Why the world’s chief executives are so anxious
It’s not just consumer sentiment that is testing new lows, the world’s business leaders are more pessimistic than they have been in 12 years, inundated with a series of risks that threaten their organisations and traditional ways in which they operate.
Anxiety about the viability of their businesses has reached a peak not seen since the global financial crisis when the sustainability of the financial system was in question.
Unlike during the GFC, there is no particular existential crisis facing the chief executives whose responses were curated by accounting firm PwC.
The elevated levels of anxiety were highlighted as a cohort of business and political elites gathered at the yearly World Economic Forum in the Swiss Alps town of Davos to brainstorm solutions to global problems.
It isn’t just one but a series of near-term shocks and slow-burn structural issues that global companies are being confronted with that has resulted in 40 per cent of chief executives questioning whether their organisation will be economically viable in 10 years.
“The world continues to change at a relentless pace, and the risks facing organisations, people – and the planet – will only continue to rise. If organisations 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,” according to PwC global chairman Bob Moritz.
The immediate challenges are clear enough – the first, a global recession. Almost three-quarters of business leaders predict world economic growth will decline this year, whereas last year the vast majority thought the world economy would grow.
Allied to that, they are concerned about inflation and volatility, and this year geopolitical risks have entered the mix of issues that have exacerbated the uncertainty.
Inflation and slowing economic growth are cyclical features that business leaders would expect.
But the past few years have produced left-field issues that may not have gained a lot of attention during studies at Harvard Business School – such as the pandemic and the increasingly drawn out war in Ukraine.
It is bigger tectonic movements that businesses need to address that appear to be surfacing as boiling frog moments for businesses.
Uncertain economic times are not new and business leaders typically respond to the spectre of lower revenue and profits by cutting costs.
And their response this time around follows the textbook. More than half those surveyed said they were cutting costs and half were raising prices.
The default cost-cutting tool has generally been reducing headcounts, but the lion’s share said in the current environment they were suffering a skills’ shortage since the COVID-led “great resignation” and were not prepared to sack staff or even reduce wages. Instead, chief executives were attempting to cut operating costs and stimulate demand.
It is bigger tectonic movements that businesses need to address that appear to be surfacing as boiling frog moments for businesses.
Climate change, for example, has been bubbling along as a challenge for companies for at least 10 years. But they are now being forced to confront the extent to which their costs, supply chains and physical assets will be affected by climate change. They are required to deal with consumers who are increasingly demanding environmentally friendly products, regulators that are demanding emissions reduction and the risks of inactivity.
But while an increasing number of countries now have some form of carbon pricing, the majority of respondents still do not plan to apply an internal price on carbon in decision-making, and more than a third don’t plan to implement initiatives to protect their company’s physical assets and/or workforce from the impact of climate risk, according to the PwC survey.
Issues such as disruptive technology are not new to many industries, but they are becoming ubiquitous and threaten established products and services.
Torn between the demands of short-termism and long-term transformation, chief executives say they are primarily consumed with driving current operating performance, rather than evolving the business and its strategy to meet future demands, according to Moritz.
Part of the longer-term transformation is addressing the need for good corporate citizenship, which involves looking after more than profit and addressing the broader society’s needs.
This extends beyond the environment into areas such as slavery in supply chains to addressing gender, workforce health and safety, and acknowledgement of traditional land rights.
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