June 1, 2016 – With a referendum on British membership in the European Union now just three weeks away, the rate of job growth in the U.K. is easing amid reports of increased hiring uncertainty, according to a report released by The Recruitment & Employment Confederation (REC).
“The U.K. labor market is going through an unsettled patch,” said REC chief executive Kevin Green, “with uncertainty around a possible Brexit” now the leading cause for concern. Employers, he said, are turning to temporary professionals and contractors to provide a flexible employment hedge against any possible change to the U.K.’s relationship with Europe, and the implications this would have for the nation’s economy.
For executive recruiters, that uncertainty means this: client indecision, hiring delays and lost business.
‘Batten Down the Hatches’
“We (the British) are very good at talking ourselves into a crisis,” said Karen Wilson, CEO of Hoggett Bowers, an executive search and interim management firm focused on recruiting senior leadership for a wide range of organizations in the consumer goods, technology, media & communications, financial services, non-profit and cybersecurity sectors, among others. “We did it in 2008/9 with the recession and we are about to do it again over Brexit,” she added.
When there is uncertainty, said Ms. Wilson, there is a propensity to do nothing. “Many organizations that have a need to recruit,” she said, “are waiting to see what happens come June 23rd. We are now seeing hiring decisions being put on hold or delayed to see what the outcome will be.”
Ms. Wilson said she sees this most evidently in financial services – by far the largest employment sector in London. “Some international banks are actively looking at Plan B, if we exit,” she said, “and they will execute this plan immediately” if the vote is to leave the E.U. “Dublin and Paris are being suggested as the real beneficiaries of a U.K. exit,” she added.
London: Global Crossroads for Talent Acquisition
London is under pressure as a premier talent destination to attract the best workers that will drive business forward. This report dissects the problem, interviews and ranks the recruiters involved in solving it, and offers stunning predictions.
More than half of the global financial services industry is now found headquartered in London. Banks, hedge funds, wealth & asset management firms, and venture capital & private equity businesses based here employee the world’s most diverse workforce. Leave the E.U., say recruiters, and you unplug London’s power-base by starving its supply of this professional business talent.
“Britain needs manual workers to continue to thrive,” said Ms. Wilson’s colleague Jon Haslam. Mr. Haslam heads up the firm’s consumer goods and services practice. “We are a services led economy and we do not have enough home grown, affordable, capable workers to satisfy our needs. If we exit, do we remain an attractive destination for E.U. workers?” Short answer, he said, is a resounding ‘no’ – jeopardise the flow of labor, said Mr. Haslam, and you restrict the U.K.’s services business from growing.
In the end, they both said that any slowdown in business growth will impact on business’ needs to recruit at all levels. And what if the vote is, in fact, to exit? Confidence will recede, said Ms. Wilson, if it hasn’t already. “A Brexit vote is viewed by many clients as a trigger to a long period of uncertainty as systems, processes and even regulatory parameters are realigned to a new, non E.U. norm,” she said. “This, in turn, may trigger a downturn across many sectors as trading borders are renegotiated.”
While the financial services sector seems to be the most sensitive to a vote to shun the E.U., Ms. Wilson said that for some industrial FTSE100 organizations “the context is wider than just Brexit, and includes China and the U.S. elections – a story so far you could not make up!” A number of clients, she said, are saying all these elements of higher uncertainty is just part of the ‘new normal’ since 2009 and they will carry on with business regardless. “They will deal with tangible issues when they arise,” she insisted.
From a recruitment perspective, she added, “we know that from historic behaviors organisations hate uncertainty and, very much like we witnessed following the banking crisis in the late 2000’s, they will ‘batten down hatches,’” – reducing recruitment activities, or worse, enforce a freeze on external recruitment. “This, in turn, could lead to recession and a sharp rise in inflation causing an immediate and profound economic shock across the country.”
A Cause for Concern
Another industry that could see its future greatly diminished with a Brexit vote is life sciences, an expanding growth engine underpinning the U.K. economy. Life sciences leaders are warning that a Brexit could not only bring uncertainty, but added complexity to the industry, and to its patients. The sector pumps nearly $90 billion into the U.K. economy annually and supports some 220,000 jobs. And, importantly, life sciences receives research funding from the E.U. in excess of $1 billion a year. Leave the E.U. and this money could all dry up. Top recruiters specializing in the sector, like Coulter Partners, said if the country votes to go it alone, U.K. scientists could be isolated and their influence on medicine reduced.
“Pharmaceutical companies could find it more difficult to attract talent from abroad and retain existing talent,” said CEO Bianca Coulter. Her concern is that these workers might also become subject to new residence, visa and work permit controls.
“The implications for U.K. economic growth if we leave the E.U. give us particular cause for concern,” she said. “The questions we are asking are these: Will there be an erosion of the universities’ research base? Will the U.K. be as viable as a corporate HQ base? Will we have to set up our own systems for drug approval again?”
Ms. Coulter said she believes the U.K. benefits from the free movement of labor, the single market in services, and the stability of the pound relative to the dollar and the euro. “We are proud of London,” she added. “This is an outstanding global city, it attracts the brightest and the best talent from the E.U. and around the world.”
A Massive Impact On Recruiting? Maybe
But what about the ramifications that a vote to leave the E.U. will have on the headhunting business? “A Brexit will surely de-structure the search industry,” said Stéphane Rambosson, managing partner at DHR International. “Many international corporations and financial institutions, which control a large part of the British economy, have indicated that they would reduce their workforce and investments in the United Kingdom in case of a Brexit,” he said. This includes all foreign banks with large operations in London, often their European hub.
He said the management of a major U.S. investment bank with 4,000 staff in London, for which the U.K. market only accounts for six percent of its revenues, has told him that they would probably have to cut half of their people in case of a Brexit. “As a result, some well-informed sources estimate that up to 100,000 high value jobs could be lost in the City of London,” he said, with many sectors, including industrial, which represent over 80 percent of the U.K.’s economy, expected to be equally affected.
As a result, the professional services sector, including executive search firms, could see deepening trouble ahead. Mr. Rambosson believes the sector will have depressed levels of activity in a restructured, and reduced, marketplace. “Jobs will be lost as well in our industry,” he said. The biggest search firms will have trouble justifying as large a presence as they have today in London and will likely reduce pan-E.U. practices carried out of London, Mr. Rambosson reasoned. Boutiques, he said, will also suffer. “In a Brexit scenario, only the fittest and most adaptable athletes will survive in order to seize what possible growth could re-emerge eventually.”
London: Global Crossroads for Talent Acquisition
“London’s power-base status is threatened by a diminishing supply of professional business talent. We look at why this is happening and offer up some surprising predictions.” — Scott A. Scanlon, London Global Crossroads Report Editor-in-Chief
Anthony Harling, founder and chief commercial officer of Not Actively Looking, a U.K.-based global matchmaking platform for senior executives and executive search firms, said that if the U.K. decides to leave the EU “it would have a massive impact on the search industry.”
Ten or 20 years ago, he said, most search firms tended to be local firms, working for local clients, finding local candidates. “Today we live in a much more integrated world. Very few headhunting firms are purely local – that’s what makes the U.K. search industry so dynamic,” he said. “There are strong U.K.-based firms serving international clients in every sector,” he added, “but the U.K. is the most international search market in the world. Losing the ability to search freely across European markets would have a profound impact,” including “no longer being able to attract the best global talent for our clients.”
The strength of the U.K. search industry, he said, “is the silent support that strengthens U.K.-based businesses. We need to maintain the flexibility and the freedom to search across Europe if we are to continue as the most effective global search market in the world.”
An Attractive Option: Interim Workers
Charles Matthews, a consultant in the interim practice at leadership advisory firm Marlin Hawk, said “the only thing we can be sure of is confusion and instability.” In that context, he said, businesses are likely to delay decisions on permanent hires and take a shorter term ‘wait and see’ approach. “That makes interim management an attractive option,” he suggested, “as experienced professionals can come on board and keep critical initiatives going, but can be shed without financial consequence.”
Demand for interims, in fact, according to the REC report, is likely to increase in the run-up to the June 23 vote and, if the U.K. decides to exit the E.U., well beyond. “As well as offering a variable overhead, interims offer the compelling benefit of being adept at navigating change and are an asset to any organization undergoing transformation or adaptation to a new set of rules and processes,” said Mr. Matthews. As part of its stable of services, Marlin Hawk offers advisory solutions that include executive search, market intelligence & benchmarking, interim management, project services and leadership assessment.
A Silver Lining
Even so, no one is heading for the exits just yet – in fact, some recruiters see a silver lining that could emerge. “I recognize that certain polls and newspapers like to suggest it’s a fine balance, a close vote, but I honestly do not believe an exit will happen,” said Gavin Bonnet, founder of regulatory risk consultancy PoD Partners. Mr. Bonnet, a founding partner of Alexander Mann Financial Markets, previously served as co-head of financial services at Pure Search and prior to that was managing director of Correlate Search (acquired by Pure Search in 2014).
“As such, and until the referendum is out of the way, we will continue with the current uncertainty and slowdown in decision-making and then post-vote I think the immediate impact will be the catch-up and a surge in activity,” he said. The immediate financial market impact is likely to be a stronger pound, he said, and U.S. firms billing in the U.K. will no doubt be considering the implications of that.
“The hottest topic in the U.K. is whether we will leave or stay in the E.U.,” said Iain McNeil, chief of staff at The Miles Partnership. As the claims and counter claims about the effects of Brexit intensify in volume and scale, he said, “the truth is that nobody can truthfully say what exactly will happen.” The outcomes of leaving are likely neither to be as good – or as bad – as predicted, he said. “The fact is that the U.K. is a trading nation and always has been – it is well used to business across the globe. As business becomes more global, there is a logic to follow that wider direction, rather than have a more Eurocentric focus.”
The effect of Brexit will certainly influence the U.K. in the short to medium term, he said, “but what it will not do is alter the fact that the U.K. is substantially the largest and most varied recruitment market in Europe, second only to the U.S. globally.” There will not be an immediate exodus of foreign corporations from the U.K., he added, nor a catastrophic drop in inward investment. “Longer term, who knows, but short term I see no vast change.”
Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media and Dale M. Zupsansky, Managing Editor, Hunt Scanlon Media