The Year Ahead: What’s on the Minds of CEOs?By
Economic uncertainty, supply chain, talent management, and risk mitigation were key issues cited by CEOs in PwC’s Global CEO survey, released at the World Economic Forum in Davos, Switzerland. What are key takeaways from a study of 4,410 CEOs?
Economic uncertainty looms large
Not surprisingly, the economy and the potential for an economic downturn looms large among CEOs. Nearly three quarters (73%) of CEOs believe global economic growth will decline over the next 12 months, according to PwC’s 26th Annual Global CEO Survey, which polled 4,410 CEOs in 105 countries and territories in October and November 2022.
The bleak CEO outlook is the most pessimistic CEOs have been regarding global economic growth since PwC began asking this question 12 years ago and is a significant departure from the optimistic outlooks of 2021 and 2022, when more than three-quarters (76% and 77%, respectively) thought economic growth would improve.
In addition to a challenging environment, nearly 40% of CEOs think their companies will not be economically viable in a decade if they continue on their current path. The pattern is consistent across a range of sectors, including telecommunications (46%), manufacturing (43%), healthcare (42%), and technology (41%). CEO confidence in their own company’s growth prospects also declined dramatically since last year (-26%), the biggest drop since the 2008-2009 financial crisis when a 58% decline was recorded, according to the PwC study.
Globally, business confidence around economic growth varies starkly, with G7 economies (Canada, France, Germany, Italy, Japan, the UK and the UK), particularly France, Germany, and the UK, all weighed down by an ongoing energy crisis, where CEOs are more pessimistic about domestic growth prospects than they are about global growth.
CEOs are also seeing multiple direct challenges to profitability within their own industries over the next 10 years. More than half (56%) believe changing customer demand/preferences will impact profitability, followed by changes in regulation (53%), labor/skills shortages (52%), and technology disruptions (49%).
Inflation, macroeconomic volatility and geopolitical conflict top CEOs’ concerns
While cyber and health risks were the top concerns a year ago, the impact of the economic downturn represents the leading issues cited CEOs this year, with inflation (40%) and macroeconomic volatility (31%) leading the risks weighing on CEOs in the short term (the next 12 months) and over the next five years. Close behind, 25% of CEOs also feel financially exposed to geopolitical conflict risks, whereas cyber risks (20%), and climate change (14%) have fallen in relative terms.
The war in Ukraine and growing concern about geopolitical uncertainty in other parts of the world have caused CEOs to rethink aspects of their business models, with almost half of respondents that are exposed to geopolitical conflict integrating a wider range of disruptions into scenario planning and corporate operating models either by increasing investments in cybersecurity or data privacy (48%), adjusting supply chains (46%), re-evaluating market presence or expanding into new markets (46%), or diversifying their product/service offering (41%), according to the PwC study.
Talent retention ranks high despite cost pressures
In response to the current economic climate, CEOs are looking to cut costs and spur revenue growth. Fifty-two percent of CEOs report reducing operating costs while 51% report raising prices and 48% diversifying product and service offerings. However, more than half – 60% – say they do not plan to reduce the size of their workforce in the next 12 months. A vast majority (80%) indicate they do not plan to reduce staff remuneration in order to retain talent and mitigate workforce attrition rates.
“A volatile economy, decades-high inflation, and geopolitical conflict have contributed to a level of CEO pessimism not seen in over a decade,” said Bob Moritz, Global Chairman, PwC, in commenting on the study in a January 18, 2023 PwC press release. “CEOs globally are consequently re-evaluating their operating models and cutting costs, yet despite these pressures, they are continuing to put their people front and centre as they look to retain talent in the wake of the ‘Great Resignation.’ The world continues to change at a relentless pace, and the risks facing organizations, people – and the planet – will only continue to rise. If organizations are not only to thrive – but survive the next few years – they must carefully balance the dual imperative of mitigating short-term risks and operational demands with long-term outcomes – as businesses that don’t transform, won’t be viable.”
Sustainability and climate risk also on CEOs’ agendas
While climate risk did not feature as prominently as a short-term risk over the next 12-months relative to other global risks in the PwC study, CEOs still see climate risk impacting their cost profiles (50%), supply chains (42%), and physical assets (24%) from a moderate to very large extent. CEOs in China feel particularly exposed, with 65% seeing the potential for impacting their cost profiles, 71% to supply chains, and 56% to physical assets. Recognizing the impact climate change will have on business and society over the long term, a majority of CEOs have already implemented or are in the process of implementing initiatives to reduce their companies’ emissions (65%), in addition to innovating new, climate-friendly products and processes (61%), or developing data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks (58%).
Despite an increasing number of countries now having some form of carbon pricing, a majority of respondents (54%) still do not plan to apply an internal price on carbon in decision-making, and over a third (36%) don’t plan to implement initiatives to protect their company’s physical assets and/or workforce from the impact of climate risk.