Confidence in business future gradually returning to global CEOs
It seems there are now more believers in the budding green shoots of sustainable economic recovery at both the national and global levels as poll results released by PricewaterhouseCoopers (PwC) at this year’s Davos Economic Forum has convincingly revealed rising confidence among major local and international business titans in the future of their companies’ operations, national and global economies.
The PwC pollsters, in a reflection of the positive trend of economic recovery, after almost 48 months of gloomy investor sentiments following the outbreak of this current financial crisis in late 2008 and raged throughout 2009, unequivocally heralded the return of CEO confidence in future business and economic growth in a comprehensive report, titled, the PwC’s 13th Annual Global CEO Survey. The survey covered interviews with 1,198 CEOs in 52 countries and was conducted in Q4’09. Broken down by regions, this translated into 535 interviews with top European companies’ CEOs, 289 interviews with business leaders in the Asia Pacific region, 167 interviews with business titans in Latin America, 139 interviews with top business leaders in North America and 68 interviews with key business executives in Africa and the Middle East.
In the study, the pollsters gauged top local and global CEOs’ opinions on global economic recovery and their perceptions of business prospects in their industries, national and global economies as the current recession races to an end and also their business plans for the fast-approaching post-crisis era. According to the survey, over 90% of CEOs worldwide are very optimistic about the prospects for growth in their companies over the next three years. “Overall, the survey found that 81% of CEOs worldwide and 76% of Russian CEOs are confident that their companies’ revenues will increase in the next 12 months,” the report said. “A total of 53% of Russian CEOs said they were “very confident” of growth in the next year, up 23 percentage points from last year’s results.”
"According to the survey, over 90% of CEOs worldwide are very optimistic about their companies’ growth prospects, with 81% of CEOs worldwide and 76% of Russian CEOs confident that their companies’ revenues will increase in the next 12 months.”
Commenting on the poll results and the budding positive trends highlighted by them, PwC Global Chairman Dennis M. Nally, who personally presented the report in Davos, noted that the effects of the economic downturn were far-reaching, thus forcing many business leaders to contend that they should have anticipated the impact and prepared sooner, a policy that would have given them more time to consider various strategic options. “As we see in the survey, CEOs continue to work to strengthen their companies while seeking opportunities emerging from structural shifts in their industries, economies and regulatory environments,” he added. “They recognize that the decisions they make today, dealing with issues like cash management and cost pressures, will have a lasting impact on their companies’ competitive position,” he noted. “The ability to understand and respond to the structural shifts underway, and to improve risk management capabilities, will be fundamental considerations as CEOs plan their course for growth.”
An uneven pace of global economic recovery
The survey revealed striking differences in confidence levels — and, by extension the impact of the global recession — among CEOs in emerging economies and developed nations. In North America and Western Europe, for example, about 80% of CEOs said they were confident of growth next year, compared with 91% in Latin America and in China/Hong Kong and 97% in India. A total of 60% of CEOs said they expected recovery in their national economies only in the second half of 2010 or later, while 13% said the recovery was already underway. Nearly two-thirds of CEOs in the United States and over 70% in Western Europe said the turnaround would not begin until the second half of 2010.
In Russia, the CEOs were more optimistic, with 50% of the respondents expecting growth in 2010, out of which 30% said they are expecting this to happen the first half of 2010, while 20% expected this to happen in the second half of the year. This rising confidence has translated into a planned boost in recruitments, with nearly 40% of CEOs worldwide and 37% of CEOs in Russia expecting to increase their employee headcounts this year. Twenty-five percent of CEOs worldwide are planning job cuts over the next year, compared with 17% in Russia and 27% in Central and Eastern Europe (CEE).
Nally noted that the fears of a global economic meltdown have receded, thus making the CEOs more upbeat about their future business prospects. “The overall CEO confidence level is tempered, however, by the slow pace of recovery and the impact of often drastic cost-cutting and other steps taken to survive the downturn,” he said. “The emerging economies are clearly recovering at a faster pace than those that are more developed. Companies with the best prospects for early recovery are those who managed through the recession while keeping an eye to the recovery ahead.”
“The ability to understand and respond to the structural shifts underway and to improve risk management capabilities will be fundamental considerations as CEOs plan their course for growth in the post-crisis era.”
Nally said the timing of the recovery will vary, depending on the geography and industry in which companies operate. “In some fast-growing economies, the turnaround is well under way; but CEOs in the countries hardest hit by the crisis see its effects remaining through 2010 and beyond. However, CEOs must now shift their mindset to making strategic decisions about investing in growth in order to gain competitive advantage.”
Overregulation and other negative issues still on CEOs’ agenda
Other key findings and conclusions drawn from the survey include CEOs’ fears for the future, tensions in relations with industry regulators, difficulties emanating from combating the effects of recession, restoration of public trust and consumer behavior, risk management, impacts of climate change and other issues begging for urgent solutions today in order to restore their companies’ operations to their pre-crisis levels and help consolidate the budding signs of recovery in both national and global economies.
Thus, according to the pollsters, fears for the future and the possibility of protracted global recession remain the biggest overall concern of CEOs around the world, in CEE and Russia, evident from the result of the poll at 65%, 65% and 60%, respectively. This is followed closely by fear of overregulation of businesses, as noted by 60% of respondents. In CEE and Russia, 62% and 53% of CEOs, respectively, are primarily concerned about the exchange rate volatilities and the impossibility of financial growth in the near future, which was noted by 43% and 50% of the respondents, respectively. Other high-ranking potential business threats observed by Russian C-level executives included skill shortages (67%) and inadequacy of basic infrastructure (47%), whereas CEOs worldwide cited low-cost competition (54%), energy costs (53%) and terrorism (30%) as potential threats to global business growth.
With regard to regulatory issues, almost all the CEOs were very clear and increasingly concerned about the rising possibility of overregulation of business practices in their countries in general, and industries in particular. This is further buttressed by the fact that two-thirds of CEOs polled in the survey had disagreed with the notion that governments have reduced the overall regulatory burden on their businesses. Although, CEOs generally oppose government ownership in the private sector, nearly half of them have agreed that government ownership and presence have helped to stabilize their industries in particular and national economies in general at the peak of this current crisis. Most specifically, the CEOs from two sectors — auto and banking — that received the lion’s share of the government support during the crisis were among the most appreciative of government ownership in the most troubled times in recent history.
At the same time, almost all the CEOs were optimistic about governments’ efforts to address systemic risks, evident in a positive assessment of the official actions by 65% of CEOs worldwide and 63% of CEOs in Russia and CEE, who have agreed that intensification of cooperation between companies and governments in 
business regulatory issues will surely help successfully mitigate most of the systemic risks in the global economy in the future. To combat recession, nearly 90% of all CEOs, including those in CEE and Russia, said their companies had initiated cost-cutting measures in the past 12 months. Nearly 80% overall and 72 % in CEE said they would seek cost cuts over the next three years, and most Russian CEOs, or about 77%, expect to mitigate the effects of the crisis by launching corporate excellence programs within the same period.
Regaining public trust and improved management of consumer behavior are also priority issues on the CEOs’ business recovery agendas, as one in four CEOs believes their industry’s reputation has been seriously tarnished by the current economic downturn. For instance, almost 61% of CEOs in the banking and capital markets sector, the hardest hit victims of the crisis, said there has been a fall in public trust in their industry. Besides, nearly half of the CEOs polled were concerned that the recession had caused a permanent shift in consumer behavior. Most say that consumers will now place greater importance on a company's social reputation (64%), spend less and save more (63%), or be more active in product development (60%). In Russia, about 63% of CEOs believe that consumers will now trust on the brands that they already know, while 50% are certain that consumers will cut their spending and save more, or will be more active in product development (53%).
Risk management has acquired much greater importance for CEOs as a result of the recession, evident in the high percentage — over 85% globally and 87% of CEOs in Russia — who plan to make major changes to their companies’ approaches to risk management issues and policies. Most Russian CEOs, or 93% to be more specific, have high expectations for investment decisions. The survey shows that, as a result of the recession, boards of directors are becoming more engaged in key aspects of management, such as assessing strategic risks, monitoring their companies’ financial health and overseeing their business strategies. CEOs in Russia and CEE believe that their boards of directors now focus less on compliance issues and more on issues linked to strategic risks (80%) and financial health (83%).
In conclusion, PwC Global chairman called on the CEOs of local and international companies to start solving other vital problems, rather than remaining exclusively focused on the realization of their short-term anticrisis survival strategies. “This is because most CEOs will be in a post-survival mode in the coming months. Their most common regret about how they dealt with the recession was lack of full understanding of the risks and failure to respond more quickly to them,” he said. “The importance of risk management was the most often cited lesson to emerge from the current financial crisis. This is why today, CEOs are learning to balance risk management with decisiveness and flexibility as they seek return to prosperity.”
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