Brexit Strikes Again—in the Boardroom

Facing so much uncertainty, UK firms are stalling on director appointments. A Korn Ferry exclusive report.

One year into the historic vote, Brexit has caused all sorts of uncertainty in the UK’s politics and economy. Now it appears the uncertainty extends the very top of corporate leadership: the boardroom.

The nation’s largest publicly-traded firms are on pace to appoint about 20 percent fewer non-executive directors than usual this year. The same thing happened last year, when those large firms—which compose the FTSE 350 index—brought on 23 percent fewer directors than average. The numbers were compiled in Korn Ferry’s “Class of 2016,” a review of for non-executive board members in the UK.

Although several factors can be behind delayed appointments, the uncertainty over how the UK will look like post Brexit in terms of labor and trade issues has caused a much-feared "frozen" effect on business decisions. That apparently has reached the top echelon as well “Companies are trying to figure out the required skills for new board members—and boards as a whole—in a post-Brexit environment,” says Dominic Schofield a senior client partner in the firm's Europe, Middle East and Africa Board & CEO practice.

The Korn Ferry study compared what boards have been doing since 2007. Boards appointed, on average 444 non-executive directors each year from 2007-2015. But firms brought on only 341 in 2016 and are on pace to appoint only 350 this year. A slowdown in initial public offerings also likely contributed to the decline in the number of director appointments. In 2016 there were 67 FTSE-listed IPOs, down from 92 in 2015.

The directors that are making the cut are newcomers but with a lot of experience. Nearly 60 percent of the directors brought on were first-time appointments, significantly higher than the annual average of 50 percent since 2007. And of those first-timers, nearly half had experience as a chief executive, up from 39% in 2015. Companies seem to want to bring in non-executive directors with strong operational skills to help navigate the politically- and economically-uncertain landscape, Emerton says.

Also in demand, directors who have technology or digital experience. About 13 percent of first-time directors come from either a pureplay digital company, such as Facebook or Google, or in a company highly exposed to digital disruptions, such as those in the retail, media or gaming sectors. “Boards are becoming increasingly aware that technology has many different applications for the enterprise,” Emerton says.

Of all the directors appointed in 2016, one third of them were women, about the same percentage appointed in 2015. Many FTSE-listed firms are aiming to have their boards comprised of at least one-third women by 2020.

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