the past 12–18 months.

There is no doubt that progress is being made a far as gender diversity is concerned. Half of our respondents from the FTSE 350 have met or exceeded the 25% target set for the FTSE 100 by Lord Davies and a further 21% state they are very close to reaching it. Educational background and ethnicity seem less of a focus. Only 25% of respondents feel their board to be ethnically diverse.

Board composition and succession planning are major considerations for any board and a transparent long-term succession plan should be a governance priority for companies to help build trust and enable effective board performance. Given the pressure to improve boardroom diversity we might have expected to see more nomination committees taking a proactive role in planning the future composition of the board. This does not yet seem to be the case. Just under half have a written succession plan for their board. Only 37% of respondents feel their executive pipeline would provide a sustainable pool of talented and diverse board members and the number drops by half to 18% when the same question is asked about the female pipeline.

Risk

There is no change to the top three risks identified by our sample. Economic risk came out on top followed by operational and reputational. 

Despite widely reported news stories and data leaks, cyber risk is rated fourth along with political risk, although 82% − the highest rating since we began asking about cyber risk two years ago – regard the threat of cyber attack to be increasing. Three quarters of companies have assessed the risk and are mitigating it, with external help if necessary. Nearly half of respondents have discussed the Government’s 'Ten Steps' guidance, but less than a quarter have discussed the government’s Cyber Essentials scheme which was launched in 2014. 

Although companies are concerned by reputation, they still do not seem to regard social media as part of that risk. Only 25% describe social media strategy as important to the board. This is surprising given the reputational risks associated with it. Most companies now use social media channels such as Twitter and Facebook to help build customer relationships and engagement. This brings many advantages, but needs to be properly monitored and managed.

Culture

This is the second survey in which we have asked about corporate culture and the results are again encouraging. 75% of respondents are actively addressing culture and behaviour in the wider organisation and only 7% say they are not consulting with employees. However less than half (44%) provided training on ethical behaviour and culture which shows room for improvement.

Engagement and stewardship lie at the heart of ICSA’s focus on good governance. Only 3% said none of their top ten shareholders had been met by non-executive directors in the past year but 25% had only managed to meet with one or two of the top ten. However, not all investors are able or willing to meet with non-executives.

Attitudes to proxy advisers are fairly entrenched, with the majority of responses rating them as much more negative than positive (47% compared to 11%). There does seem to be some softening however with 37% rating their influence as neutral, up from 23% in July 2015.

Features

• Just 2% of FTSE 350 companies think Britain leaving the EU would be positive but most are reluctant to speak out publicly. Read more on the report’s Brexit findings in Sputnik International.

• 82% of FTSE 350 boardrooms believe the threat of cyber attack is increasing. The highest rating since we began asking about cyber risk two years ago. Read more about this and digital skills in the U.K. in Dina Medland’s report for Forbes.

• ‘Britain’s top businesses seem unwilling to confront what Brexit will mean’. Dennis MacShane draws on Bellwether findings for City A.M.

• Governance looks at how 28% of FTSE 350 company secretaries said they expected an improvement in the global economy.