These are the major reasons CEOs want to avoid a Brexit

In this series, professionals discuss how the EU referendum affects the business community. See the stories here, then write your own (use #Brexit in the body of the post).

In my role as a confidant and CEO coach to many FTSE 100 CEOs, I’ve been in active conversations with leaders across many industry sectors about Brexit. The majority of current FTSE 100 CEOs are pro staying in and are focused on the short term. However, not many of them really think deeply about Britain’s role in the future global world, and the fact that this is clearly dependent on our relationship with Europe.

So what are the three main reasons why the majority of CEOs want us to stay in the EU and how much of an impact do they really think Brexit would have?

Reason 1. Risk of slowing down the economy, but not crisis recession

The UK would probably lose business as it becomes more difficult to provide services to the EU market and would be a lower priority partner in trade negotiations. Christine Lagarde, IMF managing director, warned that a vote to leave the EU could precipitate a stock market crash and a steep fall in house prices. She backed warnings from governor Mark Carney that Britain could fall into a recession following a Brexit vote.

However, the FTSE 100 CEOs aren’t being quite so dramatic, and see Brexit as having a possibly long-term cooling effect:

"I am not predicting the city would disappear overnight. However in the long term if you have less preferential access to the second largest financial market that would lead to less activity, lower employment and less tax."

- Stephen Hester, CEO RSA

CEOs outside Europe take a similar view. Alan Joyce, CEO of Qantas which is Australia’s flag carrier and a global airline operating out of London offers his view:

"I think it is in the economic interest of Britain and the EU to stay together. What has happened in the EU in terms of free trade and the growth of economic activity has been good for the UK and the EU."

- Alan Joyce, CEO Qantas

Reason 2. UK plc less appealing investment

EU investment would slow down or diminish if a Brexit were to take place. In a worst case scenario, where the UK fails to strike a trade deal with the rest of the EU and does not pursue a free trade agenda, Gross Domestic Product (GDP) would be 2.2% lower than if the UK had remained inside the EU. Equally, the UK’s membership in the EU has increased British goods trade with other EU states by 55% (￡130n in 2013)!  

Michael O’Leary, CEO Ryanair commented:

 "The longer-term effect though is we will invest less in the UK, we will certainly switch some of our existing UK investment into other European counties because we want to continue to invest in the European Union and it will be bad for air travel and British tourism."

As well as the EU, international investment will also be hindered. Take our relationship with China, for example. Just last year, Chinese consortium CMC invested heavily in Manchester United; Chinese property tycoon Wang Jianlin bought one of London’s most expensive homes on Kensington Palace Gardens; and many of Battersea Power Station’s redeveloped properties were bought by Chinese investors.

Wang Jianlin, China’s richest man, has explicitly predicted that Chinese companies could move elsewhere. He reported to the Sunday Times that a Brexit would not be a smart decision for the UK, and a separation would create more obstacles for investors.

Reason 3. Businesses hate uncertainty

Businesses are worried about short term disruption and uncertainty. If Brexit were to happen, the UK government would have two years to negotiate a withdrawal agreement under Article 50 of the EU treaty. UK businesses cannot afford to remain unsure as to trade, regulations and more for such a long period. 

"Businesses could face a decade of damaging uncertainty if Britain voted to leave the EU…Brexit would inflict a blow on the EU that it can hardly afford given the euro zone and migration crisis."

- Andrew MacKenzie, CEO BHP Billiton Ltd

When the environment gets uncertain, CEOs have a tendency to wait. This is not necessarily a good thing, but it is a reality. A two-year extended negotiation period is likely to create a lot of uncertainty and this will spur significant delays in decision-making (investments, trading decisions, product launchers) and will further reduce economic business output.

There is a range of other reasons as to why else we should stay in the EU, but for CEOs and business, these are the big three.  

So, what is Britain’s v2.0 role in the world?

Although it's hard to believe today, Britain was the foremost global power and in the 18th century, it was the largest empire in history. Britain had overseas possessions and trading posts across the world.

Britain’s impact has diminished overtime, but we’re still relevant, due to our special relationship with America and our historically colonial role across Asia and also part of Europe.

Going forward, a recent report by CBI claims that non-OECD countries will make up 55% of global growth from 2012 to 2025, and by 2050 China, India, Brazil, Russia and Mexico will all have larger economies than any EU country. We are currently a small proportion of EU trade. In April, for example, goods exports to the EU fell to a record low. Just 45.1pc of the goods that the UK exported that month went to the EU, down from 52pc in the previous year. The question is, how do we stay relevant in this future world?

Many CEOs aren’t really thinking about this but my own views are as follows:

Britain has UK-listed established global companies that have a track record of managing global operations, such as BP (founded 1909) and HSBC (founded 1865). Despite the occasional leadership hiccough, we are experienced in global trade. This gives us an advantage in running these companies paired with the facts that they are often headquartered here and a focal point for trade.

We’re currently strong in financial, professional services. We’re strong in IP (ARM), specialist design (Dyson) and we have a media base and culture (from Adele to the Premier League) that is internationally renowned.

Britain will not be competitive as a manufacturer and producer, due to continually lower cost production from emerging markets elsewhere. Witness the challenges for Tata – trying to make British steel competitive, which in the long term, is not a battle that can be won.

We’ll be much more connected because of the internet, the invisible digital connection across the world. There will be a small number of trading hubs, which now more than ever will trade ideas rather than commodities, allowing businesses to grow and IP exchanges to take place. The best way to be a global hub is for the UK to have deep, strong spokes rooted elsewhere—we already have a special relationship with the US, we are increasingly connected to China, and our industries (such as the financial and professional services and education) are relevant to China in the coming decades. My view is, keeping our strong spoke to Europe would help us develop into a stronger global hub and would prevent us from being marginalised, either in practice or in perception.

Ideally, we would become a main gateway to Europe as the leading financial centre, the leading place for IP and technology exchange, and hopefully, the Euro-version of Silicon Valley, and remain a magnet for talented internationals.

A downside not to forget is we may have to remain and continue to do badly in the Eurovision Song Contest!! Although, maybe a few more Europeans might vote for us!

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By Steve Tappin

Chief Executive, Xinfu, Host BBC CEO Guru

www.xinfu.com

www.twitter.com/SteveTappin

www.bbc.co.uk/ceoguru

Steve is a personal confidant to many of the world’s top CEOs. He is the host of the award winning BBC ‘CEO Guru’, which features in-depth, on-the-record interviews with the CEOs of the biggest and fastest-growing companies. Steve is the author of ‘The Secrets Of CEOs’, which interviews 200 CEOs on business life and leadership.

• https://uk.businessinsider.com/ftse-bosses-business-leaders-pro-eu-letter-times-brexit-2016-2
• https://www.telegraph.co.uk/business/2016/02/27/two-thirds-of-companies-want-britain-to-stay-in-the-eu/ 
• https://news.cbi.org.uk/news/cbi-to-make-economic-case-to-remain-in-eu-after-reaffirming-strong-member-mandate/

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