Organizational Change
Global CEOs' Growth Confidence Falling as Geopolitical Threats Rise

Two-thirds of CEOs (66 percent) see more threats facing their businesses today than three years ago. Just over a quarter (27 percent) believe global growth will improve over the next 12 months, a decline of 10 points on last year.

In addition, PwC’s Annual Global CEO survey shows only slightly more than a third (35 percent) are very confident of their own company growth in the coming year, down four points on last year (39 percent), and even one point below 2013.

Redefining business success in a changing world underline a gloomy outlook for the global economy in the next 12 months. More than 1,400 CEOs were interviewed for the research, which is published today at the opening of the World Economic Forum Annual Meeting in Davos, Switzerland.

China’s economic rebalancing, crude oil price falls, and geopolitical security concerns are all impacting an overall increase in uncertainty about the global economy’s growth prospects. Globally, only just over a quarter (27 percent) of CEOs think global growth will improve over the next 12 months, compared to 37 percent last year, while 23 percent think it will worsen (2015: 17 percent). Levels of optimism amongst North American CEOs is half that (16 percent) of the most optimistic regions (Western Europe 33 percent and Middle East 34 percent). Almost a third of China’s CEOs (33 percent) believe global economic growth will slow down in 2016.

Revenue growth confidence falls

Confidence in businesses’ own revenue growth for the next 12 months has also fallen (35 percent ‘very confident’ vs 39 percent last year). Against this tide of pessimism, CEOs in India (64 percent), Spain (54 percent) and Romania (50 percent) stand out as more optimistic. The biggest turnaround is seen in Taiwan, where only 19 percent are very confident of short-term company growth, compared to 65 percent last year — an astonishing slump of 46 points. However, Switzerland has the lowest confidence with only 16 percent of Swiss CEOs very confident of revenue growth compared with 24 percent in 2015.

Confidence in revenue growth is also down compared to last year for nearly every major economy in the world: China 24 percent (2015: 36 percent), United States 33 percent (2015: 46 percent), United Kingdom 33 percent (2015: 39 percent) and Germany 28 percent

(2015: 35 percent). Italy 20 percent (same as 2015) and Japan 28 percent (2015: 27 percent) remained static. Only Russia bucks the trend as confidence rose to 26 percent from a deep low of 16 percent last year.

Looking at investment prospects, the US, China, Germany and the UK remain the countries CEOs view as most important for growth in the next 12 months. Mexico and the UAE have also entered the top ten in place of Indonesia and Australia.

“There’s no question that business leaders’ confidence in both the global economy and their own company growth prospects has taken a knock," said Dennis Nally, Global Chairman of PwC. "No matter what the business size, the threats it faces are becoming more complex, crossing the borders of geopolitics, regulation, cyber security, societal development, people, and reputation. There is a new spectrum of risk for CEOs that represents threats to both national and commercial interests.

“The pessimistic outlook for the year ahead is reinforced by the position of the US, China, Germany and the UK as being the most important for growth again. The fact that CEOs continue to point to these ‘safe havens’ underlines the general uncertainty about where real growth will come from in the long term.”

CEOs see more threats

With heightened concerns about geopolitics, two thirds of CEOs (66 percent) now see more threats facing their business today than there were three years ago.

As in most years the specter of over-regulation is seen as the top threat to companies’ growth prospects, with 79 percent of CEOs citing this — the fourth year in a row that concerns about regulation have risen. However geopolitical uncertainty has jumped from fourth in CEO concerns last year to second this year, cited by 74 percent of business leaders. As a result, concerns about availability of key skills have dropped from second to fourth, but remain a concern for nearly three quarters (72 percent) of CEOs. Worries about exchange rate volatility are in third place (73 percent).

Cyber security is also a worry for 61 percent of CEOs, representing threats to both national and commercial interests. Concern is highest amongst CEOs in the US, Australia and the UK (74 percent+) and in the banking, technology and insurance sectors.

Skills and recruitment

Nearly half (48 percent) of CEOs plan to increase their headcount over the next 12 months, a slight drop on last year (50 percent). Business recruitment activity is highest in India (70 percent), the UK (66 percent) and China (57 percent).

Concerns about the availability of key skills remains high (72 percent). Several sectors have particularly high levels of concern, topped by entertainment and media, and technology, while sectors more traditionally aligned with ‘STEM’ skills including manufacturing, pharmaceuticals and life sciences, also feature. Geographically, concerns are highest in Asia Pacific (81 percent), the Middle East (83 percent) and Africa (86 percent), and lowest in Western Europe (59 percent).

Nearly half of CEOs say they are changing how they develop their pipeline of leaders (49 percent), suggesting business leaders’ recognition of the wider skills the next generation of CEOs will need to tackle a more complex environment encompassing technology, wider threats, and expectations of stakeholders for their organizations. Perhaps reflecting CEOs’ wider views on rising stakeholder expectations and business trust issues, 41 percent said they were focusing more on workplace culture and behaviors.

The top priority for government should be a clear and effective tax system, say 56 percent of CEOs, followed by a skilled, educated and adaptable workforce (53 percent), and infrastructure (50 percent) — both physical and digital.

However CEOs tended to not rate their governments highly — particularly around the effectiveness of the tax system, and income equality. Two thirds (67 percent) cite a stable tax system as being more important than low tax rates.

Roughly a third (33 percent) rate governments as ineffective at safeguarding personal data (26 percent effective), with China (46 percent), the US (60 percent), Brazil (72 percent) and Argentina (52 percent) having the highest levels of concern.

Technology

The survey underlines technology’s force in business for change and better customer and stakeholder understanding.

Nine out of ten (90 percent) CEOs say they are changing how they use technology to assess customer and wider stakeholder expectations, and deliver against them. The most significant levels of change are reported in sectors with traditionally high customer service expectations including banking and capital markets (90 percent), insurance (95 percent), hospitality and leisure (94 percent) and healthcare (93 percent). Overall, more than three quarters (77 percent) believe technological advances will have transformed expectations of businesses over the next five years.

Data and analytical tools, and CRM systems are seen as having the greatest return for stakeholder engagement. This is followed by R&D and innovation cited by 53 percent of CEOs globally, with CEOs in Taiwan (76 percent), Brazil (72 percent), France (71 percent) and Germany (67 percent) prioritizing it higher than the global average.

Internally however, technology & data analytics still has untapped potential. In talent management, only 4 percent report using predictive workforce analytics, and 16 percent use it to focus on productivity. Concerns about the speed of technological change as a threat to growth prospects is being felt most acutely in the banking and capital markets sector (81 percent), 20 percent higher than the global average (61 percent), followed entertainment and media (79 percent), and technology (66 percent) sectors – mirrored in CEOs concerns about skills in these sectors.

Trust and purpose in business

This year’s survey examines how CEOs are preparing to respond to changing customer and wider stakeholder expectations of business. 59 percent of CEOs say businesses need to do more to communicate their purpose and values.

Trust is certainly a concern, as CEOs consider changing stakeholder needs. More than a half (55 percent) of CEOs are concerned about the lack of trust in business, compared with 37 percent just three years ago.

But there are barriers to responding to changing expectations. Many CEOs (45 percent) say additional cost is stopping them from taking action to respond to greater expectations. Unclear or inconsistent standards and regulations, cited by 42 percent of CEOs, is also a significant barrier.

In five years’ time, more than three quarters (77 percent) believe technological advances will have transformed expectations of businesses on communication, reporting, investment and planning. In addition, 71 percent of CEOs believe that in five years’ time, successful companies will be guided by a purpose centered on creating value for wider stakeholders. 87 percent say companies will prioritize long-term over short-term profitability. Overall they believe that customer and other stakeholder needs will be more important than shareholders’ in successful organizations.

“The CEO environment is a challenging one,” Nally added. “They recognize the wider stakeholder expectations of their business. Reshaping companies built on profit alone into ones where profit and purpose combine is not going to happen quickly or easily, but it’s a transformation that is already starting and that businesses need to keep pace with.”