Survey finds UK multinationals surprisingly confident in risky environment

Despite the majority feeling they are operating in a moderate to severe risk environment, UK multinationals are surprisingly confident about their current prospects as they appear acclimatised to uncertainty and are increasingly agile, finds a survey by CNA Hardy. The business confidence and risk perceptions survey of 500 business leaders and risk managers at UK companies with turnover from £5m to more than £100m, also reveals that economic, political and technology risk are the leading concerns. The CNA Hardy Risk and Confidence Survey finds that 71% of respondents are currently confident or very confident about their companies’ ability to grow and prosper. This is despite the fact that 70% believe they are operating in a moderate to severe risk environment. CNA Hardy said it is “pleasantly surprised” that UK multinationals appear to be “growing comfortable with uncertainty”, despite the risky environment caused by Brexit, a snap UK election and shifts in US policy under Donald Trump. The specialty insurer believes UK multinationals are simply becoming more nimble and therefore ready to react quickly to any challenges thrown their way. “It was a pleasing finding. Businesses are getting used to living in very challenging and risky environments. They are creating structures and strategies that are very fluid. Gone are the days when you used to hardwire your business, it is now much more short term in terms of approach and challenges. Companies recognise that they must move pretty quickly. So I think they are just comfortable with that,” Patrick Gage, chief underwriting officer at CNA Hardy, told Commercial Risk Europe. However, business confidence drops slightly when looking six months ahead, to 61%, even though 85% of respondents feel the risk environment will have stayed the same or improved. CNA Hardy’s CEO Dave Brosnan believes Brexit, which brings into question access to talent and new markets, is a key reason for this fall in confidence, along with likely volatility in the value of sterling. “Brexit is first and centre along with talent and access to new markets, which are natural concerns when the UK exits the EU. All of that is exacerbated by the political environment, which is creating uncertainty in terms of governmental policy, access to markets and whether the new policy will be friendly or unfriendly to business in the UK and around the world. The value of sterling against the euro and dollar is also a reason for the drop in confidence. There has been a lot of volatility over the past months and that is expected to continue as we navigate through the challenges of Brexit,” he said. Mr Brosnan added: “We also know firms are casting a wider net. They are looking to Asia, for example. If they can’t access sales in the EU they will look at other markets around the world and there is a big unknown there, which creates uncertainty and the drop in confidence.” However, Mr Gage noted that the fall in confidence is fairly small and there remains relatively high confidence going forward, partly because firms see opportunities in Brexit. “We are talking about a relative small fall back in confidence. So even in six months’ time, companies are reasonably comfortable about operating in a high to severe risk environment. So there is less certainty going forward, but not an indicator that business is severely concerned,” he said. “In addition, we had feedback that companies didn’t see Brexit entirely negatively. They recognise that it will be challenging in some areas, but in others offers opportunity to change their global market profile and look at their supply chain profile. This brings challenges, but also great opportunities,” he added. Mr Brosnan said business leaders are focusing squarely on agility as the path to growth during the next six months. He explained that UK multinationals are cutting back on traditional hiring and instead leveraging the new ‘gig’ economy to fill the talent gap. The survey also shows that businesses are prioritising new technology and R&D to boost operational efficiency, innovation and the power to disrupt others, he said. The survey, conducted in March, also finds that economic/market risk is currently the largest concern for UK multinationals, with just under one third (31%) concerned about the impact of volatility, intensified competition and market stagnation. Political risk – defined as the risk of unpredictable or unsupportive government policy – came next and topped the list for 26% of respondents. The third most frequently cited risk was technology at 16%. However, as businesses look ahead six months the picture changes. Boardroom risk rises to the top, with 46% of business leaders anticipating an increase in this area. Boardroom risk was defined in the survey as the risk of fraud, corruption, poor governance, weak compliance or pensions exposure. At the opposite end of the spectrum, only 27% of businesses believe technology risk is likely to increase during the next six months and more than two thirds (67%) believe it will stay the same or reduce. Mr Brosnan said: “Looking six months ahead, boardroom risk is the category where business leaders foresee the greatest risk of deterioration and the lowest hope of improvement. By contrast, the risk which companies worry about least in Autumn 2017 is technology risk. This either suggests businesses are already factoring risk into their planning or, more concerningly, that technology risk is still not commanding the attention it requires in the boardroom.”

Survey finds UK multinationals surprisingly confident in risky environment

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