News reports from London in recent weeks will leave in-house counsel who planned worst-case scenarios feeling relieved, since it often looks like no deal will be made. Most hope for a better outcome, and no Brexit at all is even possible.
When I spoke in London in November with global corporate legal leaders gathered from across Europe, everyone was eager to hear the steps other companies are taking to prepare. It’s remarkable that with the exit date just over three months away, we still have so little clarity.
The political circus around Brexit gets front page coverage across the U.K. Beyond that noise, what concrete actions are companies taking, and what role does the in-house legal team play?
Monitoring Developments and Planning for the Worst
While most global in-house legal teams have identified their focal points of Brexit preparation since many months, scenario planning continues. For example, we heard concerns of disruption to manufacturing, from companies across several sectors. If they manufacture in the U.K. or procure product components made in the EU, the concern is delays in shipments into and out of the U.K.
The continuing lack of clarity as to future trade terms between the U.K. and EU has prompted some manufacturers to be on the safe side and stockpile inventory to avoid manufacturing disruptions.
Many companies mentioned holding off on investment decisions in the UK. Some have already opened offices elsewhere. When the “divorce terms” are finally clarified, outside counsel will likely see a significant increase in demand for Brexit advice. Clients will want counsel to help identify and evaluate options, so they can prioritize actions and decide mitigation steps for risks specific to their industry sector and their supply chain.
“We’re considering various scenarios,” said Chicago-based Michael Going, chief compliance officer & corporate secretary of the large multinational CNH Industrial. “We are planning as if it may be a hard Brexit but we hope reasonable minds in the U.K. and EU prevail and we have something much less potentially disruptive.”
Brexit Uncertainty Makes UK Employees Nervous
In our London discussion, we heard from several general counsel based in Great Britain who have noted increasing concerns among employees of disruption or chaos when the country officially exits the EU on March 29, 2019.
They are thinking through ways to avoid distraction or even disruption at work in a no-deal Brexit. It’s plausible that daily access to many goods and services could become difficult. Employees are increasingly asking “what if?” questions.
Many legal leaders are part of multi-disciplinary Brexit committees in their organizations. Such committees are often led by the COO or chief risk officer. The cross-functional teams consider what the potential Brexit implications may be and what actions should be taken—and at what cost– to address the potential negative effects. One general counsel of a global company said that her trade compliance team is actively assessing the implications of the worst-case scenario—a hard Brexit—and options to mitigate the potential financial and operational impact to their businesses.
Francesco Giobbe, group general counsel of MBDA, a defense industry leader in Europe with nearly 1,500 UK-based employees, shared important concerns where MBDA has retained law firm advice. “The major issues are the eligibility of our group to access EU funds for R&D because one of our three shareholders is a British PLC, and the treatment of IP developed with these EU funds in our cooperative programs between our three EU-based subsidiaries and the British one,” Giobbe explained.
Expected Tightening of UK Labor Market
According to Giobbe, MBDA’s in-house team worked with finance, HR and programs functions to conduct a joint analysis of the financial impact of a hard Brexit situation on taxes, customs and employee travel across the channel.
Some companies are in businesses that feel less likely to experience a big Brexit impact. Daragh Fagan, group general counsel & company secretary of FTSE 100 company Rentokil Initial, said, “We updated our review for the board a couple of months ago but have not kept looking at it through all the twists and turns of the news cycle. Largely, our business is insulated by being local-to-local services with limited cross-border travel or product shipping, etc.”
Fagan said that the main impact they see is tightening of the labor market in the U.K. for frontline staff. He added, “We have done some selected, small-scale inventory building in a few countries and in our European warehouses in case of short-term disruption around 29 March 2019.”
We’ll be reporting more perspectives early in the new year when there is hopefully more visibility to what happens the morning of March 30. When the fog lifts, U.S.-based general counsel will be wise to act quickly to get advice and determine their role in guiding the company to leverage Brexit opportunities or minimize Brexit losses.
E. Leigh Dance consults with large global corporate legal and compliance leaders and their teams on managing changes in legal service delivery, responding to multi-jurisdiction regulation and strategic priorities in digital transformation. She divides her time between bases in New York and Brussels. Two of the three leaders quoted in this article are members of the Global Counsel Leaders Circle which Dance founded and directs. www.GlobalCounselLeaders.com