It’s something of an understatement to say Brexit is causing worry and uncertainty. But things became especially tense for the financial services sector in January when Theresa May announced the UK would be leaving the single market.
This will likely lead to the loss of passporting, a mechanism that allows financial services firms to trade freely across Europe. Banks have warned this would result in jobs leaving the UK. JP Morgan said 4,000 jobs would go, Goldman Sachs threatened 2,000, and HSBC claimed it would transfer 1,000 positions from London to Paris.
It seems the City of London is on the cusp of a colossal HR challenge. But it’s important to be clear just what this challenge is, says Chris Roebuck, visiting professor of transformational leadership at Cass Business School and former HR leader at HSBC and UBS. When banks say they’re going to ‘move’ 1,000 jobs they don’t mean moving 1,000 British workers wholesale to Europe, but rather that “they might need 1,000 people to make the operation viable at the other end”, he points out.
“You can work on the basis you should be able to access admin staff reasonably easily anywhere. The people you can’t access are the experts,” he says, explaining these will be the people banks will seek to move.
But this is where firms hit a sticking point. As any global mobility expert will tell you, persuading employees to up sticks and go is a tough ask – especially when they’re high level.
“The reality is that senior management are unlikely to want to leave London because the other options, generally speaking, aren’t as attractive,” says Jonathan Maude, partner at law firm Vedder Price. “Senior people have spent their whole lives getting to a certain point lifestyle-wise.”
“London has a real livability draw,” agrees David Lutton, director of competitiveness and financial services policy at membership organisation London First. “It’s not just a financial centre it’s also a cultural centre, a fashion centre, a centre for world-class theatre…”
“Research suggests that if people don’t perceive they have free choice they tend to be less effective when they move,” adds David Collings, professor of HR management at Dublin City University. “One of the things to understand is people’s motivation and whether they want to move.”
Collings points out that just working out who should go and who might be amenable could be beyond many global mobility functions. “During the downturn a lot of mobility functions were reduced so are overstretched as it is,” he says.
So even if businesses only want to transfer a maximum 20% of the workforce, many will need to rapidly expand their global mobility resource. “This is a complex and expensive process,” agrees Suzanne Horne, partner at international law firm Paul Hastings. “You’ve got all the legal issues; are you talking about TUPE transfer, a mobility clause, an assignment, will you end up with dual contracts?”
“When you start moving a family things get really complicated,” adds Erin Meyer, a professor at INSEAD specialising in cross-cultural management – and a Paris expat. “What are you going to do about the fact the kids don’t speak the language?
“Companies usually underestimate the costs involved with getting people from different countries to work together,” she adds. “You need to train people on adapting their style to the different environment. People in Paris are much more confrontational for example, and often the British find that very aggressive.”
Banks could in theory source experts locally, but this presents just as big a challenge, warns Lutton. “Looking at competitors, Frankfurt for instance is not London; it doesn’t have the pool of talent,” he says.
London attracts a whole ecosystem of talent beyond senior finance experts, adds Maude: “It’s not just the brokers and dealers; there’s an awful lot of background nerds who develop all the algorithms, you’ve got lawyers, accountants, all the fringe services here in the UK.”
And there are many other factors firms will be weighing up – factors stacked in London’s favour. “The banks don’t want to leave London because the language of financial services and international business is English,” says Roebuck. “It’s halfway between the timezones of Asia and the US, which also means great positioning in terms of travel.”
Banks’ statements must be considered within the context of typical financial service firm culture, he points out. “Banks always prepare for the worst,” he says. “Most people don’t realise the major banks in the City also have trading floors elsewhere they can shift to if there’s a bomb or power outage.
“This is them looking at the worst scenario, hoping for the best, but making an assessment of the number of people they would need in the worst case.”
There are many regulatory arrangements on the Brexit negotiating table that would keep trading conditions favourable in the UK. “You have to be careful not to draw financial services all together as if they’re all the same,” adds Lutton. “If you’re a US investment bank it might be more attractive to relocate your HQ to Europe. But if you’re RBS or HSBC or Lloyds and servicing the UK market and have operations all over the world, other places won’t compare.”
And even those firms who could benefit from a post-Brexit move from a regulatory perspective may be swayed by softer factors. “There are a lot of factors behind these questions around whether firms will move and it’s not just regulatory regime,” confirms James Walsh, EU and international policy lead at the Pensions and Lifetime Savings Association. “It comes down to what people want to do, how they want to live their lives, and things like transport links. These factors are not to be underestimated.”
Though none of the banks will be drawn publicly at present on relocation plans, strong internal communication, no matter the direction of Brexit negotiations, will be key, stresses Horne.
“Letting people know you’re aware of their concerns and committed to communicating with them is one of the most significant aspects of this entire process because it’s about how you retain the talent you’ve got by helping them feel engaged,” she says.
But Horne also suggests soft factors could play a decisive role in a result nowhere near the extreme end of predictions. “There are a huge number of reasons people do business and have their workforces in London,” she says. “The ability to passport is only one.”
