BUSINESS LEADERS SUMMIT 2016 - Lloyds Bank · COMMERCIAL BANKING Outlook for Risk, Liquidity and Capital PANEL DISCUSSION 2 Responding to the Growth Challenge THE RT. HON. PHILIP

BUSINESS LEADERS SUMMIT 2016Helping Britain Prosper Globally

C O M M E R C I A L B A N K I N G

Growth, Resilience and Agility

GROWTH RESILIENCE CAPITAL AGILITY LIQUIDITY RISK SUSTAINABILITY

INTRODUCTION:LLOYDS BANKThemes from the Summit

PROFESSOR IAN GOLDIN: KEYNOTEThe Future: Globalisation, Demographic, Economic and Technological Change

PANEL DISCUSSION 1Risks and Challenges to Business

ANGELA EAGLE MP: KEYNOTEBritain at the Heart of the Global Economy

LLOYDS BANK COMMERCIAL BANKINGOutlook for Risk, Liquidity and Capital

PANEL DISCUSSION 2Responding to the Growth Challenge

THE RT. HON. PHILIP HAMMOND MP: KEYNOTE Supporting Britain's Prosperity

CLOSING ADDRESS:LLOYDS BANKHelping Britain Prosper Globally -

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CONTENTS

Clare Francis opens the Summit and sets the scene around opportunities and risks in 2016.

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

CLARE FRANCIS

Managing Director,Head of Global Corporates,

Lloyds Bank Commercial Banking

CLARE FRANCIS

INTRODUCTION

Our discussion this year kept returningto the theme of agility, as it had in 2015.

BUSINESS LEADERS SUMMIT 2016 5

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.

BUSINESS LEADERS SUMMIT 20166

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.

UK expected to outperform the G7

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

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?

7BUSINESS LEADERS SUMMIT 2016 7

9%

45% 45%

No opinion

1%

At the same pace as the G7 as a whole

Slower than the G7 as a whole

Faster than the G7 as a whole

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.

It is the most difficult time in history to manage. Our MBAs, our textbooks of the past don’t prepare us for this.

PROFESSOR IAN GOLDIN

KEYNOTE: THE FUTURE - GLOBALISATION, DEMOGRAPHIC, ECONOMIC AND

TECHNOLOGICAL CHANGE

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.

PROFESSOR IAN GOLDIN

Director of the Oxford Martin School, University of Oxford


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).

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 self-deprecating 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

LORD BLACKWELL

Chairman,Lloyds Banking Group


RT. HON. LORD MAUDE OF HORSHAM

Minister of State for Trade and Investment

10

CAROLYN FAIRBAIRN

Director-General, CBI

The panel discusses transformation, opportunity and strategies for UK business growth and the need for an 'agile' mindset.

JUERGEN MAIER

Chief Executive, Siemens plc

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. 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.

ANGELA EAGLE MP

KEYNOTE: BRITAIN AT THE HEART OF THE GLOBAL ECONOMY

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

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 long-standing 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.

ANGELA EAGLE MP

Shadow First Secretary of State and Shadow Secretary

of State for Business, Innovation and Skills

Britain must react to the challenges of this new age.


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.

ARE MARKETS FUNCTIONING PROPERLY?

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

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.

HOW BIG SHOULD YOUR LIQUIDITY BUFFER BE?

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

BENEDICT BROGAN

Group Public Affairs Director, Lloyds Banking Group

RICHARD MOORE

MD, Head of Financial Markets, Lloyds Bank


NICK BURGE

MD, Head of Strategic Liquidity, Lloyds Bank

JAMES GARVEY

MD, Head of Capital Markets, Lloyds Bank

James GarveyMD, Head of Capital Markets, 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

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.

Consider being the “buyer of first resort” of your own debt if credit markets fracture.

fig. 1


How big should your liquidity buffer be?

BUSINESS LEADERS SURVEYED An interactive 'flash vote' on biggest business risks.

NATARAJAN CHANDRASEKARAN

Chief Executive Officer and Managing Director,

Tata Consultancy Services

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.

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 real-time 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

MARK ELBORNE

President and CEO, GE UK and Ireland

PANEL DISCUSSION

RESPONDING TO THE GROWTH CHALLENGE


DAVID FISCHEL

Chief Executive, Intu Properties plc

BROOKE MASTERS

Companies Editor,Financial Times

to find their heating had turned off because a digital thermostat update didn’t work.

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.

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 FischelChief Executive, Intu Properties plc

MARK WEIL

Chief Executive Officer, Marsh UK & Ireland


01

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.

03

02

THE RT. HON. PHILIP HAMMOND MP

KEYNOTE: SUPPORTING BRITAIN'S PROSPERITY

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 fastest-growing 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.

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.


ANTÓNIO HORTA-OSÓRIO

HELPING BRITAIN PROSPER GLOBALLY

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 Horta-Osório 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 Horta-Osório concluded.

ANTÓNIO HORTA-OSÓRIO

Group Chief Executive,Lloyds Banking Group

We must not forget that the UK economy is the second strongest of the G7.


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BUSINESS LEADERS SUMMIT 2016 - Lloyds Bank · COMMERCIAL BANKING Outlook for Risk, Liquidity and Capital PANEL DISCUSSION 2 Responding to the Growth Challenge THE RT. HON. PHILIP

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