Experts from London Business School share their views on Brexit and how businesses can prepare.
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Approach with caution, says Andrew Scott, Professor of Economics
“Given the range of possible outcomes of Brexit, and the level of uncertainty, the best approach is probably one of caution – both about dramatic relocations from the UK or increasing any UK commitments.
“In the longer term, much depends on the nature of Brexit, but certain things seem likely: the UK will be a cheaper place to operate due to the fall in sterling required to boost competitiveness in response to the trade shock. Further, those looking to global markets and the benefits of high human capital industries should find the UK a more welcoming place as policy tries to mitigate the loss of European trade.”
Brexit presents a unique opportunity for climate change legislation, says Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship
“Brexit is likely to have negative consequences for the UK’s climate and environmental policy and the broader sustainability agenda. Theresa May’s decision to dissolve the Department of Energy and Climate Change coupled with the flip-flopping on renewable energy policy, are not encouraging signs. However, this uncertainty does not only present a challenge: it is also a unique opportunity for the UK corporate sector to lead by demanding ambitious and effective climate change legislation, economic openness, inclusive growth and tolerance.
“Adoption of a global perspective will in fact be imperative, given that challenges such as climate change are not confined to national borders: UK businesses will have to extend and enhance their global outreach to counter the recent wave of isolationism and xenophobia.”
Invest in perspective-taking, says Gillian Ku, Associate Professor of Organisational Behaviour
“As evidenced by the vote to leave the EU and the American presidential election, we live in a world of deep division. Views are entrenched.
“In business, too, managers and leaders need to manage diversity and prevent and resolve disputes. Taking others’ perspective can help this.
“This means investing effort to understand another person’s visual viewpoint, thoughts, motivations, intentions and emotions. There are risks to adopting this perspective, but it will be a key skill required in the coming years.”
Prepare for the worst, retain human capital, says Chris Higson, Associate Professor of Accounting Practice
“For financial managers, Brexit is likely to bring about increased volatility and exposure to significant negative shocks. Many firms are already seeing sharply increased input costs. Firms who find traditional markets closed to them may face collapsing revenues. So business might hope for the best, but it needs to prepare for the worst.
“Enter our old friend financial resilience. Financial resilience means building reserves of cash and liquid resources and shifting the balance of funding away from borrowing towards equity capital – the classic ‘strong’ balance sheet strategy. It derives its strength from low financial leverage; unused cash and unused borrowing capacity will help weather the storm. For many firms this simply continues the habits learned after 2008.
“In the income statement, financial resilience means getting fixed costs down. So, we can expect continuing pressure on fixed employment and a continuing trend towards ‘flexible’ labour on temporary or zero-hours contracts. Of course, if and when we ever see the upside, this resilient financial structure should also offer a good basis for growth – assuming the firm retains the human capital it needs to take advantage of the opportunities ahead.”
Leaders must offer hope and purpose, says Dan Cable, Professor of Organisational Behaviour
“Brexit will bring change. We can’t predict the nature of that change, but we can safely say that it will be profound. Organisations will have to adapt and that will inevitably require adaptation by workforces.
“Leaders must provide their employees with hope, purpose and encouragement to try new things: top-down, industrial revolution-style management isn’t going to cut it anymore. Change that lasts will come, at least partially, from the bottom up. As the challenges and adaptations necessary to cope with Brexit become manifest, leaders will need to inspire people to believe in change, to want change and to see that change through.”
London Business School has been has been developing the region’s business leaders for the last 10 years from its Dubai Centre, which offers the Executive MBA programme, based at the Dubai International Financial Centre.