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German Cycles give a better Ride

The article was written for OMFIF and is published here with the permission of the author.

By Bob Bischof

Was the headline of an article I wrote for the Guardian in 1994 trying to explain why the post-war business cycles in the two countries were so markedly different, and what mechanisms Germany used to flatten the cycles by anticyclical fiscal and monetary means.

The main one being of course the so-called Kurzarbeit – a kind of furlough system – helping companies in cyclical downturns to keep their staff and to prevent a vicious downward spiral of job losses, falling demand, more job losses etc etc. This system is particularly effective as it is insurance based. During the upswings in the cycle this hypothecated pot swells up and can be released during the downward leg without the cost falling immediately on the public purse.

Both employers and employees are sharing the cost of the unemployment insurance and both benefit – employees in case they are actually made redundant and employers can apply for help with their wage bill and don’t have to go through the expenses of paying for redundancy, when the order book drops and in the next upswing for the re-hiring and re-training cost.

When Peter Mandelson, now Lord Mandelson, was evaluating this during his tenure as President of the Department of Trade and Industry (now BEIS), he dismissed it as unsuitable for the UK, as it would be misused (noting some of the stories about the present furlough system, maybe, he wasn’t too wrong.)

Later Gordon Brown boasted with his famous phrase “no more booms and busts” only to be hit shortly after by the worst kind of recession since the Wall Street crash of 1929/30. In Germany for example unemployment rose by around 200.000 with employees in Kurzarbeit at 1.8 million; in the UK unemployment peaked at over 2 million or 8% of the workforce in 2010/12.

Cyclical ups and downs are as old as described in the bible as the seven fat years and the seven lean years. Business cycles vary in length and can be extended by massive fiscal and/or monetary intervention as we have seen since the 2008/9 banking crises. This time the recovery lasted nearly ten years, but was finally crashed by an unforeseen event, the COVID-19 pandemic.

The policies to get over the economic impact will be the same as in previous recessions. Countries with prudent fiscal policies will fare better than those with lose ones. The same goes of course for private households. In countries with low saving rates and high debt levels, the impact will be more severe and the state has to bail more people out with taxpayers’ money. Once more the Northern European states once again will be first out of the traps with the UK and the South suffering most hardship.

Is it possible to learn the lessons from these re-occurring events? The Chancellor of the Exchequer Rishi Sunak seems to think so, when he changed the current furlough system to the more German type of Kurzarbeit. Changing, however the benefit side of the scheme is one thing, the funding and supervisory side is a lot more difficult.

Firstly, the funding needs to be in place and the idea of anything hypothecated and anti-cyclical is hard to imagine being introduced in the UK let alone the necessary additional tax for employees and employers. Secondly, the question of supervising such a scheme to prevent fraud and supporting lame ducks needs regional input from banks, local communities, job centres and HMRC.

The institute that deals with this in Germany and that reports to the Ministry for Labour is the Bundesagentur fuer Arbeit or short Arbeitsamt, which sports 96,000 full time employees in 156 regional “Arbeitsamters “and 900 local jobcentres.  Interestingly the “Arbeitsamt” has a budget of around Euro 40 billion and is “self-administered” and has a supervisory board with employer and employee representation.

The combination of the latter also plays an important role in the acceptance or not of employer requests for Kurzarbeit support, thus to helping ensure the proper allocation of funding. This infrastructure came in handy when in April this year 155,000 firms received Kurzarbeit support (highest year before was 2008 with 55.000 firms receiving it).

The furlough system had to be created quickly and deficiencies were to be accepted. Let us hope Mr Sunak gets the new scheme right for the long term and can proof Lord Mandelson wrong. It won’t be easy.

Bob Bischof

3.10.20

 

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News

Gender balance in UK and German boardrooms

27 May 2020
Gender balance on the board. Is this a topic that matters in a time of national crisis? Or is progress towards greater gender balance in the boardroom being put on the backburner during the covid-19 pandemic?

Executive search agency Fidelio has flagged a resurgent interest in ESG in the Board and Executive suite. While there is indeed a focus on people with the “S” coming to the fore, Health and Safety are very much front of mind.

However, taking our foot off the pedal towards greater diversity would be a risk and mistake – challenging times or no challenging times.

Fidelio’s commitment to diversity and the benefits it brings is well documented.  Given our experience and track record in Germany and the UK, Fidelio has hosted a series of seminars over recent years exploring progress towards diversity in these two major European markets, seeking to understand two very different approaches and celebrating what works.

In May we were scheduled to hold the fifth seminar in our “Frauenquote” series in Cologne. In its place, Fidelio hosted “A Snapshot – Gender Diversity in UK and Germany Boardrooms”, including the impact of Covid-19.

Perspectives on diversity

Our panel provided unique insight and clear perspective on German and UK policy, the Boardroom in both markets, as well as the investor perspective:

  • Denise Wilson, Chief Executive, Hampton-Alexander Review​
  • Philine Erfurt Sandhu, Academic Director of the Strategic Competence for Women on Supervisory Boards Certification Programme, the University of Economics and Law Berlin​
  • Hans Hirt, Executive Director and Head of EOS, Federated Hermes​
  • Anne Ruth Herkes, Non-Executive Director, Quintet Private Bank; Deputy Chair of the Board, Merck Finck Privatbankiers AG; Advisory Board Member, The Shaikh Group; Member of the Advisory Council, Diplomatic Academy of Vienna; former State Secretary, Federal Ministry of Economy and Energy, Germany
  • Elisabeth Stheeman, Member of the Supervisory Board, Aareal Bank AG; Non-Executive Director, Edinburgh Investment Trust plc; External Member of the Financial Policy Committee and Financial Market Infrastructure Board, Bank of England​

A snapshot

Fidelio did not need to rehearse the benefits of diversity.Our panel were all committed to increasing gender representation at the Board and Executive table and brought distinct perspective.

We were delighted that Denise Wilson was able to provide hot off the press statistics for the UK. As Fidelio has also clearly seen, the work of many UK Boards continues through the crisis including good governance around Board refreshment and effectiveness. Possibly at a slower pace, Board appointments continue and the Hampton-Alexander Review may be seeing “a pause” but will report early next year.

Germany has been much heralded for its handling of the Covid crisis with the Chancellor’s authority and leadership frequently singled out. But our panel discussion highlighted fears that gender stereotyping is increasing in Germany under the crisis. The Frauenquote was already struggling to deliver results and there are very considerable fears, clearly articulated by Philine Erfurt Sandhu, that Covid may create a retrograde step for gender diversity in Germany.

A very recently published IFS Report in the UK suggests that the UK too may be experiencing some of this stereotyping with women’s professional roles being harder hit by the virus.

Major investors are increasingly making their voice heard internationally but could do more to exert pressure on companies deemed to be dragging their feet on gender diversity in German Boardrooms. This has had an impact in the UK and Hermes committed to continue to engage for greater diversity in German Boardrooms strongly stating the business case.

To see the presentation supporting the webinar, click here.

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Views

Do we need a more boring Boris?

This blog was written by Juergen Maier, chairman of the Digital Catapult and formerly managing director of Siemens UK, and published on 13 April 2020.

The views expressed here are those of the author.

“When I was a young chap, I remember having to choose between making my first place of work Siemens in Germany or Siemens in the UK, having done a student industrial placement at both. I chose the UK and remember saying to my friends in a similar factory to mine in Germany how much more fun it is in the UK – ‘We start a bit later, by midday it’s all gone horribly wrong, then we all muck in and we have to work late into the evening, but we get the job done’. ‘You, on the other hand,’ I would say, ‘start early, everything goes to plan, you are back with your families by 4pm, but it’s all so damn boring!’

As my experience grew, I realised that good planning does generally trump firefighting and I spent much of my next thirty years of work trying to marry the best of both worlds. There is, however, no question that the British instinct is to firefight, wing it and under-invest rather than systematically plan. My favourite was a customer who insisted we shipped him a sizeable order of obsolete out-dated technology, so he could keep his already creaking infrastructure going for another 20 years. In Germany, most engineers would have replaced the old technology a long time ago and, if not, would certainly have used its obsolescence as an opportunity to ensure it’s a case of out with the old.

Don’t get me wrong, I have always marvelled at and enjoyed the role of British creativity, ingenuity and flexibility in getting the job done. It is fun. But when it comes to a crisis, admirable as our British fighting spirit is, nothing beats good planning and being incredibly well prepared.

Covid-19, unfortunately a crisis of enormous scale, shows us the virtues of two different cultures. We have all marvelled at the speed with which we can build a number of new Nightingale hospitals. We are cheering on our NHS staff who are doing the most amazing job in unbelievably difficult circumstances. I join in every Thursday in awe of their efforts. We listen with both fear and hope to the daily 5pm Government press-briefing and whilst I know everyone means for all this to turn out for the best, the lack of planning and foresight is very evident. Three weeks ago, we were told of 3.5 million already-ordered antibody tests. Most missed the small print that these tests had not yet been validated and they will probably never arrive. We were told of a significant order placed with Dyson for a brand-new ventilator design, yet these have not been certified for use by the NHS. A less PR-hungry team of excellent UK engineers, with the name of VentilatorChallengeUK did take a more systematic approach to the matter and I am delighted to say that they are now actually delivering ventilators. However, because their approach appeared more realistic and less heroic, it has been too boring to get much of an airing in the over-hyped daily briefings.

And then there were our now much scrutinised deliberations on herd immunity. Right in the middle of a crisis is never a good time to experiment with novel approaches. This should have been thought through well before and sadly it now seems clear that it cost us some critical time.

At the same time, I have been speaking to my family in Germany and Austria and keeping abreast of their approaches. The difference is stark. Calm, measured, planned and reassuring are words that come to mind.

The lockdowns were instant and without delay, having looked at the evidence from China, Italy and others. The leadership was strong and calm, with a strong sense of we are all in this together: not one set of rules for us and another lot for everyone else.

There are no new Nightingale hospitals required, as the existing capacity can cope and has a little spare to help take some patients from neighbouring countries, Italy and France.

Whilst Britain’s promised scaled testing programme is still to arrive, I listened last week to Germany’s antibody testing strategy in great detail, as it scales up this week. It will form a key part of Germany’s exit strategy from this crisis.

There is no Thursday night clapping of the NHS and critical care workers. This may seem unappreciative, but the truth is they feel appreciated all of the time. They are better paid, have got a much better resourced medical infrastructure behind them and have not just suffered 10 years of deep austerity, a major contributor to our relative lack of capacity. Germany entered this crisis with nearly 5 times more critical care beds per capita than the UK.

The conclusion I draw is that our inability to be amongst the best in coping with such a crisis derives from a culture of bad planning, poor upfront investment and making people with less foresight the heroes rather than our systematic and meticulous planners. The same culture is a root cause of our relative poor economic performance over the last decade, something I have written and spoken about a great deal.

So yes, we need to change our culture to champion the people perceived as more ‘boring’ who meticulously plan ahead of time. Where are the people receiving that same praise as our Nightingale builders for having created well thought through pandemic crisis measures well in advance? And there is no lack of good planners. In 2016 Operation Cygnus pointed to the potential collapse of NHS resources in a potential flu pandemic, but the planners that should have been praised were largely ignored. And experts weren’t trendy at the time either, because they were mostly in disagreement with the populist messages of the time.

And at the core is something very fundamental. Our most successful politicians drive this culture from the top. Those who make a media announcement today that has made their party look strong will get the praise, however sketchy their idea is. And whilst we have many, especially in our civil service who do their best to plan and mitigate, they don’t receive that praise and so everyone is encouraged to become a firefighter. I have worked with some incredible teams in our civil service and whilst their instinct is to be strategic and plan ahead, they don’t get the praise or space to do it.

In German there is a wonderful saying that ‘a fish stinks from the head’. All behaviours and all cultures are driven from the top. I had the pleasure of meeting Angela Merkel a couple of times and I have always marvelled at her incredible foresight, yet understated and calm approach. She has become famous for calling boring and unremarkable politics the best type of politics, an approach which helps create a culture of foresight, in which planning is rewarded. I have also met Boris Johnson a number of times and one thing I can say for sure is that it was never boring!

I applauded Boris’s departure from hospital and am pleased he is well. I will also applaud every time I see an approach that, instead of being short term and seat of the pants, however ingenious it might appear, is long term, well planned and much more boring!”

First published at Juergen Maier’s blog on 13 April 2020

My hope for a more boring Boris

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Coronavirus has pushed Brexit off the news

By Bob Bischof

The British government seems determined not to raise the issue of a postponement of the negotiations. The reality is, however that not only will they be postponed but Brexit itself is unlikely to happen during the present economic and social upheaval caused by the Corona Virus and in its aftermath.

A crisis like the one we are witnessing now has a small positive in the guise of an internationally unifying and harmonising effect. Country after country is presently giving up its particular social and economic stance in favour of an all out push to save businesses large and small by forking out loans, grants and by taking stakes in them. The EU had to abandon its rules on state aid and Germany had to kick its balanced budget rules into touch.
While in a number of continental countries employees have been protected in the past during economic downturns, this is now also practiced in the Anglo-Saxon world of hard headed capitalism like the US and Britain to avoid the downward spiralling effect of mass unemployment in the present crises.
The forerunner of this kind of state intervention was the German post-war model of the Social Market Economy. This concept had its roots at Freiburg University, where a group of economics professors concluded in the aftermath of the 1929/30 Wall Street crash that liberal capitalism had failed and needed adjustments.
For fear of another populist Führer emerging on the back of mass layoffs, the model of an unemployment insurance was developed that benefited not only the unemployed with healthy benefits, but also prevented unemployment per se in economic downturns by paying the employers to keep their staff.
It will be interesting to see, how much of this common approach will survive and find its way into legislation in the post-crisis years. A chance for change was missed in the years following the 2008/9 recession. This present crises has all the hallmarks of one at least twice as bad.
Will it lead to more solidarity in the EU? There are some encouraging signs, although the individual nation states are leading in the war against the virus. Maybe that’s the way forward for Europe – leave the nation states predominately to look after their interest and coordinate at the macro level. Britain could quite possibly sign up for a concept like that eventually.
Trump’s America will go straight back to their shareholder first/winner takes all model and any change there to a more sustainable form of capitalism as promoted by the likes of Paul Polman will have to wait until Trump is history.
BB/March 2020
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Challenge for the Rhineland model

Germany’s longer-term capitalism has served it well

By Robert Bischof in Manchester

 

Before the coronavirus hit us, there were signs that capitalism was beginning to change from the free-wheeling neoliberal shareholder value model to something more sustainable. Increasing inequality and a resulting rise in populism have raised concern.  Greater focus on environmental issues has helped prompt re-examination of a predominantly Anglo-Saxon free market model.

Shuttered industrial plants and grounded flights will, at least temporarily, reduce global emissions.  But sustainability in business practices may take a back seat for a while as companies struggle to survive. In Europe, we may see a renaissance of interest in   Germany’s long-term stakeholder-focused capitalism –  the Rhineland model. Yet  even that strong framework faces the sternest of tests..

The reappraisal of the ‘shareholders first’ paradigm has come despite and perhaps partly because of an avowedly pro-business Donald Trump in the White House.  His policies – big on corporate tax cuts, poor on countering climate change – helped propel Wall Street to record highs until earlier this month..  Sensing a swing in the popular mood, a large number of companies and business leaders have signed up to longer-term capitalism. Paul Polman, former chief executive  of Unilever, has  set up Imagine, a  sustainability foundation designed to fight climate change, reduce  global poverty and help achieve the United Nations 2030 sustainable development goals. He has assembled luminaries on his  board such as Virgin group founder Richard Branson, environmental campaigner Suzy Amis Cameron, communications expert Arianna Huffington, and philanthropist Sue Rockefeller.

However, when business leaders are suddenly faced with unprecedented challenges, it’s difficult to keep the high moral ground. Virgin Atlantic, part-owned by Branson, has announced eight weeks of unpaid leave for its employees,  with 75-85% of its fleet not flying. Other badly affected airlines have been forced into similar action. Thousands of small and large companies will shed employees one way or the other. The UK and US governments have promised massive amounts of help including the Washington announcement of direct injections of cash to citizens. Governments and central banks are having to scramble for mechanisms to implement  these measures on a grand scale. The effect on the US and UK debt servicing could be catastrophic.

This is where the much-criticised German model of prudence and careful anti-cyclical financial management may come into its own. Peter Altmaier, German economics minister, has  announced that ‘every healthy German firm of any size’ will be supported and ‘will not lose one employee’.

How can he promise that? First, Germany had a fiscal surplus in r the last six years and the government is prepared to loosen self-imposed rules of a balanced budget. Second, Berlin will use the KFW state development bank  as the instrument for channeling loans through Germany’s 3,000 banks to companies in cash difficulties. Third, as a result of low unemployment, Germany’s  hypothecated unemployment insurance fund is full and will be used for the short-time working (Kurzarbeit) benefit, under which companies pay their employees’ wages even when they are sent home. This has been one of  the German  social market economy‘s biggest postwar successes,  greatly reducing  redundancies  in 2008-09 compared with the UK, and better preparing the country for an eventual upswing.

One large question mark hangs over Europe’s south, already  burdened by immigration and debt, with less  resilient economic systems  than Germany. These nations will now struggle even more. Germany has no alternative but to show more solidarity. If the richer states abandon the poorer, the problems will just be pushed further north. But if Germany extends its largesse too extensively to the south, even the  sturdy Rhineland model could start to buckle.

 

Bob Bischof is Chairman of the German-British Forum and Vice President of the German-British Chamber of Industry & Commerce

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News

German MPs taken aback by Johnson’s hardline trade rhetoric

In London for LSE symposium, politicians express confusion at Britain’s post-Brexit stance

By Patrick Wintour  Diplomatic editor, The Guardian.    Thu 6 Feb 2020 

(The article is republished with permission from the author, whose original piece in The Guardian is here)

 Ralph Brinkhaus, the parliamentary leader of Angela Merkel’s CDU party, said: ‘We can have competition with cooperation or competition with conflict.’ Photograph: Clemens Bilan/EPA

A flood of senior German politicians visiting the UK this week have been left confused and unnerved by the hardline rhetoric set out by Boris Johnson on trade talks, prompting warnings that the risk of a breakdown, or a no-deal Brexit, is as high as it has ever been.

Germany takes on the EU presidency in the second half of this year, and will have a crucial role in helping the European commission to steer the talks on a future UK-EU trading relationship to a successful conclusion by the end of the transition period in December.

There has been a consensus across German politics about the need to reach the closest possible relationship with Britain after Brexit.  Senior German politicians have even been drafting a series of partnership offers to the UK on security, defence and foreign affairs, possibly wrapped up in a new Anglo-German friendship treaty.

But the hardline tone of Johnson’s recent speeches has thrown the German political class visiting London for a week-long symposium at the London School of Economics.  The former trade minister Greg Hands was forced to reassure his German interlocutors that the British people did not want to set up a “Singapore-on-Thames”, and nor did Johnson.

Ralph Brinkhaus, parliamentary leader of the Christian Democratic Union party

But Ralph Brinkhaus, the parliamentary leader of Angela Merkel’s Christian Democratic Union party, said: “Within the next 11 months we have to decide what the common base of the relationship will be with the UK.  We will compete.  No question about that and no one is afraid of that.  But we can have competition with cooperation or competition with conflict.  Listening to the government’s speeches this week, I am not quite sure what the position is of the UK.”

Robert Habeck, the leader of the German Greens, and a potential German chancellor after next year’s elections, was also gloomy that a deal could be struck.  He said: “Johnson has stated that under no circumstances does he intend to conduct the negotiations after 11 months.  He has categorically ruled out extension of the negotiations.  He does not want to accept the EU rules for work, environment, or the jurisdiction of the European court of justice.  The EU, on the other hand, cannot accept tax or regulatory dumping on its doorstep and must protect its single market and insist on a level playing field.  The risk of an unregulated no-deal Brexit is still high, and maybe has never before been higher.”

The anxiety was shared by Norbert Röttgen, the chair of the Bundestag foreign affairs committee and a member of Merkel’s party.  “The question is whether we are listening to policy or rhetoric aimed at a domestic audience,”  he said.  “There is a danger on both sides that the intense rhetoric about principles gets emphasised time and again and so creates a reality of its own.  The risk is that it gets difficult to switch to a different pragmatic response by the end of the year because that would mean losing face.”

He suggested the scale of the negotiations, and the apparent differences between the two sides on issues such as regulatory alignment and the European court of justice, meant a full deal would be unachievable by the end of the year.  “The rhetoric will continue through the summer on both sides, but the people that are working on the technical stuff will try to do their job.”  He said an initial deal might be reached by November “covering security, and those trade areas that are vital to limit mutual damage”.  But he predicted that such a deal would have leave out a significant proportion of trade that would then have to be negotiated further on a sectoral basis in a process freed of artificial time limits.

The choice for both sides, he said, was between mutual self-harm and a cooperative relationship.

Asked in March 2016 how Germany would react if Britain left the EU, Wolfgang Schäuble, the current Bundestag president, said: “We will cry.”  The tears have been shed, but the angst remains.

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“Das Match hat noch nicht einmal begonnen” – Denis Macshane

This interview with Denis Macshane was published in Der Standard in Vienna on 16 January 2020. It has been automatically translated by Word Press. The original article is here 

Former Labor MP and Secretary of State for Europe expects long Brexit path

INTERVIEW

Sebastian Borger from London

  1. January 2020, 08:00

 

Denis MacShane was a Labor MP for 18 years in the House of Commons and under Prime Minister Tony Blair between 2002 and 2005 Secretary of State for Europe.

STANDARD:  Mr. MacShane, what do European friends like you do on January 31?

MacShane:  Before the referendum, I predicted that Brexit would happen …

STANDARD:  … in your book “Brexit: How Britain is Leaving Europe” …

MacShane:  … has been prepared for this for a long time. In this respect, January 31 is a normal working day for me. And on February 1st I get up and think about it: what’s next? What solution do we find? One thing is very clear: We will remain closely connected to Europe for the next 1,000 years.

STANDARD:  Your new book is called “Brexiternity”, connects leaving the EU with eternity. Why?

MacShane:  Look at British history: certain problems really keep us busy for ages before we come to a solution. For example Ireland: The later prime minister Benjamin Disraeli raised “the Irish question” for the first time in 1844 in the lower house. The independence agreement came in 1921! And in a way, it was not until the Good Friday Agreement in 1998 that the Irish were able to overcome the demons of division. Now Brexit has put the Irish question back on the agenda.

STANDARD:  Is Brexit one of the Empire’s last twitches?

MacShane:  He certainly reflects the whining about the loss and nostalgia for global Britain.

STANDARD:  Once around a quarter of the earth’s surface was part of the British Empire.

MacShane:  And don’t forget that in the past centuries my country has never had the experience of a lost world war, never been occupied, never experienced the breakdown of all state structures. In this respect, we are different from all other European countries.

STANDARD:  Prime Minister Boris Johnson won the election with the slogan “Get Brexit done”. How realistic is that?

MacShane:  I take my hat off to Johnson’s people who came up with that phrase. How to win elections. Johnson is very good at language. But everyone knows that the Brexit is in no way complete. We entered the stadium and warmed up, but the match didn’t even start.

STANDARD:  And who determines the rules?

MacShane:  Good question. The EU says: We play according to our rules. Johnson wants to play football, but also a little rugby – and cricket in a corner, after all we are English. That will lead to huge problems. It will take us years. By the way, we don’t even know what kind of amputation Johnson actually wants. (Sebastian Borger from London, January 16, 2020)

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BASF statement on possible post-Brexit regulatory scenarios

Richard Carter, BASF Head UK/Ireland

As Prime Minister Boris Johnson tells Brussels there is no need for the UK government to follow EU rules on trade, while the EU called for a level playing field, industries face different outcomes for the regulatory framework they operate within.

The UK chemicals industry, which has an integrated European supply chain, until January 31st operated within REACH, the Registration, Evaluation, Authorisation and Restriction of Chemicals, a European Union regulation dating from 18 December 2006. REACH addresses the production and use of chemical substances and their potential impacts on both human health and the environment.

BASF UK & Ireland has analysed the scenarios and has explained to government the potential impacts along with proposing some practical mitigation mechanisms – see below.
A form of “UK-REACH” , where the UK creates its independent regulations that manage to comply with most of REACH while being self-determined, follows here and is estimated to cost BASF about £70 million, without enhancing professional, consumer or environmental safety, the primary objective of chemical legislation.

Richard Carter, managing director of BASF UK & Ireland, is a board member of the German British Forum.


 BREXIT & Chemicals (REACH) Legislation

The UK officially left the EU on January 31st, 2020. At this point, an 11-month transition period began during which the “future relationship” negotiations will take place. If these are not agreed or extended, a “no-deal” Brexit scenario for the UK is possible as early as 31st December 2020.

In Autumn 2018, the UK government shared how chemical legislation would be administered in case of a no-deal Brexit. The statutory instrument (UK-REACH) was passed by Parliament in March 2019.

Future Relationship Negotiations

 _BASF believes it would be best for them and the UK chemicals sector if the UK remains part of the EU-REACH framework, still accessing the services of the European Chemicals Agency (ECHA). A concept referred to as “Associate Membership” in UK government white paper, Jul 18 (paragraphs 30/31).

Consequences of a no-deal and UK-REACH for EU/UK chemical industry

 The UK will have its own UK-REACH regulation. A copy/paste from EU-REACH, adjusted for operability. There is no UK authority acceptance of existing EU-REACH compliance in this legislation.

 To continue manufacturing and/or importing substances (>1te/yr), UK-held REACH registrations will require re-registration through means of data in a dossier.

 Chemicals supplied to the UK from EU27 states will no longer be regarded as downstream-use. EU27 sourced chemicals will be regarded as import and require registration (>1te/yr).

 Registration timeframes are very challenging, 2 years from point of exit.

 Access to registration data requires negotiation with owner, this will be time-consuming and expensive.

 EU data-owners have no obligation to share data with UK registrants. Repetition of studies, including animal studies, is perceived.

 UK fees copied directly from EU-REACH. This is disproportionate considering size of UK market.

For UK affected chemical supply-chains, this is the worst-case scenario.

Consequences of UK REACH for BASF

BASF’s plant in Littlehampton, West Sussex

The chemical sector is the “Industry of Industries” and BASF supplies chemicals into the UK market for applications including medical/pharmaceutical, automotive, food and nutrition amongst others.

 Approximately 90% of BASF’s UK sales are products sourced from EU27 countries. BASF supplies ~1,200 different substances to the UK market at volumes >1te/yr.

 Using industry association estimations, expected costs for dossier compilation in region of £60mn. Dossier submission fees will be ~£10mn.

~£70mn expense for BASF, without enhancing professional, consumer or environmental safety, the primary objective of chemical legislation.

BASF expects costs combined with restrictive timelines will lead to supply chain disruption.

BASF expects product/substance rationalisation due to commercial factors and assumes that other companies with broad portfolios will face similar challenges and decision making.

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Ten Brexit “Fs” to watch out for in 2020

By Denis MacShane

This article was originally published in The Article here https://www.thearticle.com/ten-brexit-fs-to-watch-out-for-in-2020

2020 will see Britain enter its fifth year of Brexit. The period since June 2016 has been the phoney war Brexit, but now, with the election of a determined life-long opponent of the EU as prime minister, Brexit will get real. Boris Johnson won a handsome majority and now has the democratic authority to alter Britain’s relationship with Europe.

The pro-Brexit enthusiasts like John Redwood or the economist Gerard Lyons, as well as self-anointed trade “experts”, assure us that negotiating Brexit will be a stroll in the park. This time next year we will know. Meanwhile, here are ten “Fs” to look out for.

1) Free trade agreements (FTA). These are normally concluded between two parties who want to open up their mutual economies. The EU offered a no tariff, no quotas FTA to Theresa May in the early days of Brexit. She refused it, as her priority was ending Europeans working freely in the UK. Now the same offer has been made to Boris Johnson, but again on condition that the UK obeys the same rules as other EU members. An FTA based on leaving existing arrangements is unusual. No-one knows how long it might take.

2) Financial services. These don’t feature in FTAs nor are they covered by the increasingly weakened World Trade Organisation. Nations protect, via their own laws, how money is handled and who can provide a professional service. 80 per cent of the UK is now services, not manufacturing. Margaret Thatcher destroyed national protectionist rules in Europe with her single market policy. There are 350,000 specific permits known as “passports” given by the EU to the City to trade anywhere in a market of 450 million consumers. These are granted entirely at the EU’s discretion. Keeping that access will require equal concessions from London.

3) Fishing. If Britain insists, as Mr Johnson has pledged, that British territorial waters will extend to 200 km around UK shores, and all fishing boats from European nations with an Atlantic, Channel or North Sea coast should keep out, there will be an explosion of political anger from Denmark to Spain. Any EU-UK agreement has to clear ratification hurdles that run all the way from the European Parliament to, in some cases, national parliaments. A refusal to share the waters of the UK will torpedo ratification.

4) Freedom of movement. This dates back to the first European Coal and Steel Community of 1950, when hiring on the basis of religion or nationality was outlawed. The UK could have always adopted, and can still today adopt, various measures that are common on the continent to control, register, or send home EU citizens, as well as policies to support national workers. We have refused to do this. The moment the UK ordains that EU citizens needs a visa to visit Britain, or have to go through a clunky immigration bureaucracy to work in a care home or picking fruit, there will be reciprocal measures against the 1.5 million Brits who live in Spain, France and other EU nations.

5) Foreign direct investment (FDI). Much of Britain’s most productive manufacturing firms, like Nissan or Airbus, are FDI outfits in Britain because a) they can export freely without paperwork anywhere in Europe and b) have just-in-time assembly with hundreds of thousands of components, as well as skilled problem-solving technicians, arriving freely in the UK without paperwork or customs clearance. If this changes, the Japanese government has made clear it will be difficult to justify continuing FDI in Britain.

6) Foreign policy. For 50 years, British foreign policy has been articulated around partnership and cooperation with fellow European counties. Mrs Thatcher first called for a European Common Foreign and Security Policy in a far-sighted speech in France in 1984. Now all British officials are retreating from Brussels, and the myriad of committees and working parties they serve with full rights to speak, propose or object and in the case of ministers to vote. Every morning at UN bodies, and every week in most capitals around the world, there are coordination meetings of ambassadors from 28 European nations to agree a common line. The UK will now not take part in coordinating common European foreign policy.

7) Farage. On 1 February, Nigel Farage’s 20-year-career as an elected British politician ends, as all UK MEPs pack their bags and come home. What will be his future influence? Will the BBC continue to treat him as a major statesman? Once the UK leaves the EU Treaty structure will the anti-European temperature go down and sensible compromises be possible?

8) Free flow of data. The European GDPR rules, to which Britain currently subscribes, will become more, not less, important as computer algorithm capitalism drives forward. If Britain opts out, perhaps to align with America in this area, that will make data exchange, especially for human resource managers in multinational firms operating in the UK and other EU economies, difficult, even possibly illegal. Johnson’s insistence that low level courts in Britain can repudiate any ECJ ruling or EU-wide law, opens the door to an agony of uncertainty for thousands of firms currently doing business in Britain.

9) Financial contribution. So far, Britain has indicated it would like to keep participating in Europe-wide university research projects, the Erasmus programme, the European Space Agency and other work which single nations even the size of the UK cannot undertake by themselves. This will require a significant UK contribution to the EU budget. This can be disguised and rebadged, but both Norway and Switzerland are big contributors to EU finances.

10) France. Britain’s early 19th century Foreign Secretary, George Canning, insisted that the French “have but two rules of action; to thwart us whenever they know our object, and when they know it not, to imagine one for us, and set about thwarting that.” Cynical, but not wholly untrue. Today the most powerful EU political leader is Emmanuel Macron. His sworn opponent is the hard right anti-EU Marine Le Pen. She was the first political leader after Donald Trump to congratulate Boris Johnson on his election victory, just as she put the union flag on her social media pages when Brexit was voted in 2016.

President Macron will not be able to offer many concessions to a Le Pen UK which is setting out to show that the EU is not needed for a successful European nation to flourish. This is not punishment but pure politics. One advantage, perhaps, of Brexit will be that, finally, political and business leaders in Britain will have to learn about how Europe, not Brussels, but the 27 separate sovereign nation states, think and act.

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Board Diversity in Germany & the UK – What Works

Fideolio - Board Diversity in Germany & the UK
FIDELIO OVERTURE

INTRODUCTION

The benefits of Board diversity are well known. Despite this progress is disappointing.

Fidelio is committed to increasing diversity and enhancing Board effectiveness. Practically, we support Boards in moving the dial on diversity through Search, Evaluation and Development, as well as very simply shining a light on what works.

To this end Fidelio was pleased to co-host with CMS in Stuttgart the fourth in our series ‘Die Frauenquote – An Update on Diversity in German and UK Boards’. In particular we asked what could be learned from these two major European economies about increasing the diversity and effectiveness at the top of their major companies.

After previous debates in London and Frankfurt, Stuttgart represented a significant location as an industrial powerhouse in Germany. We were pleased to welcome guests from across Germany, and a panel that included influential voices within German business:

▪ Ilse Henne, Member of the Executive Board, Thyssenkrupp Materials Services GmbH ▪ Angelika Huber-Strasser, Head of Corporates, KPMG
▪ Elke Benning-Rohnke, Vice President, Fidar e.V
▪ Dr Philine Erfurt Sandhu, Academic Director, Strategic Competence for Women on

Supervisory Boards Certification Programme, University of Applied Sciences Berlin
▪ Dr Viktoria Kickinger, Founder and Managing Director, Directors Academy Hamburg

The debate was moderated by Martina Schmid, Partner, CMS, combining a business and legal perspective; and also by Gillian Karran-Cumberlege, drawing upon the UK perspective where Fidelio has been twice accredited for our contribution to diversity by the Hampton- Alexander Review.

The panel in Stuttgart made practical recommendations for Boards committed to building a strong and more diverse pipeline. In this Overture we summarise the findings.

(SLOW) PROGRESS TO DATE

GERMANY – TURNING TO THE LAW

Germany, for all its industrial strength and track record in electing female political leaders, has lagged behind other leading European economies in gender diversity.

With German business making little progress, the political response was to pass legislation. The purpose was to drive change in the often strikingly non-diverse Management and Supervisory Boards. The relevant law was passed in 2015 and applies to quoted companies as well as those subject to 50% worker representation on the Supervisory Board. It mandates a minimum of 30% female representation on the Supervisory Board and also requires companies to set targets for women in the Management Board, as well as two executive levels below.

The legal requirement of 30% for Supervisory Boards was first reached in 2018. Progress here has been made easier for larger companies by generally better gender balance in the union representatives who typically make up 50% of the Supervisory Board.

But when it comes to the requirement for targets, companies have been permitted – rather bafflingly – to adopt a so-called ‘Zero Quota’ which effectively maintains the status quo. As a consequence, progress in diversifying the pipeline has been slower than expected and at Management Board level female representation remains very low. Even at major quoted companies, which have a better track record here, the percentage of women in the Management Board is only just over 9%.

Women on Boards – DAX, MDAX, SDAX & TecDAX

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THE UK APPROACH – “NAME AND SHAME”

In contrast to the legally binding approach in Germany, the UK has opted for voluntary targets with government-sponsored reviews publishing data on gender diversity in the FTSE 350. These started in 2011 with the Davies Review, and since 2016 the initiative has been driven by the Hampton-Alexander Review which has set a target of 33% for female representation on FTSE 350 Boards and leadership teams (Executive Committees and their direct reports) by 2020. There has been significant progress with the FTSE 100 reaching 30% female representation at Board level by 2018 and the FTSE 350 reaching 30% in 2019.

Two important drivers assisted in this development:

  • ▪  The introduction in 2016 of the nine-year limit on tenure as an independent Board Member.
  • ▪  The requirement from 2017 for all businesses with more than 250 employees to publish data on the Gender Pay Gap.But despite overall progress towards voluntary targets, in the UK diversity has also remained stubbornly low in key roles:
  • ▪  At Executive, and in particular CEO, level – there are just 13 female CEOs in the FTSE 350.
  • ▪  At Chair level – there is evidently a pipeline now, but female Chair appointments are not coming through. The chart below shows how stark this lag effect is.Women on Boards – FTSE 350

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POOR GRADES
GERMANY – EBBING MOMENTUM AND DURABLE GLASS CEILING

As part of the Stuttgart ‘Die Frauenquote’ seminar we put our panellists on the spot and asked them to award marks out of 10 for progress in Germany to date towards increasing gender diversity in Board and leadership roles.

Speaker

Score out of ten

Speaker A

5.50

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Speaker B

3.00

Speaker C

page4image191032112

3.75

Speaker D

1.75

Speaker E

page4image191045632

3.00

page4image191051680

Average

3.40

When asked the same question last year our panellists awarded 3.75 for progress towards greater gender diversity in Germany and 6 in the UK. Disappointing on both scores but highly concerning that against this crude metric Germany appears to be slipping. Indeed, some of the speakers distinguished between Supervisory Board and Management Board with progress at the Management Board level judged to be significantly worse.

It was argued that since the 30% Supervisory Board target had been reached, the momentum for change had ebbed away and that the 30% was being viewed almost as a limit rather than a first important step.

Initial media interest in lack of progress has now waned and there is growing concern at how difficult it is proving to break this glass ceiling.

Our speakers noted that of 1,750 companies covered by the ‘Die Frauenquote’ 81% either have a ‘Zero Quota’ for women in the ‘Vorstand’ (Management Board) or no target at all. Of 160 quoted companies, fully 64% are ‘woman-free zones’ at Management Board level; there are only 10 female Chairs in Germany’s 185 largest companies; and women are poorly represented in Supervisory Board Committees.

By contrast, many of those companies that have established greater gender diversity in the Supervisory Board have noted a change in dynamic and indeed effectiveness. This simply needs to be replicated in much greater numbers.

PRACTICAL STEPS TO DRIVE DIVERSITY

Practically, how can Germany and the UK increase female representation in corporate leadership? At our recent ‘Die Frauenquote’ seminar we prompted our panellists to provide practical steps that will move the dial. We set out below seven recommendations principally for the German market, a number of which are also relevant for the UK:

  • ▪  Increase Female Visibility – Women need to be visible, particularly in the appointment and selection processes. One aspect is women being prepared to speak out in favour of other women in senior roles; another is a preparedness on the part of female candidates to put their hat in the ring and be counted. Some of our panellists argued that occupying niches is tremendously important. Others were wary of women settling for anything but the mainstream P&L roles upon which successful Board careers are typically built.
  • ▪  Address the Culture – Admittedly much easier said than done but culture clearly plays a major role and in Germany there is still frequently a presumption that women will be dropping out of high-pressured careers, in particular to care for children. Celebrating working mothers was a simple solution posited by one of our panellists. In previous Frauenquote seminars Fidelio has identified the power of the working mother role model for both daughters and sons.
  • ▪  Coherent Legislation – Again not easy for the individual or company to address. Countries that have made progress on diversity have done so not simply by introducing a quota, but also by ensuring a framework is in place to enable more women to flourish in the workplace. This requires, for example, a close look at the tax code and also all aspects of shared parental leave and ongoing childcare.
  • ▪  International Diversity – We all stand to learn and across Europe there are countries that have adopted a range of innovative steps to promote diversity in society and the Boardroom. These may not be immediately transferable but the process of benchmarking and understanding what works is incumbent on both governments and companies that are committed to greater diversity.
  • ▪  Objectivity in Selection and Appraisal – There is an increasing recognition that bias creeps into even the most well-intentioned appointment or appraisal. To counter this subjectivity, a robust process is the most effective antidote. If the process is trusted, better candidates will apply and there will be greater confidence in those that succeed to senior executive and Board roles. This methodology underpins Fidelio’s approach to Search and clearly leads to results in terms of diverse outcomes, as well as success in role.
  • ▪  Institutional Investors – Investors have a major role to play in promoting diversity and insisting on appropriate data disclosure from companies. In the UK we have already seen major houses such as Legal & General Investment Management engage on diversity and importantly vote against Chairs and companies with a poor track record. At last year’s ‘Die Frauenquote’ seminar, Hans-Christoph Hirt, Executive Director, Hermes Investment Management committed to do the same in Germany and called upon institutional investors to also be prepared to take a stand against German Supervisory Board Chairs who were making inadequate progress on diversity.
  • ▪  The Power of Networks – It is clear that networks play an important role in underpinning Boardroom success. Fidelio has conducted primary research into what it takes to succeed at the Board room table and networks of support and reciprocity were identified as one of the 5 key attributes of highly effective Board Directors.
    We build upon this in Fidelio’s ’A Seat at the Table’ programme. The panellists in Stuttgart were equally clear that network matters but were also aware that Germany provides more of a challenge with business spread across different cities and regions.

SO, WHAT’S NEXT?

Both Germany and the UK recognise the benefits of greater Board diversity. Both countries have made progress, but it is arguable whether the most influential roles at the top of leading quoted companies have fully opened up to female talent. The dearth of female Chairs in Germany and the UK speaks for itself.

So, what comes next and what can Boards do to keep moving the dial?
Based on our research and assignments, Fidelio sees the next steps as critical:

  • ▪  Clear focus on the pipeline. There is a strong bench of women ready and available for Board roles. But many organisations have been hollowed out at a more junior level. This needs to be remedied. Companies that have rewarded progress towards diversity through remuneration and advancement have made greatest headway.
  • ▪  Board composition, Search and succession planning need to earn respect and trust. Confidence in the robustness and fairness of appointments will attract a wider and more diverse pool and enable the successful candidates to flourish.
  • ▪  Finally, through Evaluation and Board learning, Chairs will ensure that the Board becomes increasingly proficient at embracing diversity which in turn underpins effectiveness.

Fidelio will continue to support our clients in the UK, Germany and internationally in increasing and embedding Board and leadership diversity. We shall do this through Search, Evaluation and Development.

We also recognise the benefits of establishing an international network of senior executives and directors who are committed to diversity and to learning from best practice across different countries, sectors and organisations. Fidelio therefore looks forward to collaborating again with CMS in 2020 to increase the momentum towards gender balance in UK and German Boardrooms.

ABOUT FIDELIO AND CMS

FIDELIO

Fidelio Partners is a Board Development and Executive Search consultancy. Our focus is Board effectiveness and Board composition, as we build Boards and leadership teams fit for the future. We do this through Board Evaluation, Development, and Search.

We have a track record in supporting Chairs cross-border, cross-sector, cross-function. Fidelio has strong public company experience and also supports private and non-profit organisations. 50% of our Search, Development and Evaluation is outside the UK.

In 2018, Fidelio was accredited for the second consecutive year by the UK Government’s Hampton-Alexander Review for our contribution to increasing Board gender-diversity beyond the FTSE 350. Fidelio’s flagship “A Seat at the Table” Board Learning Programme for Senior Executives and Directors is also core to our contribution to diversity and reflected in our accreditation. We will host the eighth iteration of the programme in March 2020.

Fidelio’s advocacy of the governance of Search is reflected in our strong Search process and outcomes. Our approach to Search is distinctive and forward-looking and predicated upon an exceptional international network. Diversity is hardwired into every aspect of our Search process and 50% of our appointments are female and our track record on mandated Search is well above industry benchmarks.

Fidelio is recognised for thought leadership, advocacy, and primary research on topics including Board composition, diversity, how leading Chairs prepare their Boards for disruption, and stakeholder and shareholder engagement.

CMS

CMS is one of the leading commercial law firms in Germany.

More than 600 lawyers, tax advisers and notaries public operate out of eight major German business locations and five international locations. Most recently, CMS opened an office in Hong Kong in 2016. At all our locations, we advise German and international companies and institutions from many different sectors on all aspects of national and international commercial law.

We have long experience of working with corporate legal departments and in-house lawyers. In addition to the required specialist legal knowledge in all areas of commercial law, our lawyers understand the business needs and market-specific requirements of every industry and sector.

CMS advises SMEs and major corporations on all aspects of national and international commercial law. Our strong teams comprise experienced specialists across a wide range of legal areas, making us a partner you can rely on. We are one of the few commercial law firms to possess expertise in all fields relevant to business enterprises, the public sector, high net worth individuals and entrepreneurs.

Digital transformation has profound consequences for the global economy, with the impact already being felt in everyday corporate life and across almost every industry. As an innovative partner with strong digital expertise, CMS can assist you with key issues around the digital economy and its legal implications.

Our success is underpinned by the knowledge and experience of our more than 4,800 lawyers and tax advisers in over 70 offices worldwide.

CONTACT DETAILS

CMS

Dr Martina Schmid
Partner
+49 711 9764 670 martina.schmid@cms-hs.com

Dr Alexandra Schluck-Amend
Partner
+49 711 9764 278 alexandra.schluck-amend@cms-hs.com

John Hammond
Partner
+49 711 9764 788 john.hammond@cms-hs.com

Fidelio

Gillian Karran-Cumberlege
Head of Chair Advisory
+44 (0)207 759 2200 gkarrancumberlege@fideliopartners.com