European Governance Recruitment - 2018 Market Report
The European governance recruitment market is complex and multifaceted. But despite each nation’s unique economic, cultural and political influences, our first European Market Report found many shared challenges and opportunities across the continent.
Here is a snapshot of our findings:
Employers remain in Brexit limbo Brexit has dominated media headlines, and the UK’s impending split from the EU is still factoring into hiring decisions. However, organisations have so far taken a measured response and we have seen little evidence of knee-jerk reactions on the recruitment front. Employers are likely to stay in wait-and-see mode until more details of the final deal are announced.
Regulatory pressures abound in 2018
Businesses have already shouldered a heavy regulatory burden in 2018 - and the year is far from over. The GDPR, MiFID II, PSD2 and IFRS 9 are just some of the new regulations affecting employers, with the GDPR having a particularly broad reach. This means even traditionally non-regulated industries have recently ramped up their governance hiring.
Skills shortages spread across Europe
Skills shortages continue to have a significant impact on European employers, which reflects a similar trend in the UK. Technical skills are especially sought-after across most governance roles, although interpersonal capabilities are more in-demand among those hiring cyber professionals. Staff retention is likely to become a greater problem for businesses as the fight for high-quality talent intensifies.
European hotspots begin to emerge
Many industry commentators predict Germany, France and Ireland will benefit the most from Brexit. Major names across a range of sectors have already confirmed new European headquarters and workforce relocations to Frankfurt, Paris and Dublin. Benelux and Switzerland are not far behind though, with both regions continuing to be popular destinations for international expansion plans.
London job losses are a storm in a teacup (for now)
Fears of a mass job exodus from London are yet to materialise in our experience. Many organisations are still formulating large parts of their contingency plans, meaning a ‘hard’ Brexit could change everything. Nevertheless, businesses seem to be expanding their European presence gradually, opting for a steady trickle of job relocations rather than a flood of activity.
Governance professionals enjoy a busy year
Increased regulation has sparked demand for compliance and regulatory legal professionals throughout Europe. This trend is likely to continue, particularly as more organisations explore the option of new offices and bigger headcounts in different countries due to Brexit. As we learn more about firms’ contingency plans, a clearer picture of international compliance and regulatory requirements will emerge.
Cyber skills in short supply and high demand
Talented cyber professionals are in short supply across many governance functions. The GDPR, evolving data and security threats, and the need to modernise legacy technology systems are three crucial drivers bolstering demand. As a result, cyber and information security budgets will remain protected for the foreseeable future, with salaries set to grow as cyber demand rises.
Contractors vital in uncertain times
Interim staff are proving essential at a time when political uncertainty is rife and regulatory change programmes are in full flow. Brexit may be dampening permanent headcount increases, but contractors are offering the ideal solution for organisations that need subject matter expertise and change management assistance for a fixed time period.
Diversity and inclusion remains a top board concern
European employers have a keen focus on diversity, which is reflected in their clear quota plans for recruitment. Quota systems are well meaning, although guaranteeing a diverse shortlist is difficult in some areas of governance where there simply aren’t enough candidates available. Nevertheless, organisations are working hard to be more inclusive and build company cultures that attract a broad base of employees.
European recruitment against a Brexit backdrop
Brexit’s effect on the European recruitment market is impossible to ignore. Initial fears that London would suffer a mass exodus of jobs have proven largely unfounded, but a lingering uncertainty continues to cast a Brexit-shaped shadow over hiring intentions.
At the time of writing (July 2018), UK prime minister Theresa May had successfully steered the European Union (Withdrawal) Bill through Parliament, overcoming the threat of a backbench rebellion.
This was not enough to prevent a Cabinet revolt, with both Boris Johnson and David Davis quitting as foreign secretary and Brexit secretary, respectively, soon after. The unexpected resignations have reignited concerns of a no-deal Brexit a result that most businesses want to avoid.
Key recruitment trends across Europe
We have identified various trends affecting European governance recruitment this year. This section highlights the main challenges and opportunities for market stakeholders.
Brexit contingency planning underway
Most organisations are still planning many elements of their response to Brexit, but a sizeable proportion have already committed to developing new or existing hubs outside the UK
Employers eyeing European expansion
A few well-publicised moves have dominated the press, but there has also been a steady overall rise in office space expansions, headcount reviews and licence applications across Europe.
Frankfurt, Luxembourg, Dublin, Zurich and Paris are the most favoured locations, with many international firms and top-tier investment banks furthest along in recruiting staff into these teams. Consultancy firms are also rapidly expanding their advisory businesses across Europe to meet the current and expected demand for regulatory change projects, as firms alter both entity status and product coverage.
The guaranteeing of citizens’ rights is extremely important for staff retention in the UK, and EU citizens remain vital to the composition of UK governance teams. The Recruitment & Employment Confederation noted that EU workers account for 7 per cent (2.2 million) of the UK’s overall workforce. The Barclay Simpson 2018 UK Market Reports revealed far higher figures for governance teams. We found that EU citizens account for:
We are likely to see continued uncertainty in the European recruitment market until more details of Britain’s Brexit deal emerge.
The post-Brexit regulatory environment
Under UCITS and AIFMD regulations, the UK is set to become a ‘third country’. As such, UK investment management firms have a choice between developing - and often duplicating - elements of their existing infrastructure, or assigning a third-party management company.
Further clarity is still needed for delegation, but proportionality is currently the common theme in tone from regulatory bodies, including the CSSF and ESMA. In other words, the more funds under management, the greater the number of senior and experienced individuals required. Portfolio managers and risk managers are seen as the likely main targets for enforced headcounts. French regulators appear to be taking a harder line. The AMF has directly requested the post-Brexit intentions of UK firms under an assumption that passporting will end.
This will provide the organisation with greater clarity on discontinuing future business, as well as confirmation of the new structures that will be compliant with French regulation. The AMF is one of the most vocal supporters of ESMA’s disapproval of ‘letterbox entities’ across Europe, and the organisation’s tone appears to have triggered a response.
Many firms are now initiating their ‘hard Brexit’ hiring plans and working towards the October 2018 deadline that various European regulatory bodies have set. But regulatory concerns go far beyond the ramifications of Brexit.
A growing regulatory burden
Uncertainty is a common theme across this market report. Fear of the unknown linked with ever-evolving directives and regulation are major obstacles for businesses. Ongoing political instability and change management needs are only adding fuel to the fire.
The GDPR has already had a significant impact on the recruitment market and this looks set to continue. The most in-demand candidates are governance and risk based security professionals due to their scarcity in the market.
There is a sense that some previously non-regulated organisations have not treated the GDPR with the same seriousness as financial services. Employers across commerce and industry, especially those outside of regulated industries, such as utilities or telecommunications, are not familiar with such a high degree of scrutiny. This is reflected in the increasing number of GDPR roles that we have started to see from commercial organisations, a trend that will only increase in 2018.
We have received mixed feedback on the potential advantages of MiFID II, with many questioning the directive’s tangible benefits. Compliance heads have also commented on the directive’s complexity. Fines for non-compliance are €5 million or 10 per cent of global turnover, which is encouraging many asset managers to invest in their risk and control functions.
Ultimately, MiFID II is a directive and thus tailored to the needs of individual organisations and their products and services. Businesses that have managed well with MiFID I are typically handling the updated directive well. But because there is no one-size-fits-all approach, interpreting the directive is proving the most difficult area of implementation.
MiFIR is a Europe-wide regulation, and standardising compliance controls and regulatory reporting processes across multiple jurisdictions and business lines are causing headaches. Governance and transparency clearly remain key pillars of MiFID I, MiFID II and MiFIR and there is a focus on unifying process across European entities.
Key leaders within the financial services industry feel confident that MiFID II and MiFIR will ensure demand for governance professionals remains steady, with regulatory-driven expertise required from internal auditors and risk managers in particular. Currently, implementation is the main driver of recruitment, but increased demand for policy and reporting expertise will likely arise in the future.
Buy-side firms seem more comfortable with their progress, whereas sell-side businesses are encountering some resourcing difficulties and challenges dealing with the greater complexity of their operations. One area of common ground is that both sides are not finding significant support through technology-driven solutions.
AML and CTF
The European Council has adopted a new directive to strengthen AML and CTF oversight - an amendment to directive 2015/849. The amendment is a result of a European action plan following devastating terrorist attacks in Europe. It provides increased security on the continent and aims to remove terrorist financing opportunities.
Worth noting is the push towards the sharing of information between financial intelligence units, a stronger focus on transactions involving high-risk third countries and deeper access to information on beneficial ownership.
Skills shortages continue to deepen
Skills shortages are a key problem for European employers. BusinessEurope’s EU Reform Barometer 2018 found that labour mismatches are rife within the Union, with STEM graduates and digital skills in particularly short supply.
Within governance specifically, finding candidates with the requisite technical skills is the greatest challenge to those recruiting in Europe. This trend mirrors similar shortages in Britain. Our latest UK Market Reports showed technical skills were considered the biggest recruitment hurdle in 2017 by:
The results are unsurprising. Lawyers from practice firms often have excellent technical knowledge in one specific area, such as M&A or complex structured transactions, but they usually lack the breadth of sector-specific experience to work in-house.
Meanwhile, the pace of technological regulatory change in internal audit and compliance mean there is regularly a lack of up-to-date subject matter expertise in the market. Risk management is a highly technical discipline, so it’s expected that finding candidates with the necessary technical skills will be difficult.
Cyber security is the exception to the rule. The complexity of the subject matter requires individuals who can communicate issues succinctly to senior management who, in most organisations, are non-technical. Stakeholder engagement and relationship-management skills are therefore highly valued, with 42 per cent of cyber security managers citing a lack of interpersonal skills as their greatest recruitment challenge.
Employers focus on diversity and inclusion
Diversity and inclusion are high on the agenda for European boards. We are frequently asked to provide shortlists that emphasise diversity by including a greater number of female candidates or other groups that aren’t traditionally well represented in the workplace. This is not just a request from one sector or one country; the governance market, like other markets, is quite rightly seeking to address a historic diversity imbalance, especially at senior levels.
Companies often have a clear quota plan for recruitment. However, implementing a quota system, such as a 50:50 split between male and female candidates, is easier said than done. Guaranteeing a diverse shortlist is far more difficult in some governance markets than others. For example, 60 per cent of our legal placements in H1 were female applicants, but this figure drops to 10 per cent for security roles because there simply aren’t enough candidates available. Market intelligence can help HR and hiring managers address talent shortages, as well as advise senior management on realistic diversity targets.
Improve company culture to drive diversity
When seeking new opportunities, candidates now want an honest picture of the employment experience and culture before making a decision on where to work. Flexible working is becoming more important for parents, although there is still a reluctance for candidates to mention this during the interview process because they fear being stereotyped. Equally, candidates’ experiences at interviews are very influential for anyone accepting an offer. Interviewing is now much more than just understanding the role or meeting the hiring manager, it is increasingly about understanding an organisation’s culture and values. If an interview panel is not diverse, how can employers claim they are committed to diversity?
Much work is still to be done, but firms are moving in the right direction across Europe. The European Commission is currently a driving force behind diversifying corporate boards, with the goal of reaching 40 per cent female non-executive directors at publicly listed companies. Those that miss the target will be required to prioritise female candidates when filling vacancies. The commission is clearly following in the footsteps of Norway and France, where quotas have been ground-breaking in achieving more female board appointments.
Staff retention problems on the horizon
Looking beyond 2018, retention will be one of the biggest challenges facing employers across Europe. The importance of and investment in clearly defined UK and European operations will undoubtedly place a strain on the experienced talent pool throughout the region.
We are already witnessing above-market salary increases and positions benchmarked against global rather than local teams in an effort to secure, retain and relocate well-qualified governance staff. Firms will also need to ensure that employee development, working culture and remuneration are competitive throughout all European entities.
Salary concerns could exacerbate retention challenges, particularly as higher remuneration has consistently been the main reason why governance professionals switch jobs, according to our research. However, we’ve seen a marked increase in candidates seeking better job security and work-life balance in recent years, so employers may have other options available when trying to retain valued staff.
Talent pipelining has also become increasingly popular. This allows businesses to keep abreast of the latest recruitment developments and the availability of high-quality candidates, even when firms aren’t currently hiring. The need for pipelining and similar techniques is especially important when language skills are required and the local market is short on talent.
European growth down
A strong recruitment market needs stability, economic growth, confidence and business investment. Weak business investment often generates uncertainty among organisations. Poor stability, coupled with trade and inflation concerns, also create unhealthy conditions for the recruitment market.
At the start of 2018, the main economies within the eurozone were in good standing. Economists looked at the 3.5 per cent average rate of growth in 2017 and were confident this would continue. By June, figures showed quarterly eurozone growth had slowed to just 0.4 per cent in the three months to March the weakest expansion rate since mid-2016 - and business sentiment had begun to stagnate.
The country’s first quarter exports fell the furthest in over five years, restricting growth to just 0.3%.
GDP growth of just 0.1% for the first quarter was the worst result for Britain since 2013.
The nation’s quarterly growth plummeted from 0.7 per cent at the end of 2017 to 0.2% for Q1 of this year.
Europe’s three strongest economies all reported stuttering growth in the first quarter of2018, when compared with the preceding three-month period.
Will the slowdown in growth continue?
In May, Chief Economist at European Central Bank Peter Praet stated that exceptional factors may have slowed growth, such as the timing of Easter, cold weather conditions, industrial strikes and school holidays. But he also claimed the eurozone is less productive than previously hoped, which could indicate a long-term problem.
“A deceleration from the exceptionally high growth rates observed in the second half of 2017 had been expected. However, the slowdown has come sooner than anticipated,” Mr Praet confirmed.
Only time will tell if the recent economic blip will continue to be a problem. Nevertheless, while the latest economic developments might not be as positive as many Europeans had hoped, the recruitment market is still showing positive signs.