Forty percent of global CEOs believe that if their company continues on its current path, it will be economically unviable in ten years. This alarming statistic highlights the dual imperative that 4,410 CEOs from 105 countries and territories, who responded to PwC’s 26th Annual Global CEO Survey, must face.
Most of these CEOs recognize the importance of reinventing their businesses for the future while also tackling near-term challenges such as the declining global economy, which nearly 75% of them anticipate in the year ahead.
This year’s survey summary is organized into nine tough questions, which can be divided into three groups: the race for the future, today’s tensions, and a balanced agenda.
Your next move: break it down
PwC’s experience shows that leaders must divide the climate challenge into manageable chunks. Instead of looking at climate risk in the abstract, a smartphone manufacturer might assess the potential for high-heat-stress days affecting a critical goldmine in the southern hemisphere, flood risks at a coastal airport, and wildfire risk in the western US.
Similarly, leaders seeking to reduce Scope 3 emissions (those generated in a company’s upstream and downstream value chains) should concentrate on the 20% of suppliers who typically generate 80% of Scope 3 emissions; on extremely granular data and modeling that goes beyond industry averages; and on sharp processes for estimating, quantifying, and extrapolating Scope 3 data across the business as a whole.
Trust, leadership and the C-suite conversation
The importance of trust is deeply intertwined with the changing nature of leadership, as well as the fracturing of the post-Cold War consensus, and the intensification of geopolitical and social tensions. Explicit dialogue with top management teams about the leadership implications of these forces may help CEOs unleash the power of the C-suite. Survey data indicates CEOs want CEOs to focus on the future, and we hope this year’s CEO Survey will enrich that conversation.
Example of Neste processing McDonald’s cooking oil
Neste, an oil refiner and marketer based in Finland, has built an ecosystem around a partnership with McDonald’s.
Mytilineos, a 114-year-old family-owned Greek conglomerate, is collaborating with the Greek government and European Commission on an initiative to finance up to 4 gigawatts of new renewable energy sources.
Neste processes McDonald’s cooking oil into diesel fuel that it sells to a trucking company partner.
3. Should you bring your key business risks forward?
Climate change is an example of a long-term challenge that becomes clearer when we consider a broader set of external threats to the global economy. Over the next 12 months, CEOs are most concerned about inflation, economic volatility, and geopolitical risk. All three are immediate, headline-grabbing issues that can reinforce and compound one another, such as when the war in Ukraine drives up prices, prompting central banks around the world to intervene with growth-stifling interest rate hikes. The picture shifts when it comes to CEOs’ medium-term (five-year) outlook.
Cyber risks and climate change will join inflation, macroeconomic volatility, and geopolitical conflict in the top tier of risk exposure during that time period.
5. How do your resilience and your workforce strategies fit together?
Just 19% of CEOs are implementing hiring freezes, and 16% are reducing the size of their workforce. This stands in stark contrast to what we heard from CEOs back in October and November of 2008. About twice as many told us they anticipated near-term headcount reductions in 2008.
If, as many CEOs anticipate, the war for talent remains fierce, even amid deteriorating economic conditions, keeping workers happy and engaged will be a mission-critical priority.
Nine tough questions, under three themes, that CEOs need to tackle
The race for the future
- What’s the half-life of your business?
- When will your company’s climate clock run out?
- Should you bring your key risks forward?
Today’s tensions
- How much is your mood affecting your view of tomorrow?
- How do your resilience and your workforce strategies fit together?
- As geopolitical risks rise, what new contingencies are you preparing for?
A balanced agenda
- How much time and money are you investing in the future?
- How central are you to your company’s reinvention?
- What kind of ecosystem are you building
1. What’s the half-life of your business?
CEOs recognize the potential for disruption ahead. Nearly 40% of CEOs think their company will no longer be economically viable a decade from now, if it continues on its current path. The pattern is consistent across a range of economic sectors, including technology (41%), telecommunications (46%), healthcare (42%) and manufacturing (43%).
2. When will your company’s climate clock run out?
A majority of global CEOs expect some degree of impact from climate change in the next 12 months. Fewer are worried about climate-related damage to their physical assets. CEOs in China feel particularly exposed, with 65% seeing the potential for impact in their cost profiles and 71% in their supply chains.
CEOs who believe they are most vulnerable to climate change are more likely to take action to address it. This is understandable—when your house is in the path of a forest fire, you reach for the hose—but it introduces new risks. Combating climate change necessitates a well-coordinated, long-term strategy. It will not be solved if the only companies working on it are those facing immediate financial consequences.
6. As geopolitical risks rise, what new contingencies are you preparing for?
The growing emphasis on national interests over global ones represents an acceleration of trends that have been underway for some time. An exception is major economies where the second-order effects of geopolitics are hitting home hardest. As CEOs in France, Germany, and the UK prepared for a potentially dark and cold winter, they anticipated that growth in their home markets would lag the global economy.
7. How much time and money are you investing in the future?
We asked CEOs how they split their time between a range of priorities, including driving current operating performance and adapting the business for the future. If they could redesign their schedules, the CEOs told us, they would spend more time evolving the business and its strategy to meet future demands. Drivers include spending time with customers, engaging with employees, and interacting with investors, the board, and other stakeholders.
Retain Top Talent
- Separate PwC research suggests that leaders do have levers to pull when it comes to employee retention: flexibility, fair pay, fulfilling work and the opportunity to be one’s authentic best self at work are critical determinants of employee decisions about whether to stay or go.
- Creating conditions for progress against forces like these can help CEOs influence future churn rates.
- The “great resignation” is a reappraisal of leadership.
4. How much is your mood today affecting your view of tomorrow?
Three-quarters of CEOs responding to this year’s survey project that global economic growth will decline over the next 12 months. That’s a stark reversal from last year, when a similar proportion anticipated improvement in global growth. Last year’s optimism was dashed by shocks such as Europe’s largest land war since World War II and accelerating general wage and price inflation.
The sector’s pessimism is the result of recency effects and other cognitive biases that have been shown to be pervasive in individuals over time.
8. How central are you to your company’s reinvention?
Forty-three percent of global CEOs said that leaders in their organization don’t often encourage debate and dissent. And 76% said their leaders don’t make independent strategic decisions for their function or division. Engaged, empowered organizations move faster, innovate more readily, and collaborate more effectively. This year’s survey suggests some warning signs and areas of opportunity.
9. What kind of ecosystem are you building?
The diversity and complexity of today’s business challenges place a premium on the ability to collaborate across the boundaries of the corporation. The results show that companies work with a wide network of collaborators and that those relationships are most often struck to create new sources of value.
Addressing societal issues such as climate change was more often a goal of collaboration with non-business entities such as NGOs and government agencies.
Your next moves: reimagine and choose
The upshot is a race to reinvent. The starting point for enterprise transformation of this sort often is a reimagination of a company’s place in the world—looking beyond the current portfolio of businesses and products to determine what value an organization will create, and for whom. Such reimagination often involves hard choices about what not to do.
For example, when Philips reinvented itself as a health-technology company, bringing together its Amsterdam-headquartered multinational consumer insights capabilities, depth in medical-device technologies, and strengths in data analytics and artificial intelligence, it also exited some businesses and deemphasized others.
