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HR Management in times of Brexit

Guilherme Azevedo

The Brexit campaign of 2016 proclaimed that quitting the European Union would reinforce both the United Kingdom economy and its global relevance. It portrayed the EU as a sort of a giant parasite that consumed enormous national resources that could otherwise be spent directly on British interests – the most notorious, and now debunked example being the British National Health Service. Proponents of the Brexit denounced that the Brussels’ arcane bureaucracy was a major drain on British resources and an impediment to putting the Great back into Britain. Contributor Guilherme Azevedo, Assistant Professor – Audencia Business School.

Three years down the road, most of the promises made by the Brexiters, who won by 52 to 48 percent, are clearly impossible to sustain. It is now recognised that the victory reflected the discontent of many disenfranchised groups who blamed globalisation and continental-European indolence for most of their problems. A pervasive nostalgia for a long-gone British imperialism by older people who voted, combined with the indifference of many younger adults who did not, also contributed to the outcome.

Since the vote, as we all know, the divorce between the UK and EU proved to be extremely complicated to bring about, mostly due to the complexity of untangling the myriad of ramifications of the economic integration built since 1973 when the UK joined the EU. The difficulty exit negotiations have been exacerbated by the fact that the Remainer MPs dominate the parliament and by an unwritten British constitution that has never been designed to effect constitutional decisions made by plebiscite. The playing out of these peculiarities have become a prolific source of hubris, hype, nonsense, and grandiose claims that would be amusing if they were not, in fact, so tragic for the British people. And it remains to this day that anything might happen—even no Brexit at all, if the frequent call for postponements and for a new referendum is heeded.

British companies, facing the most severe uncertainty, are therefore required to prepare for diverse post-Brexit scenarios that range from a chaotic no-deal exit (i.e., an exit without a withdrawal agreement) to more orderly ones. One particularly unworkable option, as dreamed by some Brexiteers, is for the UK to leave but keep a special relation within the EU (such sweet delusion is behind the sarcastic neologism cakeism, the doctrine of keeping one’s cake while eating it as well.)

Before addressing the situation of HR management in the UK, please allow me a comment—and some words of sympathy – for the situation of British expats on EU soil. The excruciating flow of confusing news coming from their native islands brings them insecurity and confusion. There are uncertainties concerning their legal status and, in some cases, even possible hostility towards them and their families. Since the referendum, the EU has generated extensive preparedness measures to be adopted by its member states that should guarantee, at least immediately after Brexit, the rights of British citizens residing in the EU. But, still, HR managers of companies in the EU should take objective action to mitigate the continuing stress by, for instance, helping their British employees to deal with the administrative procedures needed to acquire new residency and working permits.

Up to this point, most UK companies have already incurred significant Brexit preparation costs. They are doing the best they can to be ready for a no-deal exit that would possibly lead to up to half a year of disruption before the EU-UK relations regain normality under the non-privileged parameters of trade between WTO members. In practical terms, these preparation costs include: industrial companies stockpiling materials, components, and finished products; accounting systems being updated and processes being redesigned in most medium or large-size firms; airlines, trucking, and navigation companies applying for special licenses to keep access to continental Europe; and all relations between Irish and UK companies being reframed as export and import, including a complicated and politically sensitive setup of European customs and immigration control between Northern Ireland and the Republic of Ireland. Of course, as Brexit preparation measures consume money and energy, there is less investment and attention directed towards innovation and the development of new business.

As the free circulation of labour, capital, goods, and services between the UK and the EU may be severely restrained, most HR departments in UK companies should already have taken practical steps, including trying to reduce stress among the workforce by keeping internal communication on Brexit preparations as transparent as possible; identifying those employees potentially affected by immigration status changes and providing them with targeted support; and adapting basic remuneration and bonus systems that take into account more turbulent and probably less profitable times.

In the medium to long term, there may be some mitigation of these negative factors as sterling will lose value, which can facilitate exports and incentivise some import substitution industrialisation. A collection of bilateral agreements (or agreements involving a few partners) may also eventually replace part of the businesses lost with the EU, but this will be a lengthy process. We all know that successful business configurations take a long time to build but can be dismantled very quickly. Hence, in practical terms, the tendency is for an economic isolationism that ultimately requires business strategies to the UK to retreat to a pre-2000s multinational configuration, when international firms were organised as federations of domestic businesses instead of the more global and interconnected configurations we have today.

Actually, business leaders all around the globe have already started to make this self-fulfilling prophecy a reality by treating the UK more as a standalone market by, for instance, replacing foreigner suppliers by local ones, moving headquarters and other important functions out of the UK, and reconfiguring international supply chains to avoid the extra cost of having part of them on British soil. British business leaders have long been warning the public and politicians that substantial assets, staff, and production processes would move abroad. And, indeed, a noticeable number of foreign multinational companies have already discontinued part of their UK operations. In the service sector, for instance, a considerable share of the London-based financial industry is moving out of the country. Large banks and smaller financial firms alike are particularly sensitive to uncertainty and it has been estimated that tens of thousands of financial white-collar jobs have already been transferred, mostly to Dublin, Frankfurt, Luxembourg, Zurich, or Paris.

HR leaders should therefore consider that although the UK will likely remain an important and dynamic market, its current participation in the global economic arena can be replaced without much difficulty: Asian economies—China in particular—are doing well in terms of more innovative productive models and of growing internal demand; Europe and North-America are arguably finding reasonable routes to become more sustainable as already-developed economies; and the promise of more vigorous businesses in Africa is becoming more real. This is very bad news for British businesses and its population at large; contrary to the illusion promoted by the Brexit campaign, the days of imperial grandeur are indeed over and Brexit is reducing even further the relevance of the UK to the global economy.

Therefore, in very pragmatic terms, HR leaders in the UK should get ready to face: a possible reduction of the size of their operations; growing stress among employees and deteriorating organisational climate; a surplus of jobseekers in their domestic market; and the prospect of developing a managerial workforce that instead of being cosmopolitan-minded should be more knowledgeable about the local dynamics and more creative in terms of doing more with less.

Moreover, because markets are very good at making their own consensual predictions come true, these four trends are already beginning to take place. The UK GDP growth has been declining since 2016 and, as predicted by the Bank of England, a no-deal Brexit could shrink UK’s GDP by as much as eight percent, with significant detrimental consequences for unemployment and inflation. Jobs have already been lost, and the unemployment figures are not even worse due to a tragic combination of brain-drain and a reduction to UK’s power to attract foreign talent. Therefore, in addition to short-term tactical preoccupations, the departure and the underutilisation of qualified workers, managers, entrepreneurs, and academics can put at risk the UK’s ability to remain at the forefront of innovative technology and to keep its place in the world cultural vanguard.

On a case by case basis, HR leaders in the UK face a huge challenge to find the proverbial silver lining in the gathering storm-clouds. But, as positive and creatively sophisticated they can try to be, the brute reality of Brexit more likely will require rather more basic responses. As in other emergencies, these responses should be a combination of brace for impact and downsize to survive. Not a very jolly perspective, I would admit, and completely contrary to the mentality of the young British citizens of today and of those who enjoy an effervescent, multicultural life in London and in other large UK cities. But, in my view, this is the somewhat laconic and jarring reality imposed on us by the Brexit victory of 2016 and by all the economic and political turmoil it has produced.

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