Friday, August 7, 2020

Executive Education

How Brexit Will Affect Hiring Decisions for International Companies

The leaders of international companies are still trying to decipher Brexit’s impact on the future of their business operations. The unexpected result of the vote and its ensuing fallout have created an atmosphere of instability and ambiguity, which never bodes well for the economic climate.

As an executive search consultant, I work with executives and board members across the globe whose hiring decisions are being shaped by Brexit. Though only a week has passed since the monumental decision, we can already draw a number of conclusions about Brexit’s impact:

Companies will be in fierce competition for talent in other European countries.

Some international companies will most likely relocate offices and staff from the UK to other countries in the EU, specifically financial services companies that need to maintain access to the EU bloc’s customer base. Jamie Dimon, CEO of JP Morgan Chase, for example, said in early June that Chase would potentially move some of their 16,000 UK-based staff to Europe if Brexit went through. Morgan Stanley has reportedly begun the process of moving 1,000 jobs out of London. The likely beneficiaries of these moves will be Frankfurt, Paris and Luxembourg, where there are hubs of financial services talent with access to the EU bloc customer base.

Airlines will also be impacted (e.g. Easy Jet and International Consolidated Airlines, parent of British Airways) as will the real estate, tourism, and manufacturing industries. Caterpillar has 25 percent of its business, mostly the manufacturing of heavy equipment, in the UK. Companies in all of these sectors will consider relocating offices and plants to other European countries and are already rolling out communication plans to calm the nerves of both customers and employees.

A variety of position types across industries will end up being relocated, but positions that are most closely tied to the end customers—sales and rainmaker roles—will be the first to move. And while a fraction of the incumbents will relocate with their position, the remaining vacancies will need to be re-filled, and companies will find themselves competing with other local EU employers for top talent. Demand will outpace supply.

Leaders of these companies, particularly CEOs and CHROs, will need to develop a targeted strategy for rebuilding talent in their new locations.  If companies want to fill the relocated positions with equal (or better) talent, they will need to invest in employer branding and roll out a recruitment plan that aligns with the culture of the local talent base. It’s also likely that they will need to hire a new generation of senior directors to help cultivate and retain the newly hired staff.

Companies in Germany and France that do not have a presence in the UK may begin to see their employees poached by incoming international giants. They too will need to make important changes in their recruiting and retention plans so that their skilled workers are not tempted to leave.

Companies that “wait and see” will fall behind.

While some international companies will move quickly and begin to export jobs to EU countries, others will hold back on intended investments in office and staff until the renegotiated trade deals are more clearly ironed out. However, this process could take years and would undoubtedly hurt GDP in the UK and negatively impact the profitability of these companies, like all uncertainty does for business.

Since the UK’s exit will spark speculation of exits from France and Austria (not to mention Scotland’s departure from the UK), instability will be the status quo for at least the next two years. Additionally, the stronger dollar will hurt international companies that have their currency denominated in USD. A strong dollar makes products more costly to buyers outside of the US, and thus less attractive. This pinches gross margin and could cause another period of extreme focus on productivity improvement and an increased emphasis on operational efficiency—doing more with existing human capital.

Some companies could respond to this by reducing headcount or halting hiring altogether. However, instead of slowing staffing investments, companies should focus on building a talent base that will withstand the uncertainty and be able to increase operational efficiency despite economic turmoil. At the management level, companies should look for talent with lean Six-Sigma training. They’ll also need leaders who have superb negotiation skills and are true influencers, which will be critical traits during the next several years. As companies become more dispersed and open offices in new locations, for example, they’ll need to renegotiate with trading partners, manufacturers and vendors. These new deals will have a huge impact on the success of the business.

Furthermore, companies that put a hold on their hiring plans will miss out on in-demand talent and risk losing their existing top performers. Geopolitical uncertainty always makes employees more likely to explore their options, and new regulations about immigration and restrictions on the movement of workers across borders will shrink the available talent pool.

Leaders that are nimble, flexible and comfortable with change will succeed.

International executives that want to lead their company to success will need to focus on being agile, clearly communicating with their teams and implementing a bulletproof change management process.

The biggest challenge will be engaging and retaining talent in this environment, especially in light of prolonged global uncertainty and more possible exits from the EU. Companies that plan to maintain a UK presence may find themselves struggling to keep employees, especially those that are not UK citizens. According to online job search giant Indeed, search queries in the UK for jobs in the EU spiked significantly in the 48 hours following the Brexit announcement.

Companies that are nimble and proactive will do better than those waiting to see the impact, but they’ll need the right leaders, and the right communication plan, to do it. A primary focus of the executive team should be clearly communicating with top performers. First, leaders should prepare and share a specific strategy for responding to Brexit. It’s important to convey that the leadership team understands the implications and has tangible, documented strategies (and contingency plans) for navigating through them.

Leaders should also make sure that key high potential employees understand their value within the company. Career paths should be formalized and evangelized internally. Leadership should also communicate their growth plans—how will EU customers be retained and engaged moving forward? What is the expansion strategy of the company? Sharing these tactics and maintaining transparency will engage staff and quell fears and doubts among employees.

Finally, leaders must invest in internal programs that will optimize their existing workforce. Immigration restrictions will increase the need for professional development, since fewer skilled workers will be willing and able to relocate from other countries. With a less mobile workforce, companies may have to work with the talent they have. Developing internal training, creating mentorship and coaching programs, and partnering with local universities and trade schools will become high priorities for CHROs.

Companies that lack change-management expertise at the international level in the c-suite will need to bring someone on board—quickly.

Brexit will further complicate already complex business operations. Take procurement, for example. The logistical implications of tightened international borders will mean that the entire supply chain will need to be reassessed. New trade agreements, fluctuations in currencies and increased regulations will combine to make a messy, convoluted problem that, nevertheless, must be addressed.

The movement of data across borders will be another sticky situation. Over the past couple of years, the US and the UK have been trying to come to terms on an agreement that would allow US tech companies to legally handle the data of EU customers, but so far the deal has not been finalized. The UK’s exit from the EU will mean that it too must negotiate a similar deal. Any company that operates in the UK and collects or processes customer data must be prepared to modify processes based on any new privacy rules the EU implements.

Temporary hires will be tempting, but ultimately won’t be a good solution.

According to the UK’s Recruitment and Employment Confederation, hiring of temporary workers surged in the months leading up to the Brexit vote. It’s not surprising that companies are reluctant to make permanent decisions during a tumultuous geopolitical period, but interim hires, especially at the upper management and leadership level, are not the answer. First, interim hires could confirm and validate employees’ feelings of insecurity. Second, as previously mentioned, instability will be the status quo for several years, so investing in managers and executives that have long-term potential and know how to lead through uncertain conditions is a better bet than finding a stop-gap solution.

Over the next several months, as the timeframe for the actual separation between the UK and the EU becomes clearer, we will see more and more international companies rethinking their strategic plans. While this geopolitical situation is unique, the same tried and true principle applies: talent development strategies must align with overall business objectives. Now is the time for CEOs to strengthen their relationships with CHROs, recruiters and talent management executives to ensure seamless execution of their recruiting and talent development plans.


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By Terry Gallagher, President of Battalia Winston.

Terry Gallagher
Terry Gallagher, President of Battalia Winston, an executive search firm headquarters in New York City. He has more than 25 years of executive recruitment experience and specializes in recruiting leaders for clients in financial services, professional services, industrial and manufacturing, and private equity.