At this time, with our attention consumed by COVID-19’s death toll and the impact on the world’s economies together with deeply upsetting upwellings of racial anger in the United States, it is easy in the UK to lose sight of another disaster potentially looming. A no-deal Brexit in just over six months. (You hadn’t forgotten about Brexit, had you?)

A no-deal Brexit?

Well, judging from an open letter from David Frost to Michael Barnier and posted on the UK Government website, together with the Bank of England’s warning earlier this week to UK banks that they should step up contingency plans for the UK failing to secure a post-Brexit trade deal with the European Union (EU) before the end of 2020, things do not look good.

To remind those who might have lost track of all this (you’d be forgiven if you have) the UK left the EU on 31 January. That triggered a transition period during which the status quo would be maintained while the UK and the EU negotiated their future relationship, including a trade deal. That period ends on 31 December. Without such a deal, British companies, banks, insurers and asset managers will from 1 January 2021 find their access to the EU’s markets far more difficult, costly and complex. Perhaps even impossible.

No doubt the necessary deals will eventually be thrashed out if this is not done by the time Auld Lang Syne echoes out across New Year’s Eve parties this year (assuming there are any). Normality of some sort will return to UK/EU relations, eventually. It would be naïve however to assume that this will be easy, or cheap, or quick. Or that unanticipated consequences will not abound. European countries are deeply suspicious of the UK’s motives. They think that a Singapore on the Thames could outcompete EU-based companies, and they might well be right about that. So, there is little reason for them to be sympathetic to Blighty’s plight and negotiate gently. The argument that the EU needs a deal far more than the UK does has been long since relegated to the same garbage can as the fibs on the colourful bus during the 2016 referendum that proclaimed: “we send the EU £350 million a week, let’s fund our NHS instead” (lest we forget!) Does COVID-19 place the UK in a worse negotiating position, or a better one? Will negotiating be any easier in 2021 than it is now? What implication does all this hold for our clients? Our law firms? Ourselves?

Ah, fear not,” you might recall the ‘experts’ saying (and some perhaps still do) “we can have frictionless, tariff-free trade under World Trade Organization rules for up to seven years in the event of a no-deal Brexit.” Except that we can’t. As Anneli Howard, a specialist in EU and competition law at Monckton Chambers and a member of the bar’s Brexit working group, explained in The Guardian eighteen months ago (long before some hapless shopper in a Wuhan wet market purchased a brace of bats for dinner):

“No deal means leaving with nothing. The anticipated recession will be worse than the 1930s, let alone 2008. It is impossible to say how long it would go on for. Some economists say 10 years, others say the effects could be felt for 20 or even 30 years: even ardent Brexiters agree it could be decades.”

Now that COVID-19 has triggered such a recession, a no-deal Brexit would dig that deep hole even deeper.

Scenarios

Some of the scenarios that one might construct are perilous.

Scenarios are not forecasts but ‘plausible futures’ that one builds using carefully considered assumptions. If the assumptions are sound then there is little sense in arguing whether or not they will actually unfold. That’s not the point. The underlying question is: “what if?” They are very useful, powerful tools for thinking about strategy in a VUCA world. I have been a great fan of them for nearly thirty years, ever since Clem Sunter (then chairman of Anglo American’s gold and uranium division) helped bring down apartheid with his set of “High Road, Low Road” scenarios. I have used scenario planning with clients myself in a range of circumstances and industries, to good effect.

Let’s consider the two variables:

  1. The COVID-19 pandemic recedes or an effective vaccine becomes available at scale, or not.
  2. A good trade deal is negotiated between the UK and the EU this year, or not.

This quickly yields a 2×2 matrix of four scenarios (see diagram below) only one of which is in any way palatable for the UK. That is, the ‘Build a New Future’ scenario in which the COVID-19 crisis ends and a good deal is reached with the EU.

  Click here for full-sized PDF version

Under any of the other three scenarios:

  • How many more British businesses, already weakened by COVID-19, will go bankrupt?
  • How many more British jobs will be lost?
  • Will voters in Northern Island invoke the Good Friday Agreement and hold a referendum, voting to join the Republic of Ireland? Will the Scots seek independence again, and this time get it?
  • Will London remain one of the two preeminent financial centres in the world?
  • What will be the impact on Sterling?

And so on. One can think up a dozen or two more important questions without even breaking a sweat. For law firms some of the most important questions under each scenario would be:

  • what impact would this have on our key clients and their legal needs?
  • what practice areas and service lines that we supply would be in demand, or not?
  • how would we optimise our business performance?
  • what specific actions do we need to take?

Going through scenario planning exercises with your teams will have you discovering things that you should do  irrespective of which scenario unfolds (even entirely different ones). These you might build into your strategy, in any event. You will also develop a very sound foundation for contingency plans to guide your thinking if life ends up different to what you expected. Scenarios can also be built as easily around opportunities as threats, so they should not be viewed only as risk management. Like exercise, with regular use they help teams become more strategically resilient and adaptive. Being deeply intellectually challenging, they can also be great fun.

Hopefully 31 December will roll past with COVID-19 contained and a beaming Boris waving a signed trade deal in the air. That would be good. But we can’t bet our firms on it being certain that this will be so.

Photo: Alamy