COMMERCIAL BANKING
BUSINESS LEADERS SUMMIT 2016
Helping Britain Prosper Globally
Growth, Resilience and Agility
GROWTH
RESILIENCE
CAPITAL
AGILITY
LIQUIDITY
RISK
SUSTAINABILITY
3
BUSINESS LEADERS SUMMIT 2016
CONTENTS
INTRODUCTION:
LLOYDS BANK
Themes from the Summit
PROFESSOR IAN GOLDIN:
KEYNOTE
The Future: Globalisation,
Demographic, Economic and
Technological Change
PANEL DISCUSSION 1
Risks and Challenges to
Business
05
09
10
ANGELA EAGLE MP: KEYNOTE
Britain at the Heart of the
Global Economy
LLOYDS BANK
COMMERCIAL BANKING
Outlook for Risk,
Liquidity and Capital
PANEL DISCUSSION 2
Responding to the
Growth Challenge
13
THE RT. HON. PHILIP
HAMMOND MP: KEYNOTE
Supporting Britain's Prosperity
22
14
CLOSING ADDRESS:
LLOYDS BANK
Helping Britain Prosper Globally -
23
18
Clare Francis opens the Summit and sets
the scene around opportunities and risks
in 2016.
BUSINESS LEADERS SUMMIT 2016
5
CLARE FRANCIS
INTRODUCTION
CLARE FRANCIS
Managing Director,
Head of Global Corporates,
Lloyds Bank Commercial Banking
Our discussion this
year kept returning
to the theme of
agility, as it had
in 2015.
As predicted, 2015 was a year of
tumultuous geopolitical and market
change and the volatility intensified as we
entered 2016. By early February, when 200
business leaders joined us in London at
our fourth Lloyds Bank Business Leaders
Summit, the outlook for growth was more
subdued than expected, particularly
in emerging markets and developing
economies. Geopolitical uncertainty
seemed to be the new normal. Against
this backdrop, and given our Summit
title of Growth, Resilience and Agility,
it was unsurprising that our discussion
this year kept returning to the theme of
agility, as it had in 2015. As we moved
through the morning, we covered various
aspects of strategic and business agility
but in particular financial agility and how
companies should become more agile on
managing costs.
The tone of the morning, despite the
market backdrop, was optimistic overall.
Our 2016 Lloyds Bank Business Leaders
Survey - carried out by Ipsos MORI during
December and January - had already
suggested you continued to be a bullish
group. It showed that more than 70%
of you expected the global economy to
improve or stay the same and 90% of you
expected the UK economy to grow in line
with or better than the G7 as a whole. In
his keynote address the Foreign Secretary,
while not minimising the geopolitical
risks we faced, was optimistic about the
British economy and our future prosperity.
Nonetheless, when the Survey had asked
you to identify the most significant risks to
your business performance for the coming
year, 43% of you had picked geopolitical
uncertainty and you had put volatile
economic growth a close second. You had
also told us that macro challenges in the
US and Asia were as significant for you as
the risks around Brexit. This was probably
linked with the fact that 84% of you had
felt that the UK would vote to remain in the
EU; the sentiment at the Summit seemed
to be that this percentage would fall as the
referendum came closer.
AGILITY AND TRANSFORMATION
Uncertainty and the accelerating
pace of change, we agreed, defined
the environment for leading a business
today. However - and this was covered in
almost every Summit session - disruption,
whether as a result of the global economy,
geopolitics, globalisation, changing
consumer behaviour, demographics,
digitalisation or diversity, should be an
opportunity as well as a challenge for agile
businesses.
So what did agility mean in practice?
Amongst many areas, we talked about
the need for a state of constant alertness
plus a willingness to disrupt and how this
requires entirely new skills and attributes in
today’s business leaders.
Agility was crucial to delight today’s
ever more demanding customers. In our
“experience first” interconnected world,
driven by the internet, what was vital was
the ability to understand what mattered
to customers, to meet their expectations
and to provide them with a positive
interactive experience.
We also discussed the need for
financial agility, not only to be ready to
seize business opportunity, but to manage
risk by insulating against shocks in a volatile
world of unknown unknowns. We knew
from our Survey that many companies had
increased their liquidity buffer and made
their balance sheets more resilient over
the last 12 months. However, this had been
supported by cheap capital and available
BUSINESS LEADERS SUMMIT 2016
6
Every speech and panel touched on the enormous
new opportunities but also the existential threats we
face as digitalisation completely disrupts our familiar
patterns of production, consumption, finance and
competition.
liquidity and we talked about how business
would increasingly have to look at new
ways to mitigate against uncertainty.
Answering a new question about
boardroom focus in this year’s Survey, you
had told us that your boards were as focused
on managing strategic or operational risk
as they were on targeting growth and this
reinforces what the Lloyds Bank team has
been hearing anecdotally from clients.
Today’s boards definitely appreciate that
risks must be properly understood and
managed to unlock opportunities.
The Lloyds Bank team explained how
the banking industry was rising to this
challenge by helping clients understand
financial risks whilst pursuing growth. We
questioned how many more black swans we
would see “swimming around” and whether
liquidity in credit markets would be deep
enough if we all “ran for the door” at the
same time.
MOVING INTO THE FOURTH
INDUSTRIAL REVOLUTION
In no area was agility more important,
the Summit agreed, than in facing the
implications of the Fourth Industrial
Revolution or Second Digital Revolution.
This megatrend, which had been front and
centre at Davos just two weeks before our
Summit, was also front and centre for us.
Every speech and panel touched on the
enormous new opportunities but also the
existential threats we face as digitalisation
completely disrupts our familiar patterns
of production, consumption, finance and
competition. In addition, as Professor Ian
Goldin noted, there was a broader set
of megatrends creating challenges for
business. For example, all economies were
experiencing rising inequality as the rewards
for seizing the benefits of change were
disproportionally high. He also reminded us
how greater connectivity and technological
advances could be used to bring about bad
outcomes, such as a cyber attack, as well
as good. Cautionary words given that our
Survey had shown that only 10% of you had
put cybersecurity in your top three most
significant risks, even though this was up
from 6% in 2015.
Findings from our Survey led us to
discuss whether companies were moving
fast enough to respond. Only 28% of you
had said that technological change was
amongst your top three opportunities
to improve performance. The speed of
technological change had concerned only
10% of you. Some organisations had begun
transformational change but others were
still working it through.
Digital transformation, our speakers told
us, was risky and challenging yet it was the
biggest race of our lives. Finding the right
talent was important to staying relevant and
a number of speakers, including Shadow
First Secretary of State Angela Eagle MP,
emphasised that improving diversity and
increasing skills was key.
PARTNERSHIP AND COLLABORATION
Our 2015 Summit took place in
Lloyds Bank's 250th anniversary year and
was where we cemented our two year
engagement with UKTI. We hope that
our 2016 Summit has made a further and
valuable contribution to this partnership
as Helping Britain Prosper Globally has
continued to be our mutual objective.
Lloyds Bank recognises that, as we play
our part in helping companies active in
Britain in achieving their growth ambitions
and global success, Britain will prosper as
part of the global economy. Supporting
companies also means playing our part alongside national and local government
and other partners - to support the UK
economic recovery and to bring about the
conditions for sustainable growth in the UK.
When we started out with our first
Summit, we never imagined that our
collaboration would grow in such scale
and substance or that this event would
become an annual fixture. It was a pleasure
to have brought together a distinguished
group of business leaders from companies
that represent nearly a trillion dollars in
both combined revenue and market cap
and collectively employ more than three
million people. It was also a privilege to
provide this opportunity to listen, to obtain
new insights, to examine and debate
the issues of the day and to share our
experiences. We look forward to building
on many of these themes with you over
the next twelve months.
Thank you for your contributions. We
hope you find this White Paper insightful and
we very much hope to see you next February
at our 2017 Business Leaders Summit.
7
BUSINESS LEADERS SUMMIT 2016
UK expected to
outperform the G7
The International Monetary Fund expects the UK economy to grow 2.2% in 2016,
the same as the G7 overall . What is your view on UK economic growth in relation
to the G7 as a whole in 2016?
No opinion
1%
At the same pace as
the G7 as a whole
Faster than the G7
as a whole
45%
45%
9%
Slower than the G7 as a whole
Over 70% expected the global economy to improve or stay the same and 90% expected the
UK economy to grow at the same pace as or faster than the G7 as a whole.
Source: Business Leaders Survey 2016
01
02
01 Professor Ian Goldin looks into the future
and describes an era of disruption.
02 Our moderator Naga Munchetty leads
the discussion at her fourth Business
Leaders Summit.
BUSINESS LEADERS SUMMIT 2016
9
PROFESSOR IAN GOLDIN
KEYNOTE: THE FUTURE - GLOBALISATION,
DEMOGRAPHIC, ECONOMIC AND
TECHNOLOGICAL CHANGE
PROFESSOR
IAN GOLDIN
Director of the Oxford Martin
School, University of Oxford
It is the most difficult
time in history to
manage. Our MBAs, our
textbooks of the past
don’t prepare us for this.
We are living in an extraordinary
moment in human history, Professor Ian
Goldin told the audience in his keynote
speech. Rapid technological change has
given rise to an interconnected world
unlike anything that has gone before. He
said five billion of us are “connected” via
smart devices, creating a “cauldron of
change” that could see the next Einstein or
Mozart emerge from a slum in Soweto or
Mumbai. Around the world, income growth
is exploding beyond population growth
and more people have escaped poverty
during our lifetimes than at any point in
history. That’s why this is the best time to
be alive, Professor Goldin said.
But an era of great disruption is also
one of great instability, he added. The Arab
Spring is a recent example of how great
change can occur rapidly, and sour just as
quickly. Navigating this new environment
– where events in one part of the world can
swiftly impact those in another – requires
an entirely new set of skills and attributes
from management. Professor Goldin
stated that now is the most difficult time in
history to manage, noting that our MBAs,
our textbooks of the past don’t prepare us
for the challenges of “the new world”.
Among the new demands of
management in an interconnected world
are the ability to have “antennae” attuned
to distant events and to see how events
might have a knock-on impact. A state of
“constant alertness” is the order of the day,
Professor Goldin said.
He is an optimist who believes
“passionately” in globalisation and open
markets because he has “seen what it does
to ordinary people around the world.” But
the globalised era comes with two major
risks he said he finds worrying.
The first is rising inequality, which
he said every economy is experiencing
because “the benefits of being at the
frontier are so great”. Professor Goldin
added: “If you have the right skills, the
right attributes, if you’re able to seize the
benefits of change, you do well. But if you
don’t, you fall further and further behind.”
The second is that the same dynamics
that allow good actors to connect and
produce good outcomes also enable the
opposite. Technological change has put
powers into the hands of individuals, not all
of whom have altruistic intentions. Balancing
connectivity with security is a major challenge
that looms ever larger, he added.
Unfortunately, in Professor Goldin’s
view, many global institutions appear
ill-equipped to deal with the uniquely 21st
century challenges confronting them,
whether rising extremism or climate
change. “Short-termism” on a national
political level further hampers efforts to
adequately address the issues, he said.
However, Professor Goldin said the
business world is well placed to step in and
play a part as businesses are connected,
see things coming and are able to manage.
BUSINESS LEADERS SUMMIT 2016
10
PANEL DISCUSSION
RISKS AND CHALLENGES
TO BUSINESS
Our first panel tackled some of the
major issues facing British business today.
Naga Munchetty chaired the debate and
the panellists were:
Lord Blackwell, Chairman, Lloyds
Banking Group; Rt. Hon. Lord Maude
of Horsham, Minister of State for Trade
and Investment; Juergen Maier, Chief
Executive, Siemens plc; and Carolyn
Fairbairn, Director-General, Confederation
of British Industry (CBI).
LORD BLACKWELL
Chairman,
Lloyds Banking Group
RT. HON. LORD MAUDE
OF HORSHAM
Minister of State for Trade
and Investment
The quotes have been edited for
length, while the meaning has been kept
intact.
Naga Munchetty: What are the key
drivers of the economic outlook?
Juergen Maier: Uncertainty is the
new norm, so how do we live and manage
within that? There are massive digital
opportunities, and we are investing
heavily in the Fourth Industrial Revolution.
Societal impact, which corporations need
to put much higher on our agenda, is
one thing that can be seen either as an
opportunity or as a challenge. Unless you
really look at your impact on society, you
will probably struggle to be in business by
2030. Corporate responsibility is what new
employees and consumers want.
Lord Blackwell: Clearly, some of
the geopolitical risks could change the
outlook overnight. But so far as the UK is
concerned I’m probably an optimist. I think
our economy is reasonably well placed
and to some extent isolated, because of
the strength we’ve built back into financial
services and the safe haven of our currency
and political system. The biggest risks are
in countries in the developing world and
Europe’s periphery, which never adjusted
to the 2008 debt crisis.
Lord Maude: I think we’re in danger of
talking ourselves into a downturn. I grew
up in a world where it was a good thing
if commodity and oil prices fell, because
that drives up opportunity. People see the
UK as a good environment to do business,
but we do less well on exports; that’s a big
upside opportunity. There’s much prestige
attached to high-end British stuff, but
we undersell ourselves in a rather selfdeprecating British way. I think too many
British businesses get comfortable in the
home market and haven’t understood
that you are either growing or shrinking.
If you think you’re in a "steady state",
believe me, you’re shrinking, either
absolutely or relatively. On Juergen’s point,
there’s growing evidence of a correlation
between building social and environmental
responsibilities into company DNA and
creating long-term shareholder value.
Naga: Are British businesses too
comfortable in their home market?
Carolyn Fairbairn: Visiting companies
up and down the country, I see resilience
and optimism. Multinationals like the
UK’s creativity, ideas and innovation.
But we have outdated infrastructure in
aviation and roads, and we’re behind in
broadband. Another challenge is ensuring
our education system delivers the people
we need for the next generation of jobs, not
BUSINESS LEADERS SUMMIT 2016
11
The panel discusses transformation,
opportunity and strategies for UK
business growth and the need for an
'agile' mindset.
the last generation.
Naga: Juergen, is this a transformative
period for Siemens?
Juergen: It is hugely transformative.
Top of our agenda is how do we, as a very
large organisation, behave in a very agile
way? We are creating organisations within
our organisation, designed to disrupt us
and help create a start-up mentality.
JUERGEN MAIER
Chief Executive,
Siemens plc
CAROLYN FAIRBAIRN
Director-General,
CBI
Naga: Are you seeing a proactive
government to help British exports?
Juergen: I’ve been a great supporter
of the British move to re-industrialise,
which has been positive. We could do
more in terms of business and government
partnerships to work out a stable
framework. For instance, we all know about
some of the chopping and changing we’ve
had with energy policy. Those things are
unhelpful.
Carolyn: Businesses like consistency
of policy, even if the policy itself is not
welcome news. On exports, I think there
are reasons to be optimistic, such as
tapping into China’s retail internet market,
which grew 32% last year. There is real
opportunity for digital to lift our exports.
Lord Blackwell: Creating organisations
with enterprise and innovation within
them, rather than being rigid bureaucracies
is critically important.
Lord Maude: That’s difficult, because
when you create something new in a big
organisation, the antibodies tend to get
there very quickly! Big organisations need
to be willing to cannibalise their existing
business models.
Naga: One downside of digitalisation
is cyber risk and willingness to be open
about it…
Carolyn: Companies are hugely aware
of it, but it has emerged as such a high risk
that there is some catch-up going on. The
learning curve is fast.
Lord Maude: In some ways, the danger
is thinking it is okay because Britain is seen
to be the best in the world at this. But it is
not okay. Things are moving incredibly fast.
Naga: To finish, can Britain be at the
heart of the global economy if it isn’t in
the EU?
Lord Blackwell: There are economic
issues on which people have different
opinions, but this is a political question as
well, and that debate will take place. The
UK may be better off one way or the other,
but it will survive and prosper in either case.
Carolyn: There are some very
significant advantages to remaining in: the
scale of the market and the guaranteed
access, the ability to influence regulation,
and the trade deals. Not all our members
agree we would be better in but, at our last
consultation, the majority did.
Juergen: Britain is a great country, but
would it be able to lead outside the EU? I’m
pretty clear the answer is "no".
Lord Maude: My own view is we must
be part of the single market. We have to
hold firm to our commitment to free trade.
Angela Eagle MP calls for action to promote
long-term growth.
BUSINESS LEADERS SUMMIT 2016
13
ANGELA EAGLE MP
KEYNOTE: BRITAIN AT THE HEART
OF THE GLOBAL ECONOMY
ANGELA EAGLE MP
Shadow First Secretary of
State and Shadow Secretary
of State for Business,
Innovation and Skills
Britain’s success in the decades to
come is not guaranteed and we must
seize new opportunities as they arise,
said Angela Eagle in her keynote speech.
She called for action to take advantage of
rapid digitisation, robotics and big data factors she said may transform our lives
far quicker than we anticipate. “The world
is now on the cusp of the Fourth Industrial
Revolution and if we are not ready for the
wave coming towards us, we will miss it,”
Ms Eagle warned. Britain was “the first
industrial nation” but we must react to
the challenges of this new age if we are to
continue to generate prosperity. Ms Eagle
added that she wanted to understand
how policymakers could help businesses
succeed. Partnerships between politicians
and industry can help “ensure an economy
that promotes long-term growth and
profitability”, she added.
ADDRESSING STRUCTURAL ISSUES
AND BREXIT
Britain must react to
the challenges of this
new age.
While global threats from China’s
slowdown and stock market volatility were
clear, Ms Eagle said Britain must also tackle
domestic structural weaknesses. “We are
in the midst of a productivity crisis, we face
a skills emergency and we have a longstanding trade deficit,” she said. Turning to
the EU membership referendum, she said
she wants Britain to be forward-thinking
and outward-looking, adding that almost
half our exports go to EU nations. “We are
an open, trading nation and we should
not be isolationist,” she said, going on to
suggest that Brexit could destabilise our
prosperity. She said big business has an
important voice in the debate about what
she called “possibly the most important
political moment of all of our lifetimes”.
KEY CHALLENGES: EXPORTS, DIGITAL,
INFRASTRUCTURE AND DIVERSITY
Improving Britain’s export performance
is a continuing challenge and Ms Eagle
said, proportionally, we export less than
Italy, France or Germany. She called for
a long-term export strategy to develop
existing relationships and open up new
overseas markets. Boosting productivity,
improving skills, tackling infrastructure
problems and ensuring access to finance
for innovators will all be vital if Britain is to
export significantly more, she stated. Ms
Eagle added that support for digital and
creative start-ups is of great importance,
as technological change will fuel future
development. But she said it was
unacceptable that 12m UK adults lack basic
digital skills and that some communities
still lack high-speed broadband. She added
that we had been ranked 13th in the world
for quality of infrastructure and stand
behind nations like Namibia for the quality
of our roads. Lastly, she turned to inequality
between the sexes, saying Britain must
make more of women’s talent. Progress
towards having more female leaders has
been too slow and we need more women
entrepreneurs and more in science and
technology, Ms Eagle said.
BUSINESS LEADERS SUMMIT 2016
14
LLOYDS BANK COMMERCIAL BANKING
OUTLOOK FOR RISK,
LIQUIDITY AND CAPITAL
Benedict Brogan, Group Public Affairs
Director, Lloyds Banking Group, reminded
the audience how prescient the speakers
were last year when they predicted sharper
market moves and counselled careful risk
planning. He invited Richard Moore, Nick
Burge and James Garvey, the respective
heads of Financial Markets, Strategic
Liquidity and Capital Markets at Lloyds
Bank, to share their views and outlook for
the year ahead.
BENEDICT BROGAN
Group Public Affairs Director,
Lloyds Banking Group
RICHARD MOORE
MD, Head of Financial Markets,
Lloyds Bank
markets are not adjusting fast enough.
Richard warned that the dominant logic that
presumes continuous liquidity and cheap
capital is flawed. The days of the traditional
buyer/seller relationship contesting price
are over. In their place, he said, we need
a relationship based on partnership and
transparency of capital, liquidity and
operating costs to make sure markets
remain effective.
ARE MARKETS FUNCTIONING PROPERLY?
HOW BIG SHOULD YOUR LIQUIDITY
BUFFER BE?
There were even more "black swan"
events in 2015 than the speakers
had predicted and 2016 looks no less
challenging, with boards spending more
time discussing extreme events. One of
the biggest challenges in the coming
months will be how Britain votes in the EU
referendum. The Business Leaders Survey
results show more respondents worried
about China and the Asia-Pacific slowdown
than about Europe and "Brexit". Richard
Moore warned against sleepwalking into a
decision that, whatever the result, will have
profound implications for financial markets.
Richard’s main concern, though, is
whether markets are functioning properly.
We live in an environment where regulation
designed to make banks safer has had
the unintended consequence of making
markets less safe. Banks can no longer
maintain inventory, provide liquidity and
assume risks on the same scale as they used
to. Our business ecosystem is changing.
The world’s largest taxi firm - Uber - doesn’t
own any cars; the largest hotelier - Airbnb doesn’t own any buildings; and the largest
retailer - Amazon - doesn’t own any shops.
This is an agile environment to which
Whatever the condition of secondary
markets, or primary capital markets to obtain
fresh cash, ultimately businesses survive on
the liquidity they hold on their own balance
sheets – their liquidity buffer. This year’s
Business Leaders Survey shows 33% of
companies have increased their liquidity
buffer and made their balance sheets more
resilient. Building these liquidity buffers has
been supported by the abundant availability
of funding in capital markets. But low to
negative interest rates and regulatory
change mean holding liquidity is increasingly
costly and complex.
So how much liquidity should companies
hold? With greater levels of global
uncertainty, Nick Burge talked about the
need to stress test a business for the impact
of both business specific and external shocks
and the need to create stability through less
highly tuned balance sheets. (see fig. 1.)
Partnerships are one way to mitigate
some of the uncertainty of the market
backdrop. Nick cited the example of how
the bank works with clients to look at
business risks, liquidity risk/needs and to size
buffers. Peer comparisons provide a useful
benchmark but ultimately it’s a risk decision
BUSINESS LEADERS SUMMIT 2016
15
fig. 1
How big should your liquidity buffer be?
Consider being the
“buyer of first resort” of
your own debt if credit
markets fracture.
James Garvey
MD, Head of Capital Markets, Lloyds Bank
NICK BURGE
MD, Head of Strategic Liquidity,
Lloyds Bank
as to how much liquidity cover to carry
versus the cost of holding it.
In another example of successful
partnering, Nick detailed Lloyds Bank's
role in explaining to policymakers the
unintended consequences for corporates
of regulatory reform on financing and
liquidity management.
The Capital Markets Union (CMU)
is the cornerstone of the European
Commission’s focus on economic growth
and specifically improving financing for
growth; and the audience heard from the
UK’s EU Commissioner, Lord Hill, on how
it will support business in the future. In a
recorded video message, Lord Hill explained
how the EC’s number one priority is growth
and jobs, and how CMU is a cornerstone in
making the capital markets more effective
for companies of all sizes. He said he wants
every company to have access to a broader
range of funding sources going forward.
BE FINANCIALLY AGILE
JAMES GARVEY
MD, Head of Capital Markets,
Lloyds Bank
The Business Leaders Survey highlighted
two key corporate imperatives: cost control
and balance sheet restructuring. James
Garvey expressed his surprise that, despite
all the negative news during the second half
of 2015, investment grade credit spreads
have hardly moved. In Europe, the key driver
for this stability is the European Central
Bank’s quantitative easing programme. But
while money is cascading into Eurozone
banks, James is not convinced it is efficiently
flowing into the Eurozone economy and
helping drive the European Commission’s
jobs and growth agenda. He believes
the law of diminishing returns could be
gradually reducing the effectiveness of QE
and wonders whether Mario Draghi’s "big
bazooka" of stimulus measures might be
losing their impact.
With bond markets anaemic so far in
2016, James’ worry is that the increasing
ineffectiveness of ECB QE could trigger the
fracturing of credit markets. Other catalysts
could include policy change at the ECB,
an accelerated upward movement in US
interest rates, a change in the dynamics of
European politics as a result of the migration
crisis, or even Brexit. Richard Moore spoke of
banks’ trading capital being reduced and as
a result, James warns that if everyone looks
to pull out of the credit markets at the same
time then he’s not sure the exit doors will be
big enough. This could lead to jagged moves
in credit pricing.
How to insulate against continued volatility?
Here are James' recommendations:
•
•
•
First, be financially agile. Consider
being the “buyer of first resort” of
your own debt if credit markets
fracture
Second, fix margins while they
remain low and consider replacing
high coupon debt with fixed rate
debt at current market prices
Finally, look to amend and extend
existing lending facilities, possibly
issuing new, long-dated bonds to
lengthen average debt maturity
The team at Lloyds Bank is ready to help
facilitate financial agility and ensure our
customers are insulated from the risk that
credit markets fracture in 2016.
BUSINESS LEADERS SURVEYED
An interactive 'flash vote' on biggest
business risks.
BUSINESS LEADERS SUMMIT 2016
18
PANEL DISCUSSION
RESPONDING TO THE
GROWTH CHALLENGE
Our second panel focused on key
opportunities for British businesses in 2016.
Naga Munchetty chaired the debate and the
panellists were: Natarajan Chandrasekaran,
Chief Executive Officer and Managing
Director, Tata Consultancy Services; Mark
Elborne, President and CEO, GE UK and
Ireland; David Fischel, Chief Executive, Intu
Properties plc; Mark Weil, Chief Executive
Officer, Marsh UK & Ireland; and Brooke
Masters, Companies Editor, Financial Times.
NATARAJAN
CHANDRASEKARAN
Chief Executive Officer and
Managing Director,
Tata Consultancy Services
MARK ELBORNE
President and CEO,
GE UK and Ireland
The quotes have been edited for length,
while the meaning has been kept intact.
Naga Munchetty: What are the
key opportunities your company is
embracing?
David Fischel: We get 400 million visitors
a year through our shopping centres. The
challenge is to make sure the customer
experience is fantastic, that they come more
often, stay longer and enjoy themselves.
Mark Weil: Fintech is growing and
creating opportunity and there’s a real
chance for London to become a centre of
cyber risk expertise.
Natarajan Chandrasekaran: I think digital
is the single biggest opportunity. Companies
need to think through what it means to be
digital: how do you recognise the physical
assets you have, the strong customer base,
and build a digital interface?
Mark Elborne: If you focus on health,
energy and transportation, there’s
transformation in all these industries. The
digital change we’re going through as
an industrial company is as significant to
our future growth as it is to the way retail
companies operate with consumers.
Naga: Brooke, what are you expecting to
report on more this year?
Brooke Masters: I think top line growth is
very elusive. If you can find a new product or
service and get people to open their wallets,
that’s crucial, because they are not buying
that much of what they used to.
Naga: The BLS Survey showed only 28%
were focused on technological change as a
key opportunity to improve performance.
Does that surprise you?
Natarajan: It surprises me. The
icebreaker conversation is now around
digital. I think we’re moving to the
"experience first" economy, when most of
us grew up in the "features first" economy. It
is about having the right data to give a realtime response that improves experience.
Mark Elborne: We ran through economic
surveys of what you can do with data in
an industrial setting and found that the
1% efficiency saving that digital can bring
industrially is worth $1 trillion to the world
economy.
Naga: There are opportunities, but also
risks.
Mark Weil: If you could wind forward
five years and look at the transformation
I’m convinced is going to happen, I think the
urgency would be an order of magnitude
different. Cyber risk is obviously the flip side
to digitisation and the internet of things. If
your technology people say they’ve got it
covered, don’t believe them. You have to
work on the assumption that one will get
through.
Brooke: It is not just the bad guy either.
Thousands of Americans woke up in January
BUSINESS LEADERS SUMMIT 2016
19
Retail has been massively disrupted by e-commerce.
But Apple has been one of the biggest disruptors and
also our best tenant over the past ten years.
DAVID FISCHEL
David Fischel
Chief Executive, Intu Properties plc
Chief Executive,
Intu Properties plc
to find their heating had turned off because
a digital thermostat update didn’t work.
MARK WEIL
Chief Executive Officer,
Marsh UK & Ireland
BROOKE MASTERS
Companies Editor,
Financial Times
Naga: How is Intu adjusting to this Fourth
Industrial Revolution?
David: Retail has been massively
disrupted by e-commerce. But Apple has
been one of the biggest disruptors and also
our best tenant over the past ten years. The
wheel does turn. Shoppers don’t spend so
long shopping, but they’re ready to go into
one of our restaurants, so shopping centres
are proving adaptable.
Naga: How important are variable cost
structures for agility?
Natarajan: Digital is the name of the
game, both for costs and growth. With every
big technological breakthrough, whether the
steam engine or electricity, the productivity
benefits have been huge.
Naga: How can the UK’s investment
attractiveness be improved?
Brooke: I think Brexit is a real problem
if you talk to international banks that don’t
have another headquarters in the EU.
Japanese or American multinationals are
holding back. Finding ways to raise taxes on
multinationals that don’t seem arbitrary is
also a real challenge.
Mark Weil: Nobody mentioned runways;
getting in and out of the country obviously
helps my US colleagues.
David: I really don’t think we should be
complacent. We’ve been putting money into
Spain, where the roads work, the railways
work, the airports work - the infrastructure is
superior. On business rates, we are woefully
uncompetitive and I think the UK has to
urgently address that.
Naga: What are companies doing to
address diversity?
Brooke: Colleges and universities are
now disproportionately female. You need
working structures, hours and benefits that
are attractive to both men and women.
Mark Elborne: We’re in the biggest race
of our lives. We all want the best talent, the
theme is digital and that gene pool is not
big enough yet. The opportunity is to be the
most relevant, and to do that we have to
focus more on diversity.
Mark Weil: When robots replace us all,
you bet they’ll be male robots! It is going to
take some fresh thinking about recruitment
processes and interview panels.
Naga: How can businesses, banks and
government work together to help Britain
prosper globally?
Natarajan: Partnerships are the way of
life for the future. I don’t think any problem
as complex as those we now face can be
solved by any one company. We look at
partnerships with universities, start-ups and
other companies.
Mark Elborne: Companies have to think
more about breaking down barriers and
growing through that vast population we
lovingly call "the global brain". For example,
we ran a competition to design a 3D-printed
bracket that holds an engine on a wing, and
a 21-year-old Indonesian won.
01
02
03
01 The Rt. Hon. Philip Hammond MP
addresses uncertainty and change and
the key geopolitical risks affecting UK
businesses.
02 Our panel on Responding to the Growth
Challenge explores opportunities in UK and
international markets.
03 Our Group Chief Executive António
Horta-Osório emphasises the importance
of maintaining an optimistic outlook in the
face of global uncertainty.
BUSINESS LEADERS SUMMIT 2016
22
THE RT. HON. PHILIP HAMMOND MP
KEYNOTE: SUPPORTING
BRITAIN'S PROSPERITY
THE RT. HON. PHILIP
HAMMOND MP
Secretary of State for Foreign
and Commonwealth Affairs
It all adds up to a picture
of serious instability
across the world, a
potentially toxic mix of
threats that represent a
grave challenge to UK and
global security.
In a speech marked by references to
challenge and change, Philip Hammond
noted that we entered 2016 with the world
once again facing economic uncertainty.
In addition to low oil prices, volatile stock
markets and China’s slowdown, the
International Monetary Fund’s estimated
rate of global economic growth for 2015
was the lowest in seven years, he said.
But unlike the recession that struck in
2008, Mr Hammond noted that this time
the world is also dealing with “a level of
global strategic insecurity and instability
we haven’t seen since the end of the Cold
War”. He said the behaviour of North
Korea, Iran and Russia continued to cause
concern, the migration crisis represents
a real political threat to some of Europe’s
governments and Daesh is a menace on
multiple continents. In his view, all this
represents “a potentially toxic mix of
threats that represent a grave challenge to
UK and global security”.
INSULATING BRITAIN FROM GLOBAL
TUMULT
Mr Hammond said this is far from ideal
for business, which he said prospers when
uncertainty about the long-term business
environment is minimised. Britain, he said,
cannot be immune from the global tumult,
but the government would seek to insulate
the British economy through the pursuit of
its long-term economic plan.
Domestically, he said this would entail
remedying old structural weaknesses that
have existed for decades: shortcomings in
education and training, the welfare system
and an infrastructure deficit; in other words,
"fixing the roof." But it would also involve
working to engage with the world’s fastestgrowing economies, and those with the
greatest potential, like never before, Mr
Hammond added.
HELPING BRITISH BUSINESSES ABROAD
To that end, he noted that the Foreign
Office has been given a mandate to lead
the charge for British business around
the globe. This would entail coordinating
British business approaches to key
opportunity sectors, lobbying foreign
governments for access and fair treatment,
and advocating for liberalisation to create a
benign business environment.
He also highlighted that important
concessions had been won in a draft deal
to renegotiate the terms of Britain’s EU
membership. Of most interest to business
leaders would be the moves towards greater
competitiveness, he stated, and clauses
ensuring that Britain would not lose out as a
result of the decision not to join the euro.
Mr Hammond also pledged that
despite the volatile global environment,
the government would work to secure
British prosperity by charting a clear
course on economic security, the
foundation on which national security is
built. Business and business leaders are,
and would be, a vital part of that success,
Mr Hammond concluded.
BUSINESS LEADERS SUMMIT 2016
23
ANTÓNIO HORTA-OSÓRIO
HELPING BRITAIN
PROSPER GLOBALLY
ANTÓNIO
HORTA-OSÓRIO
Group Chief Executive,
Lloyds Banking Group
We must not forget
that the UK economy
is the second
strongest of the G7.
António Horta-Osório brought the
fourth Business Leaders Summit to a close
with a speech in which he emphasised the
importance of maintaining an optimistic
outlook in the face of global uncertainty.
Mr Horta-Osório expressed his delight
at seeing so many leading UK business
figures had given up their time to attend
the Summit, which he said has become “an
important annual fixture” in the corporate
diary. “I trust it provided an opportunity to
obtain new insights, to debate the issues
of the day and to share your experiences,”
he told the audience. He also gave special
thanks to Clare Francis “for bringing us
together and setting the agenda”.
Mr Horta-Osório reflected that while
turbulence remains, there are also many
opportunities to be seized. He said it is
undoubtedly difficult to navigate a world in
which conflicts have grown more fractious,
China’s economy is slowing, oil prices are
falling and monetary policies are diverging.
But Mr Horta-Osório said challenges are
also opportunities and quoted Winston
Churchill: “The pessimist sees difficulty in
every opportunity. The optimist sees the
opportunity in every difficulty.”
MAINTAINING OUR OPTIMISM
While there is a great deal of global
uncertainty, Mr Horta-Osório said we must
not forget that the UK economy is the
second strongest of the G7, unemployment
has fallen to a 10-year low of 5.1%, and
business and consumer confidence remain
above long-run averages. To maintain our
optimism, he said we must confront long-
standing challenges: productivity growth
remains low and housing affordability is
deteriorating. “We need to improve our
infrastructure and ensure our workforce
has the skills required for the digital
economy”. We must also seek to stay a step
ahead in areas we cannot control, such as
market volatility or geopolitics, and build a
responsible corporate culture, Mr HortaOsório urged.
He said understanding when to
embrace change and when to focus on
cost discipline was also key, along with
managing risks – including those no one
has thought of yet.
SUPPORTING BUSINESS AND SOCIAL
RESPONSIBILITY
For over 250 years, Lloyds Bank has
been helping British businesses face
challenges that allow them to grow
and prosper, Mr Horta-Osório noted.
Lloyds Bank recognises that supporting
businesses of all sizes at home and abroad
is critical to the UK’s long-term success.
Mr. Horto-Osório explained that the
Helping Britain Prosper Plan is not all
about business: it is a commitment to
social responsibility, which is an absolute
requirement for doing business today.
He finished by saying that a focus on
supporting customers, colleagues, local
communities and other stakeholders, helps
Lloyds Bank to make a real difference.
"Together with you we can all help Britain
prosper in the global economy," Mr HortaOsório concluded.
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