Business must better engage with politics to mitigate risks such as Brexit

Businesses in Britain are having to face up to political risk and need to learn to engage with politics and politicians to mitigate growing threats, according to Sir Mark Boleat, former policy chairman at the City of London Corporation. But he warned many companies are failing to step up to the mark. Speaking at the Institute of Risk Management’s (IRMs) Risk Leaders 2018 conference in London, Mr Boleat said there is now “massive political risk”. But this was not always the case and, in fact, the opposite was true, he added. Mr Boleat explained that during the past 30 years, the UK had become a highly successful economy, and London had been transformed into the world’s major international financial centre. He said this was not the result of a conscious plan, but a natural evolution, and was aided by the English language, rule of law, political stability, a strong university network, a favourable and predictable business environment, and a welcoming environment for outsiders. He noted that in the past, political risk has not been a factor in Britain, and did not appear on risk registers. He explained that businesses operating in Britain could safely do so without running any risk of expropriation of assets, retrospective taxation, significant adverse tax, regulatory changes at short notice, discrimination against businesses that were not British, or against executives or workers who were not British, or being required to pay bribes to get contracts. He noted that even general elections did not pose a political risk, as in practice the policies of the major parties were largely aligned, and there was no significant effect on the business environment. “Brexit has changed everything. In the future, looking back, the 2016 referendum may well be seen as one of the most damaging things any country has ever done to itself. It was the referendum itself that was damaging, as much as the result. The referendum was an abdication by the UK Government and Parliament of responsibility. As a result, Brexit has meant that there is now an uncertain business environment and a less stable political climate,” Mr Boleat told the conference. But he warned that political risk is not considered adequately, if at all, in many UK businesses, and does not feature prominently on risk registers. “Regardless of the endgame in respect of Britain’s membership of the EU, any business operating in this country is now subject to much greater political risk than was the case in the past. Political risk now has to be factored into business decisions,” said Mr Boleat. “It is important to understand the nature of political risk, something that very few businesses manage to do. It is not just that politicians don’t understand business. Many businesses don’t understand politics,” he added. He went on: “Business needs to be more involved in the political world, by engaging with local politicians to ensure there is an understanding of what they are doing, and what the consequences of certain political decisions might be.” And Mr Boleat concluded: “If businesses don’t participate, don’t be surprised that politicians don’t understand business.” He said that business now found itself in a very difficult position. On Brexit, its views have been largely discounted, Mr Boleat said. Businesses find the political environment very different from the one in which they are used to working in, he added. “In business, if there is perceived to be a new risk, such as the threat of cyberattack, then the necessary resources to counter that risk are developed. But that logic seems not to have been applied to the growing political risk as a result of Brexit,” Mr Boleat added. He said businesses need to be more aware of risks from political instability within the UK, and the fact the country does not yet know what the trading relationship will be with its biggest trade partner the EU. He warned that even if the UK does eventually leave the EU in the near future, Brexit negotiations will continue for years and years. Mr Boleat pointed to Switzerland, which voted by a narrow margin not to join the E, and has a very complex relationship with the EU through a series of bilateral treaties. “It is in a constant state of negotiation,” he told the conference. “The same will happen with Britain. It will constantly be negotiating bits of its relationship with the EU,” he said. This will have the effect of dominating the UK Government’s time, he continued, and will mean that the capacity to address other issues in Britain – such as social mobility, education, poverty and housing – will be seriously diminished.

Business must better engage with politics to mitigate risks such as Brexit

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