Rick Cudworth is a Partner based in the UK with Deloitte’s Risk Advisory practice, Leading their Resilience and Crisis Management Services team. He also heads up Deloitte’s Brexit Center, a multidisciplinary client-facing center bringing together Deloitte’s industry-specific Brexit leaders and domain champions (e.g., regulatory issues, tax, trade, etc.). ALM Intelligence spoke with Cudworth to get some of Deloitte’s perspectives on the Brexit.
ALM Intelligence: Are you seeing any inquiries from clients yet resulting from the Brexit vote? If so, what are they most concerned about at this stage?
Cudworth: We’ve gone through a period of initial shock and huge uncertainty, as you might expect. I think we’re in for a period of uncertainty of, I would say at least two years as the UK moves towards negotiation. In the initial shock stage our clients were asking us about what to expect next, what it all might mean—asking for perspectives we might have and what we’re hearing. It has been a period of interesting conversations as people tried to get their minds around it.
In the process, we’ve found that financial services in the UK have done a degree of planning ahead of the referendum vote and therefore had a better understanding of some of the issues. They were more ready to move into what I would term broadening and deepening their planning or indeed making some preparatory stages towards the actions they may want to take.
Corporates were less prepared overall. That’s not to say all corporates, but generally corporates were less prepared. I think they believed it wouldn’t happen and therefore find themselves now trying to understand what this might mean.
For the public sector in the UK, the issues predominantly center around building capability to negotiate trade deals, and back-filling civil servants who will be moving from various departments.
ALM Intelligence: Have you seen any impact on clients from recent government and cabinet changes since the vote here in the UK?
Cudworth: We’re looking at it as a funnel-shaped timeline towards greater certainty, and the first stage of that funnel narrowing was overcoming the political uncertainty with the appointment of a new Prime Minister. Nevertheless, there’s still quite a period to go. The next stage will be direction-setting: exactly what do we want the UK relationship with the EU to look like? What might our negotiating strategy be? And then we will enter a period of negotiation once Article 50 is triggered.
The way we’re looking at it is the funnel is bounded by two scenarios: On one side is an exit which sees the UK following the WTO scenario, with a relatively distant relationship with Europe—this implies the most business change. On the other side of the funnel we see the EEA model, much like Norway, which would see us maintain free access to European markets—this represents the least business change. I suspect the UK will end up somewhere between these two, most likely with a bespoke negotiated position. But exactly how much towards one side or the other, that’ll be sorted out in the direction-setting and negotiation.
ALM Intelligence: Obviously, nobody knows yet how this will turn out, or whether Britain will even end up leaving the EU, but something important clearly is going to change. Off the top of my head it would seem that risk, budgeting & forecasting, and possibly talent would be the three most immediate issues companies should be concerned about. Are there any other areas you are counseling your clients to start thinking about?
Cudworth: There are four broad issues our clients have focused on in discussions so far: The first is the free movement of people—a big concern expressed by many, and particularly in the immediate actions, our clients are looking at how they can give certainty and security to EU nationals working in the UK, and then UK nationals working in Europe. We have set up a service, including a hotline, that our clients can subscribe to and support EU nationals working in the UK who may wish to obtain permanent residency in the UK, for example.
The second area is around free access to the market. Clients want to understand what the potential outcomes might be as much as possible—many are seeking certainty when certainty just doesn’t exist. However, those that are starting to consider potential impacts are looking at their operating models—to maintain access to the market or maintain profitability in trading across borders, how should they redesign their operating model?
The third area is regulatory issues—what it may mean from a regulatory standpoint, what changes they may expect and, importantly, what is unlikely to change?
The fourth area is around access to new markets. What are the other key markets for our goods or services? Where should we start looking for new trading opportunities if the UK succeeds in negotiating new trading relationships? Already the new Business Secretary in the UK has highlighted five markets that he’s intending to push ahead with on negotiations for trade.
So those are the four main areas of discussion. But overriding all of that is, how do we plan for Brexit? Our message is simple, in times of uncertainty, the one thing you can do is be prepared. And the way to be prepared is to consider what the key impacts, issues and opportunities would be under a most business change scenario modelled on the WTO. We suggest clients then focus on what they must do (eg, to stay in the market or to remain competitive in the market), what they could do (additional opportunities they may wish to consider) and when they will need to make key decisions (knowing when to act). It’s key to understand the timelines necessary to execute any ‘must do’ activities. At least that way you’ll know when you need to make a decision, avoid taking unnecessary or potentially costly pre-emptive actions or realizing too late that you should have started something six months earlier.
ALM Intelligence: What should companies, especially in industries like financial services and healthcare, do to prepare for any shifts in the regulatory environment, especially given how much they’ve already spent in recent years?
Cudworth: Again, to come back to the planning concept, it’s important to try and understand what is unlikely to change or what won’t change versus what may change. If I take, for example, life sciences, some changes may be quite significant and have big impacts. We are running something we call a Brexit Lab internally currently, a service we also offer to clients, which uses a digital sharing platform. In the process, we crowdsource what our industry and regulatory specialists think are the key issues and challenges and then use more formal analysis to determine the key impacts and the actions that will need to be taken. For life sciences that’s up and running, and we have members across Europe contributing to this, so we’re really able to distill what the key issues might be in that industry around the regulatory agenda – and therefore, what our clients need to know and to do now.
ALM Intelligence: Do you think that an event like the Brexit may lead to adjustments in client behaviors around data (e.g., movement, storage, etc.), or for instance greater interest in cloud-driven solutions, overcoming concerns about cyber security?
Cudworth: It is coming up in more discussions. For the moment our feeling is that it’s one of the areas of lesser concern, though I’m not saying there may not be challenges there. We don’t necessarily see a strong likelihood around restrictions on the movement of data within Europe. We don’t see a strong impact on the cloud computing model, particularly, but having said that we need to keep observant on it. It’s not one of the very top agenda items, and we believe the UK will avoid trying to deliberately move to a different regulatory agenda which would compromise things like flow of data, etc., because that’s just not helpful for anyone.
ALM Intelligence: London is a key production and service delivery hub for many companies, Deloitte among them. How are you advising clients who may be concerned about future restraints—short-term and long-term—on the movement of key resources in and out of the UK?
Cudworth: The movement of talent across Europe is important to many companies, including us. We have many EU nationals working in the UK and many UK nationals working in the EU as well. We would like there to continue to be relative free movement of people in Europe. Politically, that’s going to be a difficult agenda given the focus of the ‘Leave’ campaign but we think it is an important issue, and not just for us but for many businesses.
ALM Intelligence: Any final thoughts?
Cudworth: I think the main point is that it’s very easy for clients to get lost in the uncertainty and take a wait-and-see approach. We’re saying, as a minimum now you should start to plan, understand the key issues and when you may need to make decisions. Some of those decisions may well have to be taken before there is certainty.
For example, major operating model changes can take substantial time to plan, prepare and execute. Even more modest IT changes that may be necessary, for instance for customs duty or VAT changes could take six months, twelve months to execute. Understanding that early is beneficial—just becoming clear around those issues and decision points without committing before you really need to is important right now.
Speaking more broadly, it is essential that businesses now find their voice in communicating with their workforces, customers and wider society. It’s clear that the voice of business did not resonate with the electorate during the referendum campaign. Businesses must find ways to reconnect with communities across the country, show they can confront the needs of society and play a role in setting a post-EU vision that is open, pro-growth and inclusive.