Addressing key concerns on Brexit: A US perspective

The results of last week’s vote for the UK to exit the European Union has reverberated across the global capital markets, causing investors and the financial media to scramble to better understand how the outcome will affect national economies and corporate performance.

While many unknowns remain, companies that conduct business or have operations in the region need to be prepared to address internal and external stakeholders on the implications. Below are a number of key issues that must be considered as companies develop their communications strategy to respond to this significant geopolitical event. 

• Assess the business impact before making any material statements about future performance

With the exception of those within the global banking industry,most companies are expected to witness limited near-term impact from Brexit. We recommend companies complete the necessary due diligence and sensitivity analyses to quantify the potential downside risks before making any proactive comments. Public companies should leverage the upcoming quarter-end and quiet period before the second-quarter earnings season to prepare accordingly.

IR professionals and executive management will need to be prepared to face a heightened amount of questions on the topic from analysts and investors. Issues pertaining to a potential economic slowdown across the region, muted growth prospects and the impact of foreign exchange volatility on sales projections will all need to be addressed. Additionally, following the recent S&P and Fitch downgrades of UK government debt and the expected increase in corporate borrowing costs across the UK, companies with exposure to the region will need to address concerns regarding potential insolvency of key customers as well as supply chain disruptions. 

• Use Brexit as an opportunity to reinforce the positioning of UK and European business units

While the initial reaction by the capital markets to Brexit has been negative, the event creates a positive opportunity for companies with exposure to the UK and Europe to communicate their investment thesis to an increasingly captive audience.

With second-quarter earnings on the horizon, companies should consider crafting messaging that explains how they are properly positioned to respond to situations such as Brexit. There is also an opportunity to reinforce the strength of a company’s European and UK business segments. While it may not be a traditional practice to disclose detailed quarterly performance metrics on a regional level, management should consider increasing transparency for the upcoming earnings release, provide more detailed operating metrics and offer qualitative insight into top customer relationships.

Increased transparency at this time will help alleviate any concerns the investment community may have and help stabilize near-term equity valuations. We also recommend having respective business leaders from the UK and Europe available to provide further commentary, either on the earnings conference call or during follow-up conversations, to analysts and investors.

• Reinforce your commitment to stakeholders based in the UK and Europe

While it is recommended to take a measured approach to proactively communicating the impact of Brexit to the financial community, we suggest companies quickly confirm their commitment to the UK and European regions, especially to employees, customers and vendors.

The recent fallout from the Brexit announcement has likely increased anxieties among employees regarding job security and the potential pull-back in corporate investment across the region. Executive management teams should plan to increase visibility at corporate locations and address the long-term vision of the business and how UK and European operations are essential to ongoing success. 

• Remain neutral on the political implications of Brexit

While it can be challenging at times for CEOs to stay out of the political discourse, public statements should rather underline a respect for the significance of the vote. Furthermore, corporate communications outreach needs to highlight a priority of continuing to execute the business strategy and drive performance in a post-Brexit environment.

Partisan comments about the vote will only bring about concerns of not being adequately prepared to address the implications of a UK exit from Europe. Indicating that management was properly prepared and the business model has the flexibility to address significant external events such as Brexit offers a level of credibility and creates a positive platform for the company to make future comments about the impact of the vote on operations and corporate performance.  

Ted McHugh is vice president of financial communications and capital markets at Edelman