Board composition in the post-Brexit era


By Gillian Karran-Cumberlege, Partner at Fidelio Partners & Luke Main, Research Associate at Fidelio Partners


On 23 June 2016, 52 per cent of the UK voting populace voted in favour of leaving the European Union. In the space of 24 hours, the UK Prime Minister had resigned and the pound had plummeted – introducing a new era of uncertainty for citizens, corporates and boards.

As a board development and executive search firm with a UK and pan-European client base, Fidelio is keenly interested in the implications for board composition. Given the purpose of the board to provide oversight, accountability and strategic direction, it is unsurprising that such a momentous change as the Brexit vote will influence the skills and experience that are required around the boardroom table. In this article, we explore both what we have seen to date in terms of post-referendum impact on boards and also share our expectations regarding future implications.

The run-up and immediate aftermath

To better understand the future impact of the Brexit vote on board composition, it is worth recalling the approach of boards in the run up to the referendum. While most of the business community was pro-Remain, there were deep divisions within UK boardrooms with, for example, one leading FTSE board accommodating the views of a clearly pro-Remain CEO and a publicly pro-Brexit chairman. Beyond internal divisions on which way to vote, boards were also divided on how to respond and engage with the referendum campaign. While many board members were individually pro-Remain, boards were hesitant to be seen to be exercising political influence.

For many companies, it was also clear that a significant portion of the customer/client base were pro-Brexit. There was evidence of chairmen expressing a view publicly on behalf of one organisation in their portfolio, but elsewhere refusing comment. As the polls tightened, several companies refused to communicate more profusely and there was arguably a whiff of panic.

It is interesting to note that German companies with major investments in the UK often felt more comfortable than their UK competitors expressing a view on the potential economic impact of a Leave vote. Indeed, in late 2015, Fidelio held two separate breakfasts with FTSE 100 corporate affairs directors and FTSE 100 board directors in the context of the approaching Brexit referendum. It was telling that the corporate affairs directors were much more awake to the potential for a Leave vote and several months out effectively called the eventual referendum outcome – recognising the vote would be emotional, close and could well result in a Leave majority. The board directors were much less clear and few companies seemed to have clear strategies at this point.

Fidelio, like much of the business community, was fearful that a Leave vote could deliver a very substantial shock to the UK economy and beyond. In the immediate aftermath of
the referendum vote there certainly was a palpable sense of shock within most boardrooms. There was very little visibility as to what the UK Government had in mind in terms of strategic goals for Brexit and the negotiations and at the time of writing this was still the case. Nonetheless, Fidelio observes that post-referendum boards have responded with greater clarity and purpose than ahead of the vote.

One example of the shift in mind-set that Fidelio has observed is an increasing use of the board evaluation tool. Where previously evaluations may well have been box-ticking compliance exercises, in the months following the referendum we observed chairmen using external evaluations outside the mandated three-year cycle to take stock, to identify what was known and what was not known within the board, the strengths, the weaknesses and the skills needed to navigate uncertainty.

As we move into 2017, with the benefit of six month’s post-referendum perspective, we are now able to analyse some of the implications for board composition. We have divided our analysis into two parts: (i) how the regulatory framework is likely to change and (ii) how we anticipate board composition will adapt to deal with the complexity created by Brexit.

Part 1: The regulatory impact

There is a certain irony that one of the key strands of the Brexit campaign was anti-regulation. In reality, it is very likely that the UK will not escape EU regulation quickly. Moreover, the post-referendum UK Government has also exhibited a clear appetite for regulation – in particular with regard to corporate governance and diversity. The overarching regulatory framework for UK boards is currently shaped at EU level.  EU directives, such as MiFID, which regulates how corporates and investors engage is clearly relevant for the chairman of a UK-listed board who is thinking about board composition.

“In the immediate aftermath of the referendum vote there certainly was a palpable sense of shock within most boardrooms. There was very little visibility as to what the UK Government had in mind in terms of strategic goals for Brexit”

Equally, the UK has an admired corporate governance framework, with its unitary board and ‘comply or explain’ approach to governance, which is distinctive from the governance structure within many EU member states. The UK Corporate Governance Code is derived from UK company law, particularly the 2006 Companies Act, and differs substantially from many other EU countries with their two-tier board systems and heavy reliance on legislation. Over the past 10 years, UK boards have shown a high degree of adaptability in terms of both governance and composition and while there may well be quite substantial regulatory fallout from Brexit, we are confident that the ‘UK plc’ boardroom has the potential to adapt. There is a clear opportunity for the UK to continue to hold a leading position in terms of corporate governance.

Moreover, many of the regulatory themes that will shape future board composition are common to Europe and the UK. The demand for greater accountability from corporate boards gathered pace after the financial crisis. Across Europe, there is pressure to ensure better corporate governance through increased, more effective, regulation. Certainly, there was a clear anti-big business element in the Brexit referendum result. Business was stunned when Theresa May talked of employee representation on the steps of No. 10; perhaps even more so when the Conservative party conference seemed to lurch toward a very hard Brexit, apparently favouring very severe restrictions on freedom of movement versus the interests of business. There is, however, more recent evidence of a rapprochement between government and business.

Regardless of Brexit, boards should expect ongoing scrutiny and one way of promoting accountability is via board composition. This was evident in the Department for Business, Energy and Industrial Strategy’s Corporate Governance Reform Green Paper published shortly before Christmas 2016. It set out suggestions to promote better governance, including giving shareholders a binding vote on executive pay and suggesting the extension of corporate governance regulations to large private companies.

A major focus of the UK Government’s Green Paper is to strengthen the wider stakeholder voice – including that of employees at board level. It is perhaps an irony that the employee board representation, which has been mooted (although subsequently toned down) by the post-referendum pro-Brexit UK Government, emanates from Europe. Germany, for example, has a highly developed governance structure of employee representation across its boardrooms.

Apart from stakeholder representation in the boardroom, we are also seeing a strong regulatory and government interest in promoting increasingly diverse boards. This pre-dates the referendum and we do not see this changing in the future. The initial work of the Davies’ Review (2010-15) to increase the representation of women on quoted boards has continued. The Hampton-Alexander Report (published November 2016) set a voluntary target of 33 per cent representation of women on FTSE 350 boards and, importantly, also extended targets to the executive level of the FTSE100; all to be achieved by 2020. Spurred by this context, sectors that have traditionally been lagging in terms of diversity have begun to set up their own initiatives, such as HM Treasury’s Women in Finance Charter and the asset management industry’s Diversity Project.

Nor is the drive to increase boardroom diversity limited to gender. The 2016 Parker Review has also set goals for greater ethnic diversity at senior levels of corporates. This includes the requirement for FTSE 100 boards to have at least one director of colour by 2021 and each FTSE 350 board to have at least one director of colour by 2024. Thinking on diversity is becoming – quite appropriately – multi-dimensional. At the launch of the aforementioned Diversity Project in the asset management industry, Andy Haldane, chief economist at the Bank of England, argued that a very important dimension to diversity which is often overlooked is much more subtle: socio-economic, sociological and neurological, comprising backgrounds, experience and personalities. There is a sense in which the Brexit vote has thrown all the cards in the air and an appropriate response at board level has to be increased board diversity.

Part 2: The board response

This leads to part two of our analysis – how boards respond to the Brexit vote, including in terms of board composition. One of the most distinctive features of the Brexit referendum result was that boards and the establishment at large did not see it coming. There is much evidence that chairmen and leading luminaries were confident of a Remain vote (and of a Clinton victory) and UK boards are as guilty as anybody else of being in their own echo chamber. Since the referendum, there has been much soul-searching at board level over why this major change was not anticipated. The degree to which business had failed to connect with the broader public and anticipate popular sentiment was stark, as well as the extent to which in many cases, while boards had contingency plans in place, they were psychologically unprepared for Brexit. The perils of ‘group-think’ have seldom been clearer; and the board skill matrix is currently under very critical review.

One skill that was in short supply in many a boardroom was the ability to interpret the public mood and to connect with key stakeholders. And yet within these same organisations there were typically highly skilled corporate affairs directors with good relations to government and often a very good sense of the public mood. Fidelio expects the skills of engaging more effectively with stakeholders to be in increasing demand in the boardroom.

Given the danger of living within the bubble in the UK (or in the US), we also expect to be see further premium placed on social media skills – including an understanding of how to navigate these channels of communication.

Boards previously placed much higher reliance on politicians to promote business interests and to negotiate on their behalf. The Brexit vote undermined this trust and business is undoubtedly exposed to the risk of poorly conducted negotiations. As a consequence, we expect boards to further build their regulatory competence and expertise and also, at a simpler level, ensure that boards incorporate different international perspectives and have genuine insight into countries that are important to their business interests.

Finally, uncertainty will inevitably be a feature of the business landscape for the years ahead. As such, boards will need to become comfortable with a much higher level of unpredictability and volatility. Strategy cannot be linear and both companies and investors will need to learn how best to operate with multiple options. Effective boards will be characterised by agility, flexibility and speed. Again these are characteristics that will feature more prominently in board role specifications of the Brexit era.

Of course, deep sectoral expertise will remain critical for boards. Finance will continue to be a dominant boardroom language. Cyber expertise will still be demanded by investors and regulators. Beyond this we expect Brexit to be a force for further diversification of the boardroom, extending beyond gender and ethnicity to experience, perspective and aptitude. Boards will also have to become considerably more self-reliant in building relationships that matter and forming opinions that are independent, sound and potentially counter-intuitive.


Brexit is clearly a pivotal point for UK boards. There remains little visibility and potentially a long and tortuous negotiating cycle ahead. Brexit is already driving change for boards, both in terms of the wider regulatory framework and how boards need to adapt to the new reality. There is huge opportunity for UK boards to get ahead of the curve and secure the ‘licence to operate’. This requires fresh thinking in terms of committing to building up a strong corporate culture, bringing international perspectives and new skills into the boardroom, as well as refreshing the board’s ability to engage with key stakeholders.

At a recent Fidelio board breakfast, Sir Simon Fraser, former Permanent Under-Secretary of the Foreign and Commonwealth Office in the UK, concluded that failure to anticipate the totally unexpected is frequently not due to lack of intelligence or knowledge. It is, instead, the failure of imagination that can represent the much bigger risk. Fidelio concurs that boards need to ensure they are not lacking imagination and that they have sufficient skills and diversity of perspectives around the top table to navigate uncertainty at this extraordinary and unprecedented time.

About the Authors:

Board composition in the post-Brexit era Ethical BoardroomGillian Karran-Cumberlege is a founder of Fidelio and leads the firm’s Board Practice. Gillian supports Chairmen and CEOs in building effective Boards and Executive leadership teams through Search and Development. Gillian is an Independent Board Director of Jaguar Land Rover India Ltd and sits on the Board of the German British Forum and the Harvard Business School Alumni Board.

Board composition in the post-Brexit era Ethical BoardroomLuke Main is a Research Associate at Fidelio Partners and has been closely involved in the delivery of a number of Fidelio’s Board Evaluation and Board Advisory assignments internationally. Formerly a freelance researcher for think-tanks and publications, Luke brings expertise in diversity and co-ordinates Fidelio’s acclaimed “A Seat at the Table” Programme for senior female executives and Directors.

Comments are closed.