In Part 2 of our look at Brexit, it seemed a useful exercise to examine the governance of the country that led to this most disruptive result, against the principles of our Applied Corporate Governance and their application to organisations generally. We analyse the issues considered in the referendum, the key stakeholders and how they have been affected, and set out how our ACG approach would assess this as an exercise in governance.
What were the issues to be considered?
There were some major issues on which the effect of the Vote would have a wrenching impact and many subsidiary questions whose answers would depend on the result of this simple Yes/No vote.
Major issues included the following:
Peace in Europe: what is the likely impact?
Comment: the creation of a united Europe, as we have seen, was the result of two catastrophic world wars in the early part of the 20th century. It has been outstandingly successful in that regard. If the EU leaves this project it will destabilise it. After two thousand years of regular wars affecting Europe, this should be forefront in considerations of the voters.
UK Sovereignty: what is the impact?
Comment: as we refer to above, since the start of the EU project, the issue of Britain’s sovereignty has clashed with the interests of prosperity (and for that matter, defence). Building successful trading relationships and defence alliances will always entail conceding some degree of sovereignty. Where does the balance lie?
Integrity of the UK: is this threatened?
Comment: the integrity of the United Kingdom has been taken for granted until recent years. The Act of Union of 1707 brought together the parliaments of Scotland and England, creating the United Kingdom. However, after many years of campaigning for home rule, the majority of Ireland broke away from the UK in the Anglo-Irish Treaty of 1921, establishing the Irish Free State. This set the scene for years of difficult relations between the residual Northern Ireland and the rest of what became simply Ireland, culminating in twenty years of fighting in the late 20th century which was only resolved by the Good Friday Agreement of 1998. Also, in the later decades of the 20th century, home rule for Scotland and then independence became an increasingly important factor, culminating in the referendum mentioned above. For completeness, we should also mention the movement for independence for Wales which so far hasn’t had so much impact beyond establishing a Welsh Assembly.
Business interests: how would these be affected by Brexit?
Comment: business thrives in stable conditions and hates uncertainty. Renegotiating massively important trade agreements was not seen as something to look forward to. Hence the vast majority of business came out strongly in favour of the status quo. Entrepreneurs see opportunity in change and a few leading businessmen saw new freedoms and new deals. But the majority didn’t.
Global relationships: what would our partners want us to do?
Comment: almost all of Britain’s global partners and significant international bodies such as the IMF and OECD expressed an unequivocal wish to see Britain remain in the EU. How should their views and interests be factored into the referendum issue?
Parliamentary democracy: how does a referendum fit into our constitution?
Comment: in 1774, Edmund Burke, MP and political philosopher, in a famous speech to the electors of Bristol, distinguished between being mandated by the voters and being their representative. An extract sums this up:
Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.
…mandates issued, which the member is bound blindly and implicitly to obey, to vote, and to argue for, though contrary to the clearest conviction of his judgment and conscience,–these are things utterly unknown to the laws of this land, and which arise from a fundamental mistake of the whole order and tenor of our constitution.
David Cameron, unwisely surely, committed his government to implement the result of the Yes/No referendum vote as a mandate. Not what representative government is all about, according to Burke.
Important questions arising out of the decision to have a simple Yes/No referendum included the following:
- What might be the political impact in Europe where disruptive populist movements have been gaining ground?
- What might the likely effect be on Britain’s currency of a Remain or Leave vote and what might be the implications?
- What impact might a Leave vote have on the UK economy?
- What are the likely practical problems of disengaging from EU after 40 years?
- What might be the impact on immigration (a much discussed matter) and what might the implications be for business, national institutions such as the National Health Service, and society generally, not least foreign nationals living in the UK and their counterparts – UK citizens living in the other EU countries?
- Peace in Ireland is still precarious. If the UK leaves the EU, what happens about the border between Northern Ireland and the Irish republic?
- Gibraltar has had a fractious relationship with its neighbour Spain. While both are members of the EU, this relationship has been manageable. What happens if Gibraltar is dragged unwillingly out of the EU?
- What next? What is the new model that the UK should adopt if it leaves the EU?
- Is this reversible? When governments are voted out of office through the parliamentary democracy process, their policies can be reversed by the incoming government. What happens after a Leave vote if the electorate later changes its mind?
“we’ve had enough of experts”
All these questions were raised during the campaign and the answers given by all the stakeholders affected were negative for the Leave campaign. As such, they were comprehensively dismissed by the Leave campaign with little more than “don’t be such pessimists” and “we’ve had enough of experts”.
Needless to say, since the EU was initially so low on most peoples’ list of priorities, most people knew very little about these very important and complex issues – and cared even less. The vote then became a means of protesting against the establishment. This was fostered by a relentless denigration of the “elite” and “experts” by the popular press in support of the Leave campaign which finally focused on the single issue of the supposed evils of immigration, for which the EU was apparently to blame. This, with the misleadingly simple message of “getting our sovereignty back” became the winning formula to garner the votes of the disaffected and the nostalgic.
Who were the key stakeholders, what were their views and how have they been affected by the Leave vote?
If we think about the issues above, some key stakeholders emerge:
The different generations
Analysis of the vote showed that 75% of 18 to 24 year olds voted Remain and a poll on 24 July of 16 and 17 year olds showed 82% would have voted to Remain. The implied number of these unenfranchised – 1.2 million – would have eliminated the Leave majority. By comparison, in the 50 – 64 year old group, 56% voted to leave and in the over 65 group, the leave vote totalled 61%. The youngest generation is appalled by the result and sees their future jeopardised. The oldest generation is happy and unlikely to be around when any downside starts to emerge.
The constituent parts of the UK
Geographically, all of Scotland, most of Northern Ireland, all of London and a corridor between London and Bristol voted to Remain. Most of the rest of England and almost all of Wales voted to leave. Scotland’s campaign for independence has been given a shot in the arm by the result. London is working out how to get round the consequences which it sees as a threat to its prosperity and very unfair since it contributes 30% of the UK’s main taxes, hence supporting those parts of the country which have caused it harm. Furthermore, in terms of employment, the income tax and employers’ national insurance contributions which London generates exceed the combined total of the next sixty largest cities. Northern Ireland, along with the Republic of Ireland, is wondering what the effect of a Brexit will have on the now pacified border, which for all practical purposes has ceased to exist.
Industry and commerce
As mentioned above, almost all of industry and commerce wanted to remain, particularly the City of London whose financial business would appear to be particularly threatened by Brexit. Polls by the IOD and CBI and British Chambers of Commerce showed this clearly. Interestingly, in the financial sector, a strong supporter of Leave was the CEO of insurance company, Legal & General. After the Leave vote, L & G’s shares went down by 20% because of the perceived adverse impact on their business. Just one example of a wilful blindness to the likely consequences of taking a clearly risky course of action. His shareholders may not have the same satisfaction with the result that he does. Also in the financial sector, but affecting many companies and their employees and of course pensioners, pension schemes have been hit hard by the prospect of interest rates staying at rock bottom for the foreseeable future to cope with the recessionary impact of Brexit. A bad situation has been made worse as pension fund deficits in defined benefit schemes are now reaching the point of no return, being estimated at a figure approaching £1 trillion.
Other members of the European Union
Political leaders in Europe and the Commission in Brussels all pleaded with Britain to stay in Europe. After the Leave vote the mood has somewhat soured among EU politicians and voters and there is a resentful attitude at the behaviour of a country which has almost always been half-hearted in its support for the integration of the EU, not to say disruptive, even when it was in their best interests, such as with the harmonisation required to make a success of the single market.
Our overseas political allies and trading partners
Before the vote, the president of the USA, the Prime Minister of Japan, and Commonwealth leaders in India, Australia and Canada, all made it clear that they wanted Britain to stay in the EU. From a security aspect, the Secretary General of NATO, our key defence alliance, said he believed Britain being in the EU strengthened the alliance. These countries and bodies are now diplomatically biding their time to see what is going to happen. Independent bodies like the IMF and huge global funds like BlackRock are now building a negative impact of Brexit into their financial forecasts and the credit agencies have downgraded Britain.
The UK political parties
In a sense, compared with the weight of the stakeholders above, the political parties shouldn’t represent a very important part of the discussion. But, of course, in terms of their ability to influence things, they are very important indeed. And here, before the vote, the majority of the Conservative Party and both opposition parties were in favour of Remain. In consequence, it was most unlikely that any vote to leave the EU would ever have been passed in parliament. Hence the pressure from Leavers to go for “direct democracy” and bypass parliament. Now that the Leave vote has claimed the scalp of the Prime Minister and a new leader has been selected by the party in parliament, the dynamics have changed. For the time being, most of the Conservative MPs will be taking their cue from their new boss. Sadly, the opposition, which should be holding the government to account, is in complete disarray and is deeply engaged in the process of trying, so far unsuccessfully, to replace its own leader.
How would our ACG approach assess this as an exercise in governance?
The ACG approach is holistic. But holistic a referendum is not. So it isinteresting to apply our Five Golden Rules to the referendum process, and the result and its consequences. Let’s consider these in turn:
An ethical approach
It would be hard to describe the referendum campaign as ethical in view of the misrepresentations and outright lies which were a feature. Furthermore, the character assassination of individuals and the denigration of respected authorities and international bodies were downright unethical by most peoples’ standards. Indeed, the tone of the campaign contributed to the poor regard in which politicians of all parties are currently held.
A common goal
This is surely the key failing of the whole process. The core of successful governance is the synthesising of a common agreement about the goal of an organisation, balancing the interests of all the key stakeholders. The Brexit campaign was aggressively designed to wrench Britain away from the constitutional arrangement of forty years’ standing with no regard whatsoever for the interests of the stakeholder groups which wished to stay with the historical arrangement. Similarly, the Remain campaign, lacklustre as it was, made little attempt to accommodate the wishes of the group which held very strong beliefs about leaving. So using a simple Yes/No referendum was never designed to find a common goal but simply for politicians to defeat the political opposition regardless of the complexity of the issues or the range of important stakeholders who had vital interests at stake.
A strategic management approach
A professional approach to strategic planning assumes a sensible goal and since the goal of the referendum was for In to beat Out, it wasn’t ever going to be possible to devise a sensible strategy for the thereafter. That said, there was clearly no attempt to draft a strategy for the post referendum situation. It was simply assumed by the government, backing Remain, that it would win the vote and nothing would need to change. So no strategy was needed. Correspondingly on the Leave side, the assumption was that this would be a massive protest vote which would be unsuccessful, so again, no planning was needed.
An organisation structured and resourced to deliver the goal
Needless to say, with no proper goal and no strategy, it is hardly surprising that the government is now floundering and groping around to tackle the mess it has created. For example it has only a handful of trade negotiators to tackle the colossal tasks facing the country in renegotiating all its international trade arrangements, all these jobs having been passed to Brussels over the years.
Accountability and transparency
If the government on the Remain side and the politicians organising the Brexit campaign on the opposing side had no holistic view of the country’s stakeholders and their interests, it is hardly surprising that the opposing parties regarded accountability as applying only to their own supporters. And transparency took second place to propaganda in the service of their cause.
So we conclude that the referendum exercise would be judged on our ACG principles to have failed very badly on every single count. And unsurprisingly the result is an appalling mess which is affecting not only the UK but its partners in the EU and its trading partners around the world. This mess was created overnight but will not be sorted out as quickly.
One would have to conclude that a period of reflection is now essential while the key stakeholders consider what the impact of implementing Brexit might be for them. That needs to be followed by an attempt to find common ground and devise a way forward which all parties can sign up to while conceding enough on their own side to achieve this. In this process, wise counsels in the EU have to recognise that although the UK Leave vote was largely an anti-establishment poke in the eye, there are important elements in the Leave campaign which are mirrored in their own countries.
The three guiding principles which have taken Europe forward since the last war are:
Peace, Prosperity and Freedom
The leaders of Europe, including the UK, therefore need urgently to devise policies which keep the EU on track to achieve these core aims. Brexit is not a helpful policy in this respect and needs to be put on ice while more sensible, holistic and inclusive policies are developed so everyone in the EU can sign up to a COMMON GOAL.
To further this aim, encouragement should be given for companies to make use of the existing ability to incorporate as Societas Europeae giving them effectively free movement across the EU. And citizens, whose membership of an EU country means that they are automatically citizens of Europe, should have the rights under this extended so that they regard themselves as genuinely citizens of the European Union. Then those who didn’t wish to be citizens of Europe wouldn’t have to take up this “super-citizenship” but could stay in their own countries and travel abroad with passports as in the pre-Schengen days.
This would be a real “bottom-up approach to the EU as compared with the historic “top-down” approach starting with governments meeting at the Council of Europe and giving instructions to the bureaucracy in Brussels called the Commission.
And the governments could then start to score as successful leaders under our five golden rules of good corporate governance.