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Risk in Context

Managing Brexit Uncertainty – Learning Lessons From Recent Corporate Failures

Posted by James Crask March 04, 2019

We are living in a period of uncertainty unprecedented in living memory. Whilst no one really knows for sure what the world will look like post Brexit, the one thing we can be certain of is that the uncertainty will eventually come to an end.

And when that happens organisations need to be ready to quickly react to any threats to their business, and more importantly move fast to seize opportunities the new reality provides.

Whilst Brexit represents an unprecedented change – with inevitable disruption to the likes of supply chains, regulation, and the availability of labour – there are lessons to be drawn from how businesses prepare for and respond to other disruptive events and crises.

Our own research shows that how disruptive events are handled can have a significant impact on whether an organisation is able to thrive post-crisis.

Our review of over 70 significant corporate failures of the past 10 years shows that businesses that handle a crisis well are on average rewarded with a sustained +5% increase in share price performance. Those that delivered a poor response saw a sustained loss of -12%.

So as we prepare for Brexit what lessons can we take from the examples of corporate crises that we explored in our research?

Organisations showing signs of health pre-crisis are more likely to thrive: Effective risk management and resilience controls are a strong marker for a thriving business. In particular, our research shows that a flexible supply chain can account for +4% in share performance in events that heavily impact on supply chains:

For Brexit this means:

  • Seeking assurance over the effectiveness of resilience controls.
  • Checking business continuity plans are up to date.
  • Reviewing whether staff know what to do in the face of a disruption.
  • Holding contact details for key customers, suppliers, and stakeholders to speed up a response.
  • Undertaking, or refreshing an assessment of supply chain vulnerabilities and recovery strategies to help prepare for supply disruptions.

Good crisis behaviours have significant influence on recovery: Strong leadership is the single most significant marker of an organisation that thrives post-crisis. Responding quickly and communicating transparently and honestly demonstrates control, sending a positive message to markets.

For Brexit this means:

  • Being ready to get on the front foot as events unfold.
  • Modelling and quantifying the impacts of various Brexit scenarios on operations and strategy.
  • Rehearsing your crisis management team and response strategies, or putting one in place.

Financial and wider market health is important: Businesses with strong financial resources find it easier to recover whilst those already under stress financially, or from broader market changes, experience more pain and find it harder to recover.

For Brexit this means:

  • Exploring if increased levels of working capital may be required to manage certain Brexit effects (e.g. stockpiling, increased warehousing costs).
  • Strengthening the balance sheet to provide the buffers needed to weather any negative effects, and capitalise on opportunities.
  • Review whether insurance coverage is appropriate for the risks now facing the business.

The last minute preparations made now will pay dividends when the new post-Brexit reality emerges. Based on our research, organisations that have invested time to prepare will recover quicker, add value to their business, and be ready to seize any opportunities that Brexit brings.

James Crask

Marsh Risk Consulting