Regulation and geopolitical instability key concerns for CEOs in 2016

CEO confidence in the prospects for the global economy have declined sharply over the past two years, according to PwC’s 19th Annual Global CEO Survey.

The research gathered the views of 1,400 CEOs from 83 countries. Just 27% of the CEOs polled were confident that global economic growth would improve over the next 12 months. This compares with 37% last year and 44% in 2014.

Twenty-three percent of those polled believe that economic growth will actually decline in 2016. In a webcast to launch the report, PwC Chairman Dennis Nally noted that the research interviews concluded in December 2015, but if they had been conducted later, the results would have likely been more pessimistic.

Business leaders were more optimistic about the prospects for their own organisations, with 35% expecting to achieve revenue growth in the coming year, down from 39% of respondents in 2015 and 2014.

Despite the bleak outlook, the report found that CEOs are still relatively confident about jobs, with 48% planning to add to headcount in 2016. The sectors planning to hire the most are technology, asset management, and pharmaceuticals, Nally said.

The economic picture is becoming increasingly unpredictable as the world becomes more complex and more divergent on key issues such as economic models, trading blocs, the rule of law, and belief systems and values, Nally said.

With increasing uncertainty, many business leaders are choosing to focus investment on familiar markets. The overseas markets which CEOs consider will be most important to their organisations’ growth in the coming year are the US and China, which featured among the top three destinations for 39% and 34% of respondents, respectively. Germany was the choice of 19% and the UK 11%. India completes the top five markets.

Threats to growth

Sixty-six per cent of the CEOs polled perceive a greater number of threats to their business than they did three years ago. The most common threats to the organisation’s growth prospects highlighted were over-regulation, geopolitical uncertainty, and exchange rate volatility.

In the previous edition of the survey, regulation also took the top spot, followed by availability of key skills, government response to fiscal deficit and debt burden, and geopolitical uncertainty.

Uncertainties in the regulatory environment as new rules are being enacted leave companies with a number of unanswered questions, such as what additional costs will be involved in complying with new regulation. For companies operating in several countries, inconsistencies in regulation between those markets add cost and complexity and affect CEO confidence from an investment standpoint, added Nally.

The prospect of over-regulation was of particular concern to respondents in the insurance sector, which is facing change in the form of Pillar III disclosure requirements and new IFRS principles.

CEO priorities for the coming year

Addressing greater expectations from stakeholders, and customers in particular, is a major priority for the participants in the research, and seen as an important element of long-term growth.

The general public’s lack of trust in business (which ranked tenth among the threats facing business in 2016) means that CEOs are often challenged about why their organisations exist, the report said. This is encouraging leaders to place a values-based purpose at the centre of the organisation, “not only to deepen stakeholder relationships, but also to increase growth while having a broader impact on society,” Nally said.

As technology disrupts business and society, it is also transforming company-stakeholder relationships. This poses a challenge for companies to use technological developments to better interpret the complex and evolving needs of customers in order to better engage with them.

A third challenge for CEOs over the coming year is how to measure and communicate broader indicators of business success. Particular areas of interest include how innovation and risk impact profitability, as well as the impact of softer drivers of success such as values and purpose, Nally said. 

—Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.