Brexit Fallout: Seven Board Actions to Protect Your 2016–17 Results

It has become clear that Britain’s vote to leave the European Union (EU) is a major disruption to global business plans, and its consequences clearly rise to the board level. Ongoing political chaos in the United Kingdom (UK) is having seismic economic effects and has already amplified downside political risks across Europe.

“Wait and see” is a dangerous response to a highly uncertain situation. Proactive board leaders can undertake several immediate initiatives that will minimize the damage to 2016 results in Europe and improve the resiliency of your company’s plans for 2017 and beyond.

What we know today: The UK’s economy will contract next year. Frontier Strategy Group’s (FSG) Europe, the Middle East, and Africa (EMEA) Team forecasts a sharp slowdown in UK growth in the second half of 2016, deepening into a recession of -0.5 percent in 2017. Regardless of the pace and the aim of its exit negotiations with the EU, deep splits within the UK’s major political parties and energized independence movements in Scotland and Northern Ireland guarantee governmental dysfunction and depressed sentiment among consumers and businesses.

Beyond the UK, certain economies are especially vulnerable. Ireland, Norway, and the Netherlands will be hurt quickly as UK demand shrinks. Around the world, UK and European economic woes are likely to hit Poland, South Africa, Algeria, Azerbaijan, Bangladesh, and Costa Rica especially hard in their respective regions.

What we won’t know anytime soon: As of yet, it is impossible to predict (1) whether the European Union will change fundamentally or lose additional members, (2) the political and economic effects of energized populist parties in many European countries, (3) the downside risk to the UK from regional separatism, or (4) the new destinations for foreign investment that may leave the UK. Scenarios and contingency plans are essential tools to manage risk and identify targeted opportunities in this environment.

Bolster Commercial Execution in the Second Half of 2016

Boards should expect to receive a rapid-response sales strategy review from UK executives and risk assessments for Europe overall. Is management being sufficiently proactive in managing new risks?

  1. Prioritize risks to 2016 sales targets—In the UK, business investment is most likely to see near-term declines as companies worried about growth move to limit expenditures (hiring is sharply down in London), while consumer sentiment will be dragged down by housing-price shocks. Sterling and euro depreciation will hit specific customer segments hard. Expect management to proactively engage customers about changes to their expected spending, and redeploy sales and marketing resources to the least vulnerable territories.
  2. Target contingency plans on talent and finance—Uncertainty about visa requirements for Europeans in the UK (and for non-UK citizens generally) is a serious engagement and retention risk. Currency effects are wiping out margins for some UK subsidiaries and should force a near-term rethink of hedging and payment terms. Expect management to document contingency plans with signposts and priority actions by function, especially for finance and human resources (HR).
  3. Track leading indicators of changes in demand—Volatility in currency markets and commodities markets will have global ripple effects on business and consumer sentiment, and on government finances—especially in emerging markets. Ask if European management teams are adjusting their dashboards and monthly/quarterly agendas accordingly.

Stress-Test Strategic Plans for 2017 and Beyond

The next planning cycle will be more demanding than usual. Updating forecast data is a small part of the needed response. So much will remain uncertain that plans for Europe (and for markets with links to Europe) should be stress-tested for resiliency against downside scenarios. Contingency plans should be put in place for big bets.

  1. Use scenarios to model UK and EU demand—FSG’s benchmarking found that simple scenarios are key to organizational alignment and resilience; the companies that do this best grow market share 2.1 times faster than their competition in volatile markets. My pre-Brexit vote NACD post highlights a range of risks worthy of incorporating into scenario plans.
  2. Evaluate risk exposure in European operations and the supply chain—Profitability and pricing power for imported products will diminish if barriers to trade with the UK increase and European currencies weaken further. Scenario analysis can help evaluate potentially improved returns from localized production and supply-chain structure.
  3. Rethink Europe/EMEA hub locations—Potential changes that affect HR, legal, regulatory, and finance teams may tip the scales in favor of revisiting the UK as a hub for EMEA, Europe, or Western Europe leadership and operations. Balance financial and political/reputational considerations along with change-management costs. Retention of European nationals currently based in the UK is becoming a factor as well.
  4. Reassess global market-portfolio prioritization—Long-term investment plans for Europe must be rebalanced given the likelihood of a UK recession in 2017 and ripple effects varying among other European countries. Moreover, investment cases for Europe are likely to face sharply skeptical review even as EMEA leaders strive to make up the gap that UK underperformance will create. At the global level, Asia-Pacific and Latin America leaders have an opportunity to put forward more aggressive plans for 2017 and beyond. India in particular is a substantial market that remains under-penetrated by foreign companies; higher-risk big bets there may be more warmly received when Europe looks so uncertain.

When uncertainty is high, boards have a valuable role in helping management bring focus to the most important decisions rather than falling victim to firefighting and analysis paralysis. Companies that set a proactive agenda now for a mid-year course correction and forward planning will be well positioned despite market volatility in the year ahead.

Joel Whitaker is Senior Vice President of Global Research at Frontier Strategy Group (FSG), an information and advisory services firm supporting senior executives in emerging markets.

The Potential Impact on the Workforce as a Result of Brexit

As you have no doubt heard, Brexit has become a reality as the United Kingdom has voted to leave the European Union. Free movement of labor is one of the key founding principles of the EU. This includes the ability of EU citizens to live and work in a member country without a work permit, as well as benefits following a lay-off. Now that the United Kingdom has left the European Union, the economy will surely be affected. Banking institutions are considering downsizing or moving, which may disrupt London’s role as a financial center.

Job cuts are also likely at large organizations in the area, particularly in food production, agriculture, and mining. This is due to the chance of the free people movement being eliminated and many migrants losing their jobs. Below you can find a list of industries most reliant on migrant workers, including the percentage of migrant workers in each (via The automotive and airline sectors are also being watched for downsizing.

1. Manufacturing of food products: 31% of total workers
2. Domestic personnel: 23%
3. Accommodation: 21%
4. Crop, animal production, hunting: 16%
5. Mining of metal ores: 14%
6. Warehousing and support for transport: 15%
7. Services to buildings and landscape: 14%
8. Food and beverage service activities: 13%
9. Manufacture of leather and related: 12%
10. Manufacture of textiles: 11%

While the vote was confirmed on June 23, it is crucial to note that the specifics of this change will be subject to negotiation for the next 2+ years. The image below (via summarizes the potential short and long term impact. Overall, economists predict a lot of uncertainty as the effects unfold, and encourage those in business transactions with the UK to be prepared to assess changing circumstances.

 Brexit Impact

To help us better understand the implications of Brexit on global organizations, we reached out to Lynne Hardman, Chief Executive of Career Partners International – Working Transitions in the United Kingdom for her commentary. Her immediate thoughts are listed below.

  • Exchange rates: The dollar is strong, so businesses should consider local currency billing where possible.
  • All banks, financial services, airlines etc. with a strong UK or EU operation may be considering moves.
  • It is highly unlikely that EU employment law changes will be overturned in the UK, especially those affecting redundancy and employees impacted by M&A activity.

There is an influx of both positive and negative results, none of which are certain. It is critical to take the situation day-by-day, make oneself aware of the effects, and work diligently to adapt accordingly.


The Change Monster has come to the UK….Dealing With Change in the Workplace

“Nothing is so painful to the human mind as a great and sudden change” Mary Shelley, Frankenstein

What a great week for the UK representative of the CPI to be writing a blog.

They say a week is a long time in politics.  Well in the UK, never a truer word has been written.

Just 10 days ago, the UK voted to leave the European Union following the country’s largest ever vote.  52% (or over 17 million people) voted to leave.  To say it has sent the county into a tailspin would be an understatement.

The prime minister has resigned and the nominations for his replacement have already closed, with 5 people contesting the leadership.  The Labour Party, the main opposition party, appears to be imploding with 21 resignations from the shadow cabinet, along with one sacking and a no confidence vote in the leader which was backed by over 80%, yet he is still dogmatically clinging on to his leadership.  The Scottish National Party are taking soundings on a new Scottish independence referendum in order to break up the United Kingdom so that Scotland can remain in the EU.  The Green Party and UK Independence party are also in the midst of a leadership battle. There have been protests in central London at the result of the referendum vote.  The markets have bounced around and there is general uncertainty and mixed views in the City.  Vote Leave supporters are striving to make their voices heard above the fray about the opportunities they feel are now presented by this momentous decision. 

Brexit Flag

Change has indeed come to the UK, and in a big way.

People across the country find themselves on different parts of the well known change curve.  Our ability (or inability) as a nation, to respond effectively to change is impacting the national psyche in a myriad of ways.  How long will it be before the majority feels on the upward trajectory?

Of course, people face change every day in business and it’s no secret that – for most of us – change is unsettling. The ability to lead effectively through change is one of the most important jobs of any leader.

Understand the journey of transition

When faced with change, it helps to understand the journey that both you and your team may go on during the process. Initially, you may find that there is a lot of anxiety, along with perhaps denial about the change and a range of emotions, including fear, about what is to come. Understanding that this is a normal process for most people can help you to come to terms with the change, and start to realise what the opportunities may be, despite the change. Usually, change will have positive outcomes in the workplace, and focusing on these can help a great deal, throughout the journey of transition.

What is in your control?

It is vital to understand what is in your control – as this means that you will be aware of what you can influence. When faced with a situation where change might occur, we can feel a sense of anxiety, because there is a gap between the things that we feel are happening and what we are able to control. By making the effort to identify and take the control that you can, you will find that you are more confident in facing any uncertainty that remains. Try and negotiate to gain some control whenever you can, however if there are things that you simply can’t control, coming to terms with this as quickly as possible is important as it will prevent you from wasting energy on unnecessary anxiety.

What hasn’t actually changed?

It is important that you are able to clearly see what hasn’t changed with regards to the company and your own individual job role. There can be a risk of panic when faced with change, and this means that issues that shouldn’t be affected are actually affected quite heavily. Stay focused on what doesn’t need to change and you can maintain stability and elements of ‘business as usual’ in your workplace.

Try and find the positive

Depending on the extent and personal impact of the change it’s natural to feel some anxiety however panicking is not helpful and sometimes simply thinking about the situation in a different way can help to cope with the change. It is vital to think about the good things in your life, including the skills that you have, your support networks and any positive outcomes that the change could bring. If you are struggling to find anything positive, talk to someone you trust outside the workplace such as a mentor or coach, as they will usually help you to see things from a different and more positive perspective.

Be prepared for all eventualities

Although it is important to stay positive where possible, it is also vital that you have considered your own personal “worst case scenario” and have thought about the practical implications of this. By having a plan in place for everything that could possibly happen, you can make sure that you are equipped to deal with the resultant impact. There may be some situations that you can’t prepare for but whatever you can do to minimise uncertainty will help you and your team to cope more effectively.

Slay the monster – communicate effectively

The more your team knows about what is happening, the more they will be able to prepare themselves for the change that is going to occur. If rumours are allowed to circulate around the workplace, this can be incredibly damaging to morale, so if you provide the team with the truth right from the start, this can be prevented. Even if the truth is “I don’t know the answer to that right now” it’s is better to say this than to say nothing. Recognise that emotions may be running high and gaps in factual knowledge will quickly be filled by conjecture and speculation, so truthfulness and openness will almost certainly be worth it in the long term.

Don’t sweat the small stuff

When going through a period of change, it can be easy to get hung up on small details and self imposed deadlines – however it is much better to try and stay calm and look at the bigger picture,  focusing on the overall goals and required outcome of the change. This is likely to lead to the best possible outcome for both the organisation and the individual, which is of course the ultimate goal in any period of change.

Change is unsettling.  The Kubler Ross inspired transition curve clearly shows how people react to change.  

Change Process

How quickly people move on from their personal low point and start to move forward can be dramatically impacted by the quality and quantity of the communication and support that they receive.  In the workplace, enabling practical, positively focused coaching conversations and putting in place a structured communication framework to help people to manage and deal with change, ensures that any organisation can limit the negative effects of change and enable positive progress.

For UK plc, we also need to do the same – once that is, we have a new leader and the political turmoil has died down!

What’s Wrong with TSR, and How to Fix It

Total shareholder return (TSR) has become an incredibly important metric for boards to use to determine executive compensation, with over half the firms in the S&P500 implementing the metric—a number up from fewer than one in five a decade ago. TSR as a metric is deeply flawed, though. It overrates weak companies that merely recovered from depressed valuations, and unfairly demotes elite firms that have slipped, even slightly, or that failed to live up to unrealistic expectations. It’s also distorted by leverage. Say two firms perform exactly the same. The one with more debt and less equity produces a higher TSR on the upside and lower one on the downturn. TSR also is silent about how managers can actually make better decisions. It is a way to keep score, not a formula to win the game.

Enter the Corporate Performance Index (CPI). The CPI is a four-pronged test that accurately sums up the totality of corporate performance from a shareholder point of view in a composite percentile score. CPI is correlated to TSR rankings at a rate of 60 percent, so it adds weight and credibility to the TSR verdict for most companies while revealing what’s behind it. The other 40 percent of the time CPI provides a different—and usually far more accurate—assessment of how well a company is performing.

The four ratios used in CPI are interesting in their own right. They are:

  1. Wealth Creation: the firm’s total market value premium to its book capital, stated per unit of sales (we call the valuation premium MVA, for market value added);
  2. Profitability: the firm’s economic profit, expressed as a profit margin ratio to sales (the term we use for economic profit is EVA, standing for economic value added; it is the profit remaining after deducting a full cost-of-capital interest charge on the firm’s debt and equity capital and repairing accounting distortions that run counter to business logic);
  3. Profitable Growth: the trend growth rate in the firm’s EVA profit over the most recent three years; and
  4. Strategic Position: the long-run growth in EVA that investors have factored into the firm’s share price, effectively a “buy-side” consensus outlook.

There’s an important, consequential link among these metrics. MVA measures the wealth of the owner, and is the difference between the money put into a business and the value coming out of it. Boards should monitor MVA because shareholder returns come directly from this metric. TSR, in fact, is simply the rate of wealth creation, per unit of value. It comes from increasing the MVA premium over time. Market value added, in turn, comes from EVA. It is mathematically equal to the present value of the EVA profits the market forecasts a firm will earn. This means that increasing EVA is ultimately the real key to driving TSR, making it an ideal tool to manage a business and make better decisions.

CPI, then, is a distillation of EVA and MVA into an overall index of financial excellence. It assigns the highest scores to firms that have achieved the best records of profitable growth, that preside over the most valuable and profitable business franchises, and that are strategically best positioned to continue robust growth above the cost of capital for years to come, compared to peers. Firms like those are truly excellent, no matter what their recent TSR may be, and firms with low or declining CPI scores are really in trouble, even if TSR looks good.

Boards should turn to CPI and the underlying ratio metrics as a complement to TSR. Firms with high CPI scores can use it to repel undeserved say-on-pay criticism and activist overtures, while low scorers can stay on high alert. There’s also a case that TSR’s role in long term incentive plans should be diminished, and that managers should be rewarded instead for increasing the firm’s EVA profits over time. Turning instead to CPI could lead to better decisions, better incentives, better return to shareholders, and an even greater alignment between pay and performance.

Bennett Stewart is an expert in shareholder value and corporate performance management, and CEO of EVA Dimensions, a financial technology firm.

Oversight in an Uncertain World: What Can Directors Do Post-Brexit?

This is the first of a three-part series looking at the global economy and uncertainty in 2016. In our next post, we will focus on geopolitics and its implications for business strategy and decision making.

The United Kingdom’s vote on June 23 to leave the European Union highlights the uncertainty and volatility that companies face this year. (See my “Why Brexit Really Matters” article in Forbes.) Indeed, the sharp fall in global equities and currency markets on June 24 accentuates the rude awakening. But should the investment and business communities have been surprised? Most polling in the run-up to the vote suggested the leave campaign could prevail. Companies are now scrambling to implement their contingency plans…or to create them. Currency shifts will be the most immediate shock to manage.

According to NACD members, the greatest concern they foresee in 2016 is the global economic slowdown and how this will affect their company. This issue outranks other concerns, such as the changing industry landscape or cybersecurity. When looking at the board’s activities, NACD members say that the most important area for improvement is the board’s ability to test management assumptions underlying corporate strategy.

The Brexit vote highlights the strategic challenges directors face in today’s volatile world: How can directors make sense of increasingly uncertain economic conditions and what can they do to pressure test the validity of management’s assumptions about future growth?

A slow-growth world

Companies are facing strong headwinds in a slow-growth world. In April, the International Monetary Fund (IMF) downgraded its outlook for global growth this year to 3.2 percent—barring any system shocks. This is about the same rate as last year. The IMF downgraded the outlook for most major economies as well (see chart).

In June, the Organisation for Economic Co-operation and Development (OECD) fretted that the global economy is “stuck in a low-growth trap.” Shortly thereafter, the World Bank issued a more negative forecast, saying global growth would come in at only 2.4 percent this year, down substantially from the 2.9 percent pace it had projected just several months before.

Of significance, there are few positive country narratives. The United States is a relatively bright spot, with the IMF expecting 2.4 percent U.S. growth in 2016—the same as last year, but lower than the IMF had forecast in October 2015. The Business Roundtable recently downgraded their expectations for U.S. growth from 2.2 percent to 2.1 percent, based on concerns over impediments to trade and immigration. And, as most Americans feel, U.S. growth is neither robust nor equally enjoyed.

Europe looked like it might have been turning the corner: Business and consumer sentiment had improved, productivity had increased, and GDP growth strengthened significantly. But growth across the eurozone in 2016 is expected to come in at just 1.4–1.6 percent—barring a sustained Brexit shock.

Over the past decade or so, many companies have globalized and bet heavily on emerging markets (EMs)—sometimes dubbed “rapid growth markets.” This strategy could be easily justified by management when EM growth rates consistently outstripped those of the United States and Europe by five percentage points or more.

But these markets have been underperforming in recent years and their outlook has been consistently downgraded. This year, the World Bank expects emerging markets to grow by just 3.5 percent—about two percentage points below their average growth over the past decade.

Moreover, EM performance will continue to be uneven and uncertain thanks to poor governance—as exemplified by a massive corruption crisis that has gripped Brazil’s business and political communities. India continues to be a top performer at 7.5 percent growth, but the reform-oriented government there has made little headway tackling the myriad of bureaucratic impediments to investing and doing business there.

And while China is still doing relatively well—with its growth expected to be in the 6.5–7.0 percent range this year—this performance has come thanks to renewed stimulus and the expansion of debt, which raises more questions about the sustainability of China’s trajectory. At the same time, Western companies conducting business in China are facing increasing political and regulatory headwinds, not to mention a much more competitive business environment.

An uncertain outlook

Not only are we in a slow-growth world but we are also in an era of significant uncertainty about the future. The IMF in April described global economic activity as “increasingly fragile” and the World Bank warned in June that “the balance of risks to global growth forecasts has tilted further to the downside.”

Uncertainty is rooted in the fact that traditional cyclical drivers such as business capital investment and consumer spending seem to have lost their oomph. In short, in our chronically slow-growth world, businesses don’t want to invest and consumers don’t want to spend. Moreover, productivity, profits, wages, and trade growth are stagnant as well, and many economists believe that income inequality is exacerbating the slow-growth problem.

On top of this, the growing influence of geopolitical risks—the Brexit vote, the upcoming U.S. presidential election, refugee migration, and China—are adding new and hard-to-quantify variables to the outlook.

Given this context, the severe market volatility seen during the summer of 2015 and in January 2016 points to profound uncertainties about the future and to how easily perceptions and the markets can get shaken in our slow-growth world. A resurgence of sustained global market volatility triggered by the Brexit vote has the potential to derail global growth.

Pressure test management’s assumptions

In this uncertain and volatile world, directors should be testing management’s assumptions about growth—now and in the future.

Start by confirming the baseline: Does management’s view of macroeconomic growth for 2016 in the company’s key markets align with the market consensus?

Get your own perspective. As noted above, we rely on the views of multilateral organizations—such as the IMF, World Bank, and OECD—for a global perspective. Their economic outlooks are easily accessible and widely viewed as a reputable baseline around which to test assumptions.

The OECD has put together a handy one-page summary chart focused on advanced economies that a director can take to a board meeting as a reference. The World Bank has an easy-to-navigate website for exploring regional and country economic outlooks. Central banks also are a good source of country-level data.

Ask questions about management’s assumptions:

  • What data sources does management rely on?
  • Does management’s view differ materially from what others are saying?
  • What assumptions support a divergent outlook?
  • How does management account for political risks?

Next, test management’s view of the future. Economists have had to significantly downgrade their expectations of U.S. and global growth and the economic headwinds are not expected to diminish over the next several years.

  • Has management adjusted its growth projections downwards as well?
  • What is management’s two- to three-year view of China and other emerging markets?
  • Do the company’s plans reflect a slow-growth environment going forward?

Given widespread uncertainty and the risk of volatility, management should be able to present a range of alternative market scenarios.

  • Does management have an economic disruption scenario?
  • How has management sought to make the company more resilient to the uncertainty and volatility in the global market?

Many directors we have spoken with have highlighted the challenge of managing near-term foreign exchange risks.

  • What steps has the company taken to hedge against swings in key currencies?

If management says the company is going to significantly outperform its peers or the macro economy—especially in emerging markets—that is a yellow flag that should signal you to dig deeper and ask more questions.

NACD’s Global Board Leaders’ Summit in September, themed around the issue of convergence, will have dedicated sessions on global economic and political disruption, featuring subject-matter experts and seasoned directors.

Diane D. Miller Appointed to the AARP Foundation Board

Diane D. Miller

SACRAMENTO, Calif. – Diane D. Miller, the President and CEO of Wilcox Miller & Nelson in Sacramento, California, has been appointed to the AARP Foundation Board, which is based in Washington, DC.

The AARP Foundation Board of Directors announced today that Diane D. Miller of Sacramento, California will join their 10-member Board. The Foundation’s mission is to help those over 50 struggling with income, housing, isolation and hunger. Supported by vigorous legal advocacy, the Foundation creates and advances effective solutions that help older adults transform their lives. “I’m honored to join such a distinguished board and impactful foundation.  I look forward to the work ahead.”

Ms. Miller is President and CEO of Wilcox Miller & Nelson, a firm specializing in human capital management and governance consulting. She is a current Board, Audit Committee, PAC and Executive Committee member of the California Chamber of Commerce, the second largest state chamber in the United States.  She is a Board member and a former Board Chair of the California Host Committee, which annually gathers the top 1,000 California industry and government leaders. As well, she is one of the founders and a former Chairman of the Northern California Chapter of the National Association of Corporate Directors.  Ms. Miller served as a Regent for the University of the Pacific from 2007-2016, where she chaired the Audit Committee and served on the Executive Committee. During her tenure she also served on the University’s Technology, Compensation, Presidential Search, Branding, and Strategy Committees.  A director of Umpqua Holdings (a NASDAQ-traded financial services company in Oregon, California, Nevada and Washington) from 2004 to 2013, Ms. Miller served on the Compensation, Audit, and Loan and Investment Committees as the company grew from $1 billion to $12 billion in assets. Ms. Miller is also a former Board Chair of the Sacramento Metro Chamber of Commerce.

A certified public company director through the Director Certification Program at UCLA’s Anderson School of Business, Ms. Miller holds a current Certificate of Director Professionalism, Board Governance Fellow, Master, and Cybersecurity designations from the National Association of Corporate Directors (NACD). Since 2007, she has been facilitating public, private and nonprofit company board evaluation and governance education programs.

About the AARP Foundation

The mission of the AARP Foundation is to win back opportunity for struggling Americans 50 and over. The AARP Foundation has the ability to support and work with local organizations and programs nationwide to coordinate, fill in the gaps and help effective initiatives grow. The Foundation targets efforts on four key, interrelated priorities where action and legal advocacy can have the greatest impact: income, housing, hunger, and isolation.

About Wilcox Miller & Nelson

Founded in Sacramento, California in 1979, Wilcox Miller & Nelson (WMN) has more than 37 years of experience providing retained executive and board search, governance consulting, and executive transition and coaching services to a national clientele.  The firm is a shareholder of Career Partners International.

About Career Partners International

Established in 1987, Career Partners International is one of the world’s largest and most successful global providers of talent management solutions. Organizations of all sizes and industries turn to Career Partners International to successfully assess, engage, develop and transition talent using the expertise of over 1600 highly experienced professionals in the areas of assessment, executive coaching, leadership development and outplacement. With more than 200 offices in over 40 countries around the world, Career Partners International assures that its clients have local experts in talent development, career management, executive coaching, outplacement and career transition services. Additional information can be found by visiting