30 Mar 2016

David Cameron and Clint Eastwood: The Good, The Bad and The Ugly of the EU Referendum

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Sector Insight


As noted in BVCA Insight last week, the past few days have seen an easing of the pace of the EU Referendum campaign, a natural development in the timetable that was if anything reinforced by the atrocities conducted in Brussels last Tuesday and the uncertainty as to what (if any) response was appropriate from either the Remain or Leave camps or from the British public at large. The next few weeks will see enhanced attention on the elections for the Scottish Parliament, the National Assembly of Wales, the Northern Ireland Assembly and the contest to be the Mayor of London.

This relative breathing space allows David Cameron, in particular, to contemplate how he will deal with three fundamental aspects of the referendum between now and 23 June. These could be described as, in honour of the Clint Eastwood movie of the same name, The Good, The Bad and The Ugly factors. How best to handle them will be crucial not only to the result but also to the aftermath. They are likely to loom large in the strategic thinking of both the Remain and the Leave leadership, although in the case of the Leave team, what the Prime Minister will consider to be “The Good” will be their “The Bad” and what he deems to be “The Bad” will be “The Good” as far as they see it.

The Good: The status quo option is strongly favoured to prevail in a national referendum

Referenda were once curtly dismissed by political figures as varied as Clement Attlee and Margaret Thatcher (although she changed her mind on the matter) as a device for demagogues and dictators incompatible with the proper spirit of parliamentary democracy. To be fair to both of those Prime Ministers, distinctly rigged plebiscites were a favoured means of securing a form of legitimacy that did not involve standard institutional checks and balances during the inter-war period and allowed various fascist or semi-fascist individuals to claim a degree of popular consent for their personal rule. It is only relatively recently that referenda have been seen as a compliment to modern democracy.

Yet despite that heritage, referenda in western democracies conducted at the national level appear to be relatively small “c” conservative occasions in practice. Various studies of their outcomes over the past twenty, thirty or forty years have suggested that the status quo position prevails at least 70 per cent of the time. Add to this those ballots where change rather than the status quo has been endorsed by the Government of the day and that figure rises to more than 80 per cent. This has been the case for virtually all of the referenda either held nationally in the UK or individually in Scotland, Wales and Northern Ireland (the devolution ballot in Wales in 1979 is the exception).

This bias towards the established norm has been seen widely across the English-speaking world as well as in democracies more broadly. It has sometimes produced what might seem counter-intuitive results. The Australian electorate voted to retain the monarchy in 1999 despite opinion polls that suggested a majority favoured a republic because the electorate disliked the idea for an alternative Head of State (to be chosen by Parliament not a presidential election) that was on offer. In 2013, the Irish Republic rejected the chance to abolish its extremely weak and somewhat eccentrically formed Upper House (the Seanad), again despite surveys up to the last minute suggesting that a majority did agree that it should be scrapped. Very recently, New Zealand decided to keep its colonial flag despite an elite consensus (including the Conservative Prime Minister) that it really should be replaced. The betting person would, therefore, start from an assumption that the UK will remain within the EU.

Which is indeed what those who stake their money on such matters have concluded. The betting markets currently imply a 66%-68% chance of a Remain victory. Those academics who construct statistical models – including the set who most accurately predicted the 2015 General Election in advance in defiance of the opinion poll evidence – put the chances of a Remain win at 85-87%. The Prime Minister’s primary asset in the next two months is that he is advocating “the Devil you know”.

The Bad: A real victory for the Prime Minister requires not 50.1% but at least 55% of the vote

The Prime Minister’s principal liability, by contrast, is that he has to win by a margin that is large enough to silence most of his internal critics and allow a process of “healing” to occur in his party. This, as he is well aware, will not be achieved merely by securing a majority of the vote. He has to be able to demonstrate that, in so far as these findings can be verified, a majority of those who would identify themselves as Conservative voters backed remaining in the EU, not merely voters overall. For that target to be reached, the Remain campaign probably needs at least 55% of the ballots.

Why 55%? It is not absolutely scientific but a reasonable estimate. It is devised in the following way. For the sake of argument, assume that turnout at the referendum matches that of the 2015 election, namely 66.1 per cent. The votes cast them were fairly evenly divided between political parties of the centre-right (the Conservatives at 36.9%, UKIP at 12.6% and the three Northern Ireland Unionists at 1.1% between them) and the (more splintered) political parties of the centre-left (Labour at 30.4%, the Liberal Democrats at 7.9%, SNP at 4.7%, Greens at 3.8%, Sinn Fein 0.6%, Plaid Cymru 0.6%, the SDLP at 0.3%, the Alliance Party of Northern Ireland at 0.2% and a couple of small left-wing outlets, the TUSC and the NHS Action Party at 0.2% ). The remaining 0.7% largely defy an ideological type.

All the available academic material implies that the centre-left will embrace Remain by a 70%-30% margin (possibly slightly more). On the centre-right, it can safely be assumed that about 90% of the UKIP electorate of 2015 will want to leave the EU (a few drawn from ex-Labour supporters will not) and the Northern Irish Unionist electorate seems to be exactly evenly divided on the question. This means that at a 55%-45% overall Remain outcome, the Conservative Party’s almost 37% of the vote last May will have split down the middle. Any figure higher than 55% will allow the Remain campaign to claim with a degree of credibility that it carried the Conservative component of the electorate (albeit perhaps very narrowly). Any number lower than 55% will permit the Leave campaign (and Mr Cameron’s internal enemies) to protest that he only “won” courtesy of Jeremy Corbyn’s electorate. And that outcome, as Downing Street deeply appreciates, would be a recipe for significant trouble.

The Ugly: The opinion polls are unlikely to offer any consistent outlook on the outcome

Both sides are likely to spend a lot of money on opinion polls over the next few weeks. Whether this will be any better an investment than that expenditure for the 2015 election is debateable. Indeed, there are reasons to suspect that it will be a far harder exercise for the pollsters to assess this time. There is already a major divide between the relatively small number of polls conducted by telephone which imply a reliable Remain lead, often in double figures, and the much larger number of polls that are constructed through internet panel surveys which indicate an extremely close contest. Internet polling has become the industry standard because it can be conducted quickly, easily and cheaply (all of which appeals to the media as the client). The challenge, which the 2015 election exposed, is how to ensure that the panel, which consists of people who have volunteered to take part, is not unduly representative of those with strong political opinions rather than more mainstream outlooks. This is especially true for an issue such as the EU where the intensity of opinion appears to be located more forcefully on one side of the argument (for Leave) than the other. Volatile polling over the next two months can thus be anticipated, alongside heated argument as to which of these polls is “right” and why. On that one, Mr Cameron and his opponents might well be united in considerable frustration.

Tim Hames, Director General, BVCA

Research Insight


Gender diversity in financial services

Last week, Jayne-Anne Gadhia, CEO of Virgin Money, published Empowering Productivity: Harnessing the Talents of Women in Financial Services, a review backed by HM Treasury into the representation of women in senior management in financial services. Separately, the Equality and Human Rights Commission (EHRC) released the findings of their Inquiry into Fairness, Transparency and Diversity in FTSE 350 Board Appointments. Together, the reports delve into the reasons behind why so many companies in the UK continue to fail to improve gender diversity both at senior and board level, and offer recommendations for driving change in the industry.

The Gadhia Review

Research cited in the Review from New Financial found that while there are more women than men employed in the financial services sector, women make up only 14% of executive committees and 23% of boards, with the majority falling out at middle management level. With these figures in mind, the Review sought to ask what would enable women to progress in the sector, reaching out to nearly 3,500 people - both men and women - through interviews, roundtables and consultations for their thoughts on developing an inclusive workforce on the executive level.

The Review found when looking at the sector that only 26% of financial services firms disclose diversity targets. With this in mind, the Review’s first recommendation was that firms set internal targets and publicly report on them. Specifically, the report recommends that firms publish metrics on gender at all levels of the organisation and explain the steps taken to promote diversity through the course of the year. Importantly, the Review suggests that this level of transparency should extend beyond FTSE companies to unlisted financial services firms operating within the UK.

The Review’s second recommendation – that there should be executive accountability for increasing gender diversity at all levels of the organisation – seeks to build on broader regulatory changes in the aftermath of the financial crisis, principally, that senior executive accountability is a key driver in achieving change. To this end, the Review suggests that firms appoint a senior exec solely responsible for gender, diversity, and inclusion. The report notes that there is a strong case for this responsibility sitting with someone in a profit and loss line to ensure that the risk of diversity becoming a silo issue is reduced.

While stopping short of calling for a quota for women in senior roles, the report recommends that financial services firms connect parts of the remuneration packages of their executive teams to hitting gender balance targets. By linking variable pay and performance to action against clear plans to promote diversity, the Review argues that this recommendation would send a strong message to firms to take the issue seriously.

In response to the Review, HM Treasury has launched the Women in Finance Charter, asking financial services firms to voluntarily support the government’s ambition for greater gender diversity across financial services by committing to implement the above industry recommendations.

Inquiry report findings

In July 2014 the EHRC launched an inquiry into how the FTSE 350 recruit and select board and director roles to investigate whether recruitment practices were fair and to identify areas where companies could increase diversity. In doing so, the EHRC asked all the FTSE 350 companies to provide information about board appointments made in the 12 months preceding the launch of the inquiry.

While the FTSE 100 has met the 25% target for female board members set by Lord Davies (with the FTSE 350 standing at 21.9%), the EHRC suggests that these achievements are not an accurate reflection of how individual companies are performing. The findings reveal that while 47% of FTSE 350 companies increased their female board representation, in 46% of companies the proportion of women on their boards either remained the same or decreased, with 90% of FTSE 250 businesses having no female executives on their boards.

Where improvements had been made, this was as much due to reducing board size as it was to appointments of women; of 150 companies that increased the proportion of women on their boards, 31% had done so by reducing overall board size and 38% met the target purely by appointing women. The inquiry also found that for senior executive levels, less than half of companies had a diversity policy and less than two-fifths had set gender targets. On selection, the inquiry claimed that ‘old boys' networks’ are still being widely used, with almost a third of companies reporting that they rely on the personal networks of current and recent board members to identify new candidates.

Despite the findings, the inquiry recognises the progress that has been made and acknowledges that the number of women on FTSE boards is now greater than ever. It also highlights examples of good practice and sets out recommendations, including: conducting board evaluations and setting diversity targets for appointments; making boards accountable for improving diversity and reporting annually on progress; and establishing training, development and networking programmes to improve the proportion of women at all levels.

While it remains to be seen whether firms will comply with the recommendations put forward by the two initiatives, the BVCA maintains that a commitment to gender diversity is fundamental to managing and investing in businesses responsibly and encourages its members to focus on good practice, keeping in mind the positive and far-reaching benefits of inclusivity.


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