Red Tape Full Report

							The Law of Unintended Consequences

How red tape is bane of directors' lives

An in-depth look at the personal, financial and legal impact that the growing burden of Government red
tape is having on UK directors.

Introduction


This research was conducted from 17th – 29th of August 2007 to mark the launch of
takelegaladvice.com, the law firm search and comparison site. It is a free, confidential and independent
service allowing you to find the most appropriate law firms for your company‟s needs.

Not only does takelegaladvice.com search for suitable law firms, it also provides business with a rich
source of information on both law firms and the legal issues that affect them. This gives business the
ability to make informed decisions when choosing a law firm and in particular, the right lawyer for
particular problems.

The report questioned more than 918 owners, chairmen, and managing directors, senior executives,
male and female. The interviewees work in a cross section of industry and commerce. They come from
all parts of the United Kingdom and their businesses range from small, medium to large companies. The
largest turn over in excess of £50 million a year and employ thousands of people.

The survey gives a genuinely comprehensive picture of the plight of British business as it confronts the
avalanche of Government red tape. It shows the ever-changing laws are contributing to more and more
costly legal disputes, often caused by the inability of directors to keep up with frequent changes in
legislation.


The conclusion is that the rising tide of new legislation and associated red tape is having a
serious negative impact on British business to the point that the majority of company
directors - the key drivers of jobs and growth in the UK - are questioning whether it is still
worth being a company director at all.

Other key findings include:

       Companies are struggling to comply with the increasing volume of legislation being introduced
        by the Government. British business is unfairly burdened by red tape compared with its
        competitors in Europe, the USA and Asia and it is driving them to outsource work abroad
       Two-thirds of directors and senior managers admit they are not well informed about the
        Companies Act 2006, the most important piece of company legislation introduced for a century.
        Of those who do consider themselves to understand the personal implications for directors, one-
        third have taken steps to limit their personal liability
       On a personal level, directors are stressed out as their growing responsibilities take a toll on
        their health and family lives
       Politically, it's rare good news for the Tories who, say that a Conservative Government is a much
        safer bet for business. Company directors do not believe Gordon Brown‟s vows to cut red tape
        and say the problem will only get worse
       Maternity pay legislation encourages, rather than reduces, discrimination with one in five
        executives admitting they don‟t hire women of child bearing age

                                                    1
Being a director is „no longer a great job‟ as risks and
responsibilities take their toll.

Over half (55%) said they “agreed” that "being a company director is no longer regarded as
a great job‟‟:

     The older a director is the more likely he or she is to feel that being a director is no longer a
      „great job‟. Two in three (67%) of the over-55‟s feel this way compared with 58% of the 45 to
      54 age bracket and fewer than half (44%) of middle aged directors
     Existing company directors are more cynical than those who are yet to make director. Sixty per
      cent of existing directors fear directorship is losing its attraction, compared with fewer than half
      (43%) of managers who have not yet made director level who say the same thing
     Directors of the smallest companies (with fewer than 10 employees) are the most worried, with
      62% saying a directorship is losing its lustre. Even in established companies with over 1,000
      employees over a third (39%) have doubts
     Out of all the industrial sectors, web-based company directors express most concern with 76%
      suggesting a directorship is no longer worth it. They are followed by 69% of electronics and
      engineering directors and 68% of hospitality industry directors. Utility directors are the least
      worried with 22% expressing concern that a directorship was being devalued


58% of directors (61% women, 57% men) agreed or strongly agreed that “the rewards of
being a director are becoming outweighed by the risks and level of responsibility’’

     The figure is even higher for chairmen, CEOs and managing directors, 63% of whom believe the
      rewards of being a director are outweighed by the risks and level of responsibility. Whilst half
      (50%) of senior managers below board level agreed
     63% of directors of companies with a private equity investment are most likely to maintain that
      the risks outweigh the rewards (63%), followed closely by directors of privately owned
      companies (60%), but only 40% of FTSE directors say the same thing
     Firms of all sizes take the same view. Some 53% of small firms agreed the risks outweigh the
      rewards and almost half (48%) of the UK‟s larger firms agreed

Red tape is the 'worst aspect' of directors‟ lives
Asked “which of the following is the worst aspect of being a company director?”

       17% said “personal legal risk.‟‟ (16% men, 18% women)
       30% said “poor work-life balance‟‟ (29% men, 30% women)
       33% said “being burdened with red tape.‟‟ (34% men, 30 women)
       6% said “job insecurity.‟‟ (7% men, 6% women)
       14% said “none of these.‟‟ (13% men, 16% women)


Size matters. Concern about red tape is highest in companies with fewer than 10 employees. Some
34% of these directors say excessive legislation is their worst headache, compared to 24% of directors
in firms with more than 250 employees.

Ownership matters. Some 36% of directors in private equity owned companies say red tape is the
worst aspect of their working lives, closely followed by those running privately owned companies
(34%). Only 19% of Stock exchange listed companies said this was their worst bugbear.

Location matters. Across the regions, red tape is highest up the list of headaches in Yorkshire and
Humberside for 54% of directors and in Northern Ireland where 50% say it is the worst problem. It is
relatively lower in London – but that‟s not saying much. Twenty two per cent of the capital‟s directors
say it is the worst part of their working lives.

                                                     2
Directors say that red tape is crippling their businesses
63% agreed or strongly agreed that “I believe the increasing levels of legislation and
regulation pose a serious threat to the business or company I work for‟‟

      Among chairmen, CEOs and managing directors the figure was 69%
      Both big and small firms agree. Some 56% of firms with over 1000 employees saw a serious
       threat, rising to 66% among the smallest firms
      Comparing industrial sectors, the hospitality industry was the most concerned with 79% saying
       there is a serious threat. This is followed by manufacturing directors (73%), electronics and
       engineering (69%), construction and building (66%), followed by creative, media and PR firms,
       64%
      Surprisingly 68% of firms that describe themselves as being private-equity owned say they fear
       the increasing regulation is a serious threat. Concern among conventional Stock Exchange listed
       firms is ten points less at 58%. Meanwhile 64% of privately-owned firms say regulation is a
       serious threat to their businesses
      Regionally, directors in the East of England are the most worried with 78% of firms endorsing
       the statement. In the West Midlands 72% of directors see a serious threat, with Yorkshire and
       Humberside scoring 70%, the South East 69%, Northern Ireland 63% and 62% in the North
       East

Almost half of British businesses (48%) say they cannot afford to comply with all of the
legislation being introduced by the Government. This complaint is heard most (52%) from
directors in the South of England, the Midlands and Wales

      Small firms are the most concerned with 58% saying they lack the cash to comply with all the
       red tape. But 23% of the UK‟s biggest firms (employing over 1,000 people) also say they are
       also struggling to foot the bill
      Labour-intensive businesses say they are particularly up against it. Some 64% of hotels,
       restaurants, bars and catering firms and 69% of website and internet-based firms say they
       cannot afford to comply with all the new rules

An overwhelming 83% of our sample said they “agree‟‟ or “strongly agree‟‟ with the
statement that the increasing level of legislation “has had an adverse effect‟‟ on businesses
in the UK

      Slightly more male executives (84%) agreed that red tape was hurting firms than their female
       counterparts (77%)
      Executives with the most responsibility in companies - chairmen, CEOs and managing directors –
       were the most emphatic with 88% saying red tape was harming their business
      The hospitality industry including hotels, restaurants, bars and catering backed the statement
       most fiercely (93%) followed by manufacturing firms (92%) electronics and engineering firms
       (89%), and web-based firms (85%)
      Companies despair of things improving with 96% saying they foresee the level of red tape
       remaining the same (17%) or getting worse (79%) over the next two years
      Male and female executives are equally gloomy and the pessimism is almost uniform among all
       managerial ranks (96%)
      Small firms with fewer than 10 employees are the most downbeat, with 97% expecting no
       change or worse to come. But the biggest firms are hardly more optimistic with 94% of our
       sample seeing no hope of improvement in red tape




                                                  3
Proof of positive discrimination against women of child-bearing
age
Following new legislation which allows women to take up to 12 months maternity leave:

      Almost one in five (19%) of UK directors say they have personally avoided hiring women of child
       bearing age because of the legal risk of being caught out by constant changes in rules on
       maternity pay and time off.
      When asked if other directors in their firms have done this the figure rises to 21%.
      Male directors say they have avoided hiring potential mothers more often (22%) than women
       directors (13%).
      Directors over 55 have blocked the hiring of young women most often of any type of senior
       manager (29%). Young directors aged 24 to 34, have done this the least often (12%).
      Small firms are the least friendly to would-be mums. Almost a quarter of the smallest firms
       (24 %) admit avoiding women of child bearing age.
      Big firms claim they are more child-friendly. Only 8% of firms with between 250 and 1,000
       employees say they avoid young women.
      The hospitality industry is the most resistant to hiring potential mothers with 33% of our sample
       saying they have avoided taking them on. Electronics and engineering comes next (27%) with
       professional services and manufacturing almost as resistant (25%).
      Does the form of company ownership make a difference to the hiring policy? Some 23% of
       directors in private equity owned firms admit shunning potential mothers. This compares with
       10% of regular Stock Exchange listed companies who admit to avoiding young women.
      Firms in the North East of England are the most hostile to hiring possible mums (33%) well
       ahead of the next in the league, Wales (24%) with the East Midlands the least hostile (13%).



Red tape is forcing jobs overseas
Some 41% of companies said they would consider sending work abroad to cut the costs
caused by growing regulation and 12% say they have already done so

      The larger the employer, the more likely they are to send work abroad. Some 24% of companies
       with over 1,000 workers say they have already sent work overseas, and 41% would consider the
       idea
      Even tiny firms are doing it. Some 8% of firms with fewer than 10 employees have sent work
       “offshore‟‟ while 42% of them are prepared to consider it
      The types of firms that have already sent work abroad most often are electronics companies
       (31%) general manufacturing firms (26%) utility companies (22%) and IT firms (19%)
      The regions where firms have sent work offshore most often are Northern Ireland (25%), the
       East Midlands (19%), the East of England and Scotland (16%)

39% of company directors said Britain's red tape is worse than the US (24% said better,
23% same, 14% don't know)

      38% say we are worse than the rest of Europe. (20% said better, 28% same, 14% don't know)
      43% say the UK has more red tape than Asia. (30% said better, 6% same, 21% don't know)
      Electronics and Engineering firms are the industrial sector most unhappy about the UK‟s
       competitive position on red tape stated by over half (54%)




                                                   4
Directorships are becoming legally risky
72% of directors agreed or strongly agreed that being a director put them in a personally
legally risky position

      Slightly more male directors felt they were on risky ground (74%) than their female
       counterparts (64%)
      Both younger directors under 24 and the over 55‟s were very concerned (78%) about the
       growing risks they face. Concern about the issue is high at all levels of management. Some 71%
       of owners, 80% of chairmen, CEOs and managing directors, 78% of directors and 64% of senior
       managers are concerned that it puts them in a legally risky position.
      It does not matter a great deal what form of ownership the firm is under. Those running what
       they describe as firms with a private equity investment are, if anything, the most concerned with
       79% stating that they are in a legally risky position. Some 72% directors of privately owned
       companies feel apprehensive about increasing risks while 67% of those running conventional
       FTSE-listed companies agree
      Geographically, rising legal risk worries firms most in the South West (82%) and the East of
       England (81%) but the fear is only relatively less in Wales (62%), Scotland (64%) and London
       (65%)

Ignorance of risks may not be bliss for directors

Although directors generally believe their jobs are increasingly putting them in a legally risky
position, many remain unaware of the personal risks they run.

70% are either “not very‟‟ or “not at all‟‟ informed about latest red tape and the additional
responsibilities laid down by the Companies Act 2006:

      4% said very well informed (4% men, 3% women)
      22% well informed (23% men, 17% women)
      51% not very well informed (52% men, 46% women)
      19% not at all informed (16% men, 31% women)
      4% didn‟t know

New Companies Act forcing directors to take cover

      Of those who said they were well-informed about the ramifications of the Companies Act 2006,
       34% said they had take steps to limit their personal liability
      Of these, 72% have taken legal advice, 16% have transferred assets to their spouse, and 10%
       have moved assets offshore

Many admit they are not well informed on key areas of legal risk for their businesses

      17% said they felt either not very or not at all informed about their business's responsibilities
       and liabilities in respect of Health and Safety Law
      43% of insolvency law
      41% of competition law
      34% of their commercial litigation risk
      33% said the same about stock market regulation (although only 5% of FTSE directors said the
       same)
      26% said they felt either not very or not at all informed about their business's responsibilities
       and liabilities in respect of The Companies Act 2006

                                                    5
      24%   of the implications of the fraudulent behaviour of staff
      23%   said the same of product liability
      18%   of data protection
      18%   of employment law
      27%   of tax law

Of the following areas in which breaches of the law could lead to criminal prosecution of
individual directors, the following proportions of directors and senior managers were not
aware that they could be criminally prosecuted.

      Competition law                   64%
      Product liability                 61%
      Insolvency law                    59%
      Data protection                   56%
      Financial/stock market regulation 49%
      Tax                               41%
      Health & Safety                   23%



It's keeping directors awake at night

The growing risk and responsibility involved in being a company director is having a
significant effect on the personal lives of Britain‟s entrepreneurs.

We put a series of statements to directors. They were invited to say which, if any, applied to
them. Overall, women claim to be slightly more resilient than men.

      Almost half (45%) said “I sometimes lie awake at night worrying about it all.‟‟ (44% men 46%
       women)
      Over a third (36%) said “my family life has been adversely affected by my job.‟‟ (37% men,
       30% women). A fifth (20%) said “I have considered quitting as a company director.‟‟ (21% men
       16% women)
      A fifth (20%) said “I thrive on the risk and responsibility of being a company director.‟‟ (22%
       men, 14% women)
      Over one in eight (13%) said “I have had to consult a doctor about the effect of my job on my
       health.‟‟ (Men and women had the same score)
      13% said "another director I know has consulted a doctor about the effect of the job on their
       health”

Asked if they agreed with the statement “I thrive on the risk and responsibility of being a
company director‟‟:

      Some 33% of top directors – chairmen, CEOs and managing directors said yes
      This compares with only 17% of owners and 19% of lower level directors

Personal challenge, not pay, is the main motivator

Asked “which of the following is the best aspect of being a company director”

      16% said pay. (18% men, 8% women)
      6% said prestige. (5% men, 7% women)
      5% said power. (4% men, 5% women)
      53% said personal challenge (53% men, 54% women)
      21% said none of the above. (20% men, 25% women)




                                                     6
Directors overwhelmingly take the job because of the personal challenge involved. Some 45% of senior
people in first year companies say this is their motive. Some 61% of directors in firms up to 10 years
old cite the same reason above all others. But personal challenge is cited far less often by directors of
older, established companies, where only 35% choose it as their main motivator. Around 28% of these
directors say their motive is pay.



It's becoming a political issue as directors blame the Government
for actively “hindering‟‟ business

Asked “do you think the Government is helping or hindering the company you work for?‟‟

      64% of our sample said the Government was “hindering” them
      30% said it was neither helping nor hindering
      Only 5% said the Government was helping
      The people with the most responsibility – chairmen, CEOs and managing directors -
       were the most emphatic (69%) that they were being hindered by the government
      Smaller firms with 10 to 49 employees were the most discontented group with 70% saying
        the Government is hindering them
      Electronics and engineering firms claimed to be the most hampered by Government (77%)
       followed by manufacturing (71%), IT and electronics (70%)
      The least bothered were the utility firms (33%)
      Generally the more established companies feel more hindered than fledgling firms. Some 72% of
       firms established between 21 and 50 years complained of being hindered compared to 52% of
       firms in their first year, the least worried group

The regions most angered by the level or red tape are the East of England and East Midlands
(both 78%) followed by Scotland and the South East, 71% of whom say they are being hindered by the
Government.


Asked which party is best at reducing the level of legislation and regulations on businesses:

      62% said the Conservatives
      6% said Labour
      3% said Liberal Democrat
      5% said the United Kingdom Independence Party

Backing for the Tory policy on red tape was strongest (73%) among the bosses of the richest
companies turning over in excess of £50m.

It was lowest among companies in the first year of trading (43%) who also recorded the highest
backing for Labour (14%).

Support for the Tory position was greatest in London (70%) and the South East (67%) and lowest in
the West Midlands (52%).



Firms spending hard earned profits on legal bills

43% per cent of companies said they spent up to £50,000 on legal bills in 2006. But just under one in
30 (3%) had to stump up £5million or more.

Accountants, banks and financial services companies spent the most with 11% of directors in this sector
saying they paid out more than £5 million. That is followed by professional services and management
                                                    7
consultants, 2% of whom said they had paid legal bills of that size.

Naturally the largest firms are facing the biggest legal bills. Some 17% of Britain‟s largest companies
said they paid out bills of £5 million plus. All of them were Stock Exchange listed, and overwhelmingly
based in London. Companies with a turnover in excess of £50m, spent an average of £288,000 on legal
fees in 2006.

The biggest legal risk to companies is health and safety law, followed by employment law and then
commercial litigation.

The biggest single legal issue that takes up company time is tax, followed the legal issues concerned
with commercial transactions, regulation and compliance, health & safety and employment law.


Ends

For more information, please contact:
McGrory Communications

Geraldine McGrory           0207 609 2081/07870 657 531
geraldine@mcgrorycommunications.com


Notes to editors:
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1,214 adults out of which 918 are
senior managers/directors in private sector businesses/companies. Fieldwork was undertaken between 17th - 29th
August 2007. The survey was carried out online. The figures are unweighted




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