The Brexit Column: To jump or not to jump? | KPMG in the UK
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The Brexit Column: To jump or not to jump?

The Brexit Column: To jump or not to jump?

The amount of Brexit preparation organisations are making says less about their exposure and more about their board’s attitude to risk, says Mark Essex.


Director, Public Policy

KPMG in the UK


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March’s draft transition agreement has made many businesses pause their Brexit mitigation activities. They have a clear expectation that politicians will deliver a solution. To quote the optimistic Wilkins Micawber in David Copperfield, we assume “something will turn up”. Perhaps because “something not turning up” is too unthinkable. 

I’m not suggesting for a moment that boards are being naïve or failing in their fiduciary duty. Over the past two years, I have had hundreds of direct conversations with clients on this issue across most sectors of the economy – and know that geopolitical risk is right at the top of their agenda. This is confirmed in our recently published Global CEO Outlook report. If business leaders can park Brexit to focus on the multiple other headwinds they are facing, so much the better. 

Yet it’s evident that many think the risk of a cliff edge is vanishingly small, based on the assumption that both negotiating teams are in control of their vehicles. That is quite an assumption, given that there are so many hands on the steering wheel. And if the politicians are not in complete control then doing nothing is like failing to board up your house even though it’s in the path of a hurricane, just because “that sort of thing never happens to me”

Yes, on balance, I think there’s roughly an 80% chance that the negotiators, Davis and Barnier, will shake hands on a deal.  But that doesn’t get us over the line. The British and European parliaments both need to sign it off.  For me, this is the point at which an accident will happen. Too much ambition from Barnier and Davis, and it could easily be a ‘No’ for the proposed plan from the EU Parliament. Too timid an approach, and while the EU may agree, the House of Commons rejects the deal as not being worth the £40 billion price tag.

I happily acknowledge that I am more pessimistic than most with my 20-25% odds of cliff edge. Other informed commentators put it at around ten per cent.  But even the latter is non-trivial. 

The situation couldn’t represent a tougher quandary for boards, alive to their shareholders’ sensitivities, if transition does end up being ratified in the spring and money is deemed to have been ‘too hastily spent’. Or for those acutely aware that their competitors have not yet pressed go and started incurring costs.

Decisions in the balance

Many boards are split on this issue.  Between those keen to act, on the balance of probabilities, versus those who want to wait for the holy grail of certainty.  And not forgetting the “floating voters” who prefer to keep kicking the can down the road in the hope that more information will make the judgment calls easier.

And that also makes it also very hard to predict what your third party suppliers – and your competitors - will do. One company’s unacceptable level of risk is another’s widow of opportunity. 

But time is racing on. I don’t believe we’ll see political agreement until late December and the ratification process in the UK and EU parliaments could last into February.  

The worse outcome of all is paralysis.  Either choose to make the jump and start spending or continue to pause at the edge, in the clear knowledge that ‘waiting for certainty’ also means ‘we are accepting a risk of cliff edge at one month’s notice. I’d say it’s vital that businesses are honest with themselves about that – one way or another, they’re prepared to own the risk.

Make that choice now and the boards are then free to focus on the multiple other challenges they face. Some 71% of the CEOs in our survey said they are personally ready to lead a radical organisational transformation. Deciding to decide is, in my view, the most important call companies can now make.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. To have future editions of the column and other expert views from our Brexit team delivered directly to your mailbox, subscribe to Brexit insights in the KPMG Preference Centre.

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