By: David Racadio
Brexit isn’t an excuse for poor business performance – yet
Though the impact of Brexit on British businesses has been relatively muted to date, many of the most frequently recalled companies in the news have a Brexit angle. In the first week of July HSBC and Barclays announced that they would move jobs to Europe if Britain leaves the Single Market. In addition, Britain’s vote to leave the EU has been blamed for the falling share prices of many banks and airlines – such as Virgin and easyJet – though most had stabilised from precipitous falls at the end of June. Low Cost Travel Group, which went into administration in the third week of July as people delayed booking their holidays, has been touted as the first major business casualty of Britain’s vote to leave the EU. In addition, some analysts suggest that the £32bn takeover of highly successful British company, ARM, by Japan’s Soft Bank, could be the first in a wave of takeovers of UK companies by foreigners made possible by the falling value of the pound.
While Brexit may have a significant impact on businesses in the medium term, companies should take care not to use Britain’s departure from the EU as an excuse for poor business performance. In the second week of July M&S blamed its 9% slump in quarterly clothing sales (at least in part) on uncertainty due to the EU referendum. Few find this kind of explanation convincing or reputation-enhancing. Rather than using Brexit as an excuse for poor performance, companies should focus on describing how poor performance will be improved in the future. It’s just too early to blame Brexit for poor business performance.
21st-century Victorian workhouse
In the fourth week of July, a fifth of Britons noticed Sports Direct in the news. A scathing parliamentary inquiry found that billionaire, Mike Ashley, grew Sports Direct into a retail giant with a business model that treats workers ‘without dignity or respect’ and ‘as commodities rather than as human beings’. The BIS select committee chairman, Iain Wright, described the working practice at the company’s Shirebrook distribution centre as ‘closer to that of a Victorian workhouse than that of a modern, reputable high street retailer.’ The committee was particularly critical of Sports Direct’s retention of more than 3000 warehouse workers on short-term, temporary contracts to reduce costs and evade its responsibility as an employer.
So far, Ashley and Sports Direct have said little in response to the findings. To recover from this reputational mauling, Ashley needs to make good on his commitment to address any shortcomings in the working practices at Sports Direct. The first step should be a genuine apology from Ashley on behalf of Sports Direct management to warehouse and shop workers. Next, the business should demonstrate its commitment to treating its people with dignity and respect by ending, so called, ‘zero-hours contracts’ and placing staff on regular contracts with full employment rights. This will incur significant cost and may hit profits, but the risk of doing nothing and watching customers, sickened by the revelations, walk away from Sports Direct could be much greater.
The twist in the tail
The most noticed business story in July hit the headlines at the very end of the month. After months of delay and angst over the affordability of the project, EDF finally committed to build two nuclear reactors at Hinkley Point only to be told by the British government that the decision to go ahead would be paused while its merits were considered. While the £18bn deal, which would deliver 7% of the UK’s current power requirements, may still go ahead, speculation is rife that the British government has cold feet. Some say that the high guaranteed price of electricity which consumers would have to fund for at least thirty years has scuppered the deal. Others suggest that the project has been crippled by fears in Number 10 that China’s involvement in such a large infrastructure project compromises national security.
The stakes could not be higher. Demand for electricity is due to outstrip supply in the UK within a decade and the government has no clear plan B if the Hinkley Point deal is scrapped. In addition, EDF is 80% owned by the French government, a key player in the Brexit negotiations. China has upped the ante further by threatening to pull £100bn of investment in Britain over the next decade if the Hinkley Point deal is cancelled.