Ahead of our Inside the Minds of Business Leaders events, we asked Anthony Ward, Co-Founder of Armajaro and Principal Portfolio Manager of CC+, Armajaro Asset Management and the regional expert panel member for our London event some key questions…
What do you think is the top concern owner managed businesses (OMBs) are faced with today. How do you recommend they might overcome it?
“Brexit will hold sway over businesses for many years and will have macro-economic ramifications that will be felt in many areas of business life, from bank lending to labour market liquidity.
“Brexit is an enormously complex challenge but the incompetence of the Government, by which I mean the lack of any clear strategy or plan, is compounding the risk. The costs are likely to be huge and businesses will face risks on all sides, which are very difficult to quantify.
“For example, banking will be become more difficult as the UK becomes more isolated. This could negatively impact cross-border trade, which is currently relatively seamless. Businesses requiring funding to invest, for example, might want to consider bringing that investment forward before the liquidity situation worsens and debt becomes more expensive.”
Last year, OMBs were bullish about their region and the UK but downbeat about the EU economy. Do you expect that view to have changed much a year on?
“Yes, I would expect that view to have substantially changed. For many years the UK has looked attractive outside the Eurozone and while the EU still faces enormous challenges (such as a possible Italian banking crisis), the political risks have essentially reversed. Now, the UK is gripped by uncertainty.
“How bullish businesses are will in part depend on the extent to which they export to continental Europe. In the short term at least, exporters may benefit from the devaluation of the pound relative to the Euro, and so they may be doing rather better than last year. As the Brexit deadline looms ever closer, that exchange rate benefit may be outweighed by other factors.”
Recruiting and retaining talent is a challenge for many OMBs. What could OMBs be doing to ensure they are able to recruit and retain the right talent?
“Businesses need to look at non-financial ways to retain high performing people. It can take a lot of money to compensate people for an unpleasant working environment. Making the working environment feel more collegiate, while adding to costs, may be cheaper in the long run than pay rises and fees paid to recruiters, in addition to the less quantifiable cost of disruption when people leave.
“Giving people a sense of ownership and control is generally one of the most effective ways of attracting and retaining talent. That could mean shares, so that employees get a direct benefit when the business does well. A sense of personal autonomy can also be an important motivator. This can be achieved by permitting greater flexibility in working practices, which can not only engender greater commitment from staff, but also helps to build mutual trust.”
Just 13% of respondents to last year’s survey favoured a hard Brexit. Many OMBs fear a hard Brexit will impact their business for the worse, how should they be preparing themselves?
“The question may be academic as a hard Brexit, in the sense being articulated by Theresa May, is quite unlikely. Despite what politicians might say to voters, the reality of Brexit could be very different. The ‘have our cake and eat it’ contingent will no doubt blame the EU – as they have done historically – if we end up with a poor deal or indeed no deal at all.
“Whatever the outcome of the process, businesses will be able to find opportunity in adversity. That opportunity will vary depending on a range of factors. For example, businesses which export may find the weak pound helps them find customers in non-EU markets, which compensates for any reduction in business with the EU resulting from loss of access to the single market. If the UK becomes a member of the European Free Trade Area, however, in many ways it will mean business as usual. In that sense, fears about a so-called hard Brexit may be misplaced.
“All businesses, regardless of whether they export significant amounts to the EU or not, should be looking to hedge against a rebound in the value of the pound. Sterling has been volatile since the Brexit vote, and its current weakness, which benefits exporters over importers, may not last. Businesses are facing unprecedented uncertainty so hedging against currency fluctuations is a particularly useful risk reduction strategy right now.”
Take a look at our previous Q&A with James Sproule, former Chief Economist at the IoD.