Reports on Tuesday British companies are ill-prepared for a darkest-scenario No Deal Brexit are no revelation. But that mainland European firms are also ill-equipped will be a shock to most of us.
The result is likely to lead to an extension of talks beyond the 29 March 2019 closure of Britain’s membership of the European Union.
I have always been an ardent critic of Prime Minister Theresa May’s decision to proceed with triggering Article 50 of the Lisbon Treaty as early as she did. And I have also been very much aware of the fact that British companies are not ready for Brexit of any form, let alone a No Deal exit which they dread the most.
I have also forecast since Article 50 was triggered in March 2017 that the two-year window to quit the EU would be extended in the interests of stability and order. The idea that a never-tested exit by a major nation like Britain might take only two years to negotiate was utter folly and written in 2009 upon the assumption that no one would ever put it to the test. The EU technocrat, or Eurocrats as the term coined, who devised that deadline, I can only hope, is presently shivering under a kitchen table in an apartment in Brussels, fearing a knock at the door!
My own fears, although not as animated, were reinforced by today’s reports that employers’ organisations in Denmark, Ireland and Sweden among others report that around 20% of their member firms have made any allowance for a No Deal Brexit. That means 80% have not.
It is quite obvious why employers have not prepared. First of all, no company wants a No Deal exit. Secondly, no one seriously thinks a No Deal would be the outcome. Just as naively as Europe never believed the British would vote to quit the European Union.
So employers, in Britain and elsewhere in Europe, have defended their non-action by explaining that the outcome of Brexit is so uncertain and the debate so unclear that they have no idea how it will evolve. Every day brings new contradictions over Ireland’s border, compensation or continued British membership of some European-wide functions.
But that is also the wrong way to look at it. When assessing risks, you do not apply the best scenario. You best leave those rose-tinted glasses in a pouch away from paperwork and strategic meetings.
Large companies, for example, from news agencies to investment banks to oil companies, have contingency plans which include storm weather, earthquakes, political coups, industrial strikes, terrorism, aircraft accidents, and war. Basically, all of the kinds of things which their insurance policies normally exempt in a claim!
True, Brexit is a different and less well-defined risk. But planning for the worst case is always wise and an opportunity for companies to realise what they are truly made of. Can they withstand frozen supply chains for six months? It is a chance to really understand the company and its place in the world.
So, you base it instead on the worst case scenario. What If…? A bit more of that when the disgraced 1992 Maastricht Treaty was signed might, for example, have averted the crisis in Greece a decade ago. Again, Eurocrats never asked the question: what if one of our member states doesn’t tell the truth or inflates numbers to look good to boost its bid to join the euro currency? A little more of that attitude could have made the euro a success instead of the challenge it is now.
But some of the blame lies elsewhere. Were employers listening when there was a targetted campaign (on both sides) for Britain PLC and Europe SA, AG, and GmbH to prepare for the blackest option of No Deal?
Well no there wasn’t. And for that, we can actually blame government officials. UK trade secretary Dr Liam Fox only delivered his doomsday prediction that we had a three in five chance (60%) of crashing out of the EU in July. At the same time, the European Commission began signalling that firms must make No Deal contingency plans. It is as though both sides came to the conclusion that after intractable talks spanning months they were going nowhere and must now “cover themselves” by at least warning firms to prepare for the worst outcome.
The point of contingency plans is to wish for the best, but plan for the worst.
So why am I poking the politicians? Simple. They should have removed the rose-tinted sunglasses which seem permanently affixed to their noses in March 2017 and immediately have begun conditioning employers to expect the worst case. But just like with the Maastricht Treaty, again they let us down with their total lack of foresight and inflated optimism.
So Dr Fox and the EC decided to start whispering guidance in July. The same month as children leave school for summer vacations and employers will not be present or even in the state of mind to call strategy meetings with their boardrooms and find out from logistics where all the supply chains are and what if they vanish next year?
Yes, the timing of sage advice was way too late. Now we must wait until September for employers to piece this together, and likely they won’t have a clear picture of what they face until November. That leaves them a full four months to actually implement a plan and brace themselves.
On that basis, an extension to Brexit talks is imperative. We can only hope that common sense will prevail, at least on that. Former Irish premier Enda Kenny said in 2017 that the UK-EU talks could easily take five years, not two. He had a point.
And I might add, a further five years to implement the deal. Let’s face it, when we joined the EU, or rather its forerunner the European Economic Community, on 1 January 1973, we took six years of planning for it from 1967 after Charles de Gaulle was no longer able to keep telling Britain “non” to the prospect of enlargement. The signing into law of the European Communities Act 1972 was merely the final rubber-stamping of a process that had taken years.
So who is to suppose it would take less time to untangle 45 years of the union? A lot of emotion and inter-dependence has developed in that time. It’s easier to get married than to unravel a marriage, with all the emotional and financial pain.
And another nasty thing…
The lack of preparations for Brexit is only the tip of the iceberg that we are heading towards.
I have been very anxious about British companies’ preparations for trading after the EU.
How hungry are we to conquer new markets?
As we have all become wrapped up in the circular Brexit talks, so too we have relied upon the UK Government to hammer out alliances worldwide to allow British firms to trade widely.
Not only have those alliances barely begun in many cases, while relying on the protectionist USA is high-risk, firms themselves have not the attitude to become world leaders. No, hear me out.
Dyson. You would consider that an engine of creativity and success in corporate Britain.
Last November, I attended the annual dinner of the Society of Business Economists, which we since renamed Society of Professional Economists, where I am their Social Media Manager.
At my table was a lady who works at the Department of Trade. She was shocked but grateful for what I told her.
I said that while a lot of hot air surrounds how the Government is prepping for Brexit, there is little about how companies are readying, albeit in difficult circumstances.
But I told her that British companies are not hungry enough to compete with Asian or American companies on the world stage.
Dyson, the electrical goods company, is a point in time. A year ago, the Financial Times reported the story of how James Dyson wanted to produce an electric sports car to compete with Tesla. But his chief engineer quit and joined Tesla, thereby telling his new employer of the plans. Legal noise followed but the damage was done.
The FT ran the story and divulged how much the engineer earned at Dyson.
Remember this is the chief guy whose input will create billions of dollars in revenue for Dyson if he succeeds. Well, he was paid £50,000 a year. Think about it. Poor performing fund managers get at least double.
And no doubt Tesla pay him maybe five times that. Because Tesla knows that to win on an international scale you have to pay enticing salaries.
Poor Dyson didn’t see it that way. It saved on payroll but lost billions in revenue potentially.
If we are serious about competing worldwide, winning markets and producing products people want to buy from us, we have to pay top dollar. We have to think big and change our mindset. The absence of that will crush enterprise here. That is my biggest fear. Ok, I will come out from under the kitchen table now…
It is perhaps a bitter irony that, should Britain “Hard Brexit” with a No Deal solution, businesses on both sides of the Canal La Manche risk enormous hardship and yet reform of the European Union, and the Eurocrats remain in denial for the need for reform that resulted in the Brexit referendum. It is time to turn up the heat on politicians on both sides of the debate to get this right or history will punish them all.