Europe’s Top Executives Aren’t Afraid of Brexit

A ‘hard Brexit’ – in which Britain leaves not only the European Union but also the single market and the customs union – once seemed unthinkable. But with the March 29 deadline drawing inexorably closer, a hard Brexit is becoming inevitable, according to members of Institutional Investor’s All-Europe Executive Team. 

The sixteenth annual ranking of the continent’s top CEOs, CFOs, and investor relations professionals this year honored European executives across 31 sectors. Money managers and analysts determined the best CEOs in each industry, a list that included 3i Group’s Simon Borrows, Allianz chief Oliver Bäte, outgoing Lonza Group CEO Richard Ridinger, and Bernard Arnault of LVMH.

All of these top-ranked executives are showing a steady hand despite the uncertainty of Brexit. Whether down to their own prudence or a lack of faith in political leadership, executives across sectors have long had plans for a hard Brexit in place.

For financial firms such as 3i, having a second headquarters in a European country has become essential to maintaining seamless access to the continental markets. CEO Borrows considers getting 3i on a firmer footing to be his most important achievement since he ascended the ranks from chief investment officer to chief executive in 2012 after just seven months at the firm. Buy-side analysts, money managers, and sell-side researchers surveyed by Institutional Investor appear to have agreed, choosing Borrows as the number one chief executive in the specialty finance category. They may also agree with his conviction that the private equity market is becoming overheated, with more money raised than managers know what to do with.

Among companies trading in physical goods, stockpiling has become commonplace in preparation for Brexit. This includes pharmaceutical companies: France-based Sanofi – whose CFO Jérôme Contamine placed third in the pharmaceuticals category – is increasing stocks by four weeks. At Lonza, Ridinger said management is keeping a close eye on company inventory through the transition. 

It is Ridinger’s second year in a row as the top-ranking pharmaceuticals CEO, but it will also be his last time in the running, as he announced his resignation in January. In his seven years leading the firm, Ridinger has found that setting priorities for staff at the right time has been key to growth. The firm’s latest results suggest he knows what he is talking about: Lonza’s core operating profit grew 14.1 percent in 2018. Ridinger will be replaced next month by Marc Funk, chief operating officer of Lonza’s pharma and biotech unit. He leaves after lining up Lonza’s future in treatment innovation: In 2018, the company opened a manufacturing facility outside Houston, Texas, to produce ingredients for cell and gene therapies that are expected to become a $21 billion market by 2025.

Below, Borrows, Ridinger, and top-ranked insurance CEO Bäte discuss the how their companies are continuing to innovate in the face of industry-specific and geopolitical challenges – and how they believe the year of Brexit will be remembered.

That’s changing customer behavior, without a doubt. Customers want products that are both simple and transparent. They also expect a clear product value, which starts with the customers understanding what exactly they are paying for, what is covered, and what is not. We need to think ahead of the curve. What is legally acceptable practice might still not meet community expectations going forward. In future our industry needs to think about what and how it is contributing to the societies it is operating in or we will run the risk of losing our license to operate, which is based on the trust of the communities we live in and work for.

Innovation, in its literal sense, means renewal. The new iteration of our renewal agenda strategy is all about simplicity. We are defining the new Allianz customer model and its key components are drastically simplified products and processes across markets. For many years, many experts said that’s impossible to do in insurance. Another example is the new way we are teaming up with future industries and technologies to learn and adapt. We have a dedicated team that is investing in digital business models that have the potential to change markets.

To make time to listen to our employees, especially those who are customer-facing. My default is to go into problem-solving mode in a very rational and analytical way. Humans, including myself, are emotional beings, and understanding their ideas and concerns first enables an honest conversation and opens a path to encouragement and change. 

It would not have a huge effect on Allianz. Our business is local; we earn our revenues in the U.K. and settle our claims there in the same currency. We might see higher costs for imported spare parts (motor), which we will have to price into our premium.

It‘s hard to say. Currently, the world moves from clear rules to a global Wild West, from a united Europe to national egoisms, from production of goods to data analytics. Clearly, 2019 will be another year of transition, and my wish is that it will be remembered as a year where decision-makers came together in a civil discourse to address our society’s biggest challenges like climate change, education, infrastructure, or impact of technology. On behalf of Allianz, I will focus on what we can contribute to overcome those challenges.

The biggest challenge facing the private equity and infrastructure investment sectors is the growing mountain of ‘dry powder’ that is being raised for new investment. The mountain is now far larger than the real opportunities to invest it, which – if history is any guide – will in turn lead to over-priced investment activity and moderate-to-poor returns for many firms. 

We are being flexible and disciplined in our approach in each of our sectors. In private equity, against the dry powder backdrop, we have decided to only invest our own permanent capital, and we are holding our winners for longer and buying smaller new investments in growth sectors with a buy-and-build approach. In infrastructure, we have been selling our core infrastructure assets as prices increasingly reflect the dry powder situation and regulations become more challenging. We are focusing new investment on ‘core-plus’ assets which have infrastructure characteristics and offer opportunities to enhance value, but are in lightly regulated or unregulated sectors. 

3i was the first ‘turnaround’ challenge for me as a CEO, having previously worked in well-established or growing companies. I took the job because I instinctively felt the organization had a lot of good people, but had lost its way because of poor leadership and misguided strategy. I have since learned that 3i had more than its fair-share of capable, hard-working people, which has underpinned the strong recovery in the group’s fortunes. 

Firms in our sector will need to flex their regulatory structure in order to continue to operate in the E.U. After the referendum in 2016, we decided to prepare for a hard Brexit, and 3i is now regulated in Luxembourg as well as the U.K. We only have a small part of our investment portfolio in the U.K., and given the nature of these U.K. companies, we are not expecting too much disruption from whatever form Brexit takes. 

In 2019 we will continue to see political and macroeconomic challenges create volatile periods in the capital markets, as well as the continued rise of the digital sector and sustainable business practices.

Autologous gene therapy treatments have partially shown remarkable results in the clinical phase. However, the treatment costs are extremely high as manufacturing is in its infant state. Bringing innovative treatments at affordable cost to patients is definitely a challenge for the industry right now.

Innovations are needed everywhere along the pharma and biotech value chain: from point A, cell line development, to point Z, fill dosage form – and the speed to come from A to Z. That is where we are innovating permanently.

Finding the right balance between the interests of all stakeholders of the company. Setting priorities for them at the right time is what drives success.

All companies I know, including ourselves, have prepared even for the ‘hard Brexit’ case. It’s about task forces inside the company, contacts along the value chain with suppliers and customers, and the appropriate inventory level.

The year 2019 will be another year of amazing innovations in the biopharma industry, to come not only out of the West, but starting to come out of the East.