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27 Mar 2018 | 09:30 am | 3 min. read
With one year to go until the UK leaves the EU, new research from international law firm Pinsent Masons has revealed a gap between how prepared board members of the UK's biggest companies think their business is for Brexit, and the opinion of the most senior in-house lawyers tasked with preparing for change.
The Pinsent Masons' report - 'Into the breach: The role of general counsel in navigating a successful business Brexit' – found that almost all (94%) board members think their business is very well or quite well prepared for Brexit.
However, only 53% of general counsel (GCs) - the most senior in-house lawyers who are typically being tasked with leading the operational response to Brexit - agree. GCs on the whole take a much more cautious view of preparedness, and are seven times more likely than the C-suite to say their organisation is not particularly well prepared or not at all prepared for Brexit (45% v 6%).
Of the board members that expect a detailed Brexit risk assessment from their legal team, seven in ten (70%) expect their legal team to have shared this with them by June 2018. In contrast, less than half (47%) of GCs expect to be in a position to do so by this date.
The research also found that more than half (51%) of companies surveyed have already triggered contingency plans that assume a no trade deal, no transitional agreement scenario.
According to the board members surveyed, these contingency plans cover everything from non-UK subsidiaries switching to EU-based suppliers (35%), reducing investment in the UK (23%), and moving job roles (15%) or operations (14%) out of the UK. A further 40% plan to trigger Brexit contingency plans by the end of 2018 if no trade deal or transitional arrangements have been agreed.
Given the legal nature of many of these strategies, the majority of board members see GCs playing a pivotal part in getting their business ready for Brexit, and not just in the implementation of tactical legal or compliance details. In fact, 57% of board members see their GC as a strategic advisor on the risks and opportunities Brexit presents and one in four board members (25%) would welcome an even greater role for the GC in deciding how their business should manage risk and operate during transition and post-Brexit.
Moreover, a majority of board members expect real leadership from their general counsel, with six in ten (61%) saying they see the GC's role as being responsible for planning for the outcomes of a range of negotiating scenarios for Brexit, and almost four in ten (37%) see their GC's role as being responsible for coordinating the business' response to Brexit.
Despite this, there is some misalignment between board members' aspirations for GCs and the current state of play. While three quarters (73%) of board members have asked GCs to assess in detail the legal risks to the business associated with Brexit, only half (50%) of GCs to date have done this.
Guy Lougher, partner and head of the Brexit advisory unit at Pinsent Masons, comments:
"Many of the corporate coping strategies for Brexit are inherently legal, so UKPlc is looking to its most senior lawyers for leadership like never before.
"What our research finds is that there is a gap in sentiment between the boardroom and those advisers. Executives are, on the whole, bullish about their levels of preparedness for Brexit, whereas their advisers are perhaps understandably more circumspect. The key here is to ensure there is an open and regular dialogue between the boardroom and the general counsel's office to bridge any mismatch in expectations.
"91% of businesses surveyed expect to have triggered Brexit contingency plans for a no-deal scenario by the end of this year. This is not necessarily because they foresee a worst-case scenario outcome from EU/UK negotiations, but because businesses of this size and scale cannot afford to wait for clarity on the final shape of the UK's post-EU status. Despite the announcement that the UK and EU have agreed a large part of the withdrawal agreement in principle, this will not become legal certainty until the final agreement is ratified.
"Whether it is scenario planning, risk assessment or risk reporting, board members want their GCs to be heavily involved in Brexit preparations. As Brexit is an external factor businesses have never had to deal with in the past, there is no existing roadmap to success. Every organisation needs to make the most of the varied expertise within or available to it, ensuring it tackles the Brexit process in the best-prepared, most well-informed way possible, as there's only one chance to get this right.
"While some GCs are heavily engaged in initiatives to prepare for Brexit, it presents a unique opportunity for them to do more; for GCs to step up and take a lead on navigating their organisation through the choppy waters of Brexit, exercising a significant leadership role. It's vital that GCs ensure board members understand potential risks that could stem from a range of Brexit scenarios, their severity, and take the lead on communicating realistic timescales for implementing the changes that protect against these risks."
About the research:
Pinsent Masons' report, 'Into the breach: The role of general counsel in navigating a successful business Brexit', is based on the data from two surveys conducted January-February 2018. The first survey, conducted by The Lawyer magazine, sought the views of 100 general counsel at FTSE 100 or FTSE 250 companies, or private unlisted companies of equivalent size. The second survey, conducted by YouGov, captured the views of 100 board members of FTSE 100 or FTSE 250 companies, or private unlisted companies of equivalent size.
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