CIOs now scramble to determine impact on hiring, data management

By Steven Norton and Kim S. Nash Jun 24, 2016 5:28 pm ET

June 24, 2016 – London, GBR – The British nationals flag flies in front of the Big Ben clock tower in London. In a referendum the day before, Britons voted by a narrow margin to leave the European Union. (Credit Image: Michael Kappeler/TNS via ZUMA Wire) PHOTO: ZUMA PRESS

The United Kingdom’s decision to leave the European Union surprised many chief information officers, who now are working to understand how a “Brexit” will impact technology spending, talent management and regulatory requirements across the continent.

“This is truly uncharted territory,” said Bill Martin, chief information officer at Anschutz Entertainment Group, which owns and operates pro sports teams and entertainment venues such as the Staples Center in Los Angeles. “We’ll monitor closely and prepare wherever possible, as quickly as possible,” he said, adding that “the uniqueness of this will take some time to work through.”

The vote rattled global financial markets Friday as investors rushed to safehaven assets. Stocks tumbled, government bond yields broke records and the British Pound fell more than 11% to its lowest point against the dollar since 1985. The move could also delay a rise in short-term interest rates by the Federal Reserve, the Journal’s Jon Hilsenrath reported Friday.

“I was pretty surprised by the outcome, as it seemed the markets all were,” said Adam Stanley, global CIO of Cushman & Wakefield Inc. “This is a huge deal for the country and the region.”

Cushman & Wakefield has about 100 IT staff across several European countries, the majority of which are in the UK. The commercial real estate firm does not plan to pause IT projects immediately but will be looking at implications from any tax or labor regulations that may change after Brexit, Mr. Stanley said.

The pound’s decline paired with economic and political uncertainty is likely to slow enterprise consumer and discretionary spending in the U.K. and western Europe, Gartner Inc. analyst John Lovelock said. Dollar-denominated IT products and services in the U.K. will likely become more expensive for an extended period as vendors adjust pricing to cover costs.

U.K. IT spending is forecast to grow 1.7% in 2016, Mr. Lovelock said. The “Leave” vote will lower that figure by two to five percentage points, and 2017 will “definitely be negative,” he added.

CIOs are concerned about flux in laws governing how companies handle employee and customer data in Europe. If the U.K. is no longer subject to the EU’s privacy regulations, CIOs have to comply with another set of regulations and perhaps revamp processes and computer systems that manage sensitive data. Brexit further complicates the situation, said Thomas Bayer, chief technology officer of S&P Global Inc.

“This is a debate that transcends the Brexit issue as individual countries mandate that data stays in a specific country or the EU,” he said.

One unknown is whether the U.K. will still be regarded by the European Commission as a so-called safe third country, allowing data to be transferred to the U.K. from the E.U. If not, the U.K. may then cease to recognize the EU’s new General Data Protection Regulation, due to go into effect in May 2018.

“In such a case, all businesses operating in the EU would need to revisit personal data flows and export flows for data to be transferred to the UK,” said Betsy Atkins, a former IT executive who now sits on the boards of Volvo Car Corp., Schneider Electric SE and HD Supply Holdings, among others. The U.K. and EU may devise an interim policy for handling data, to try to maintain harmony and cost-effective business policies, creating yet another set of rules for companies to follow, she said.