Charting a course through complexity
While CEOs maintain confidence in the future of the global economy, their views on what constitutes a risk to their business have shifted significantly. The persistent flux in global politics, trade dynamics and international relations has required a new level of resilience from CEOs. They are reassessing their strategic priorities, focusing on the rise of generative AI, talent management and high stakeholder expectations in addressing environmental, social and governance (ESG) issues.
Business leaders are facing challenges and obstacles to growth on multiple fronts — from geopolitical uncertainty and politicization to increased stakeholder expectations in the ESG space and the adoption of generative AI.
What I find reassuring is that, despite the many macroeconomic and geopolitical challenges right now, mid-term global confidence remains relatively robust. There’s a consensus that we can, in time, return to a path of international, sustainable long-term growth.
For CEOs — the opportunity to drive a return to a more equitable, successful planet is right in front of us. The key to success will be an unrelenting focus on long-term, strategic planning and commitment to avoid the danger of short-term, reactive leadership, which is always a threat during a period of deep uncertainty.
Bill Thomas
Global Chairman & CEO
KPMG International
Confidence in the global economy remains broadly unchanged year over year, surpassing pre-pandemic levels of confidence. Almost three in four global CEOs (73 percent) are confident about the economy over the next three years, compared to 71 percent last year. It reflects a clear resilience and a collective focus to get the world back on a sustainable, long-term growth trajectory. However, CEOs’ confidence in their own company’s growth prospects are at a three-year low; at the start of 2020, 85 percent of CEOs were confident in their company’s growth prospects, compared to 77 percent this year.
This is accompanied by a significant shift in what CEOs view as risks to growth for their business. CEOs now rank geopolitics and political uncertainty as the greatest risk to the growth of their business — be it navigating a company’s presence in a conflict zone or attempting to navigate disrupted supply chains and manage price fluctuations. This shift indicates CEOs have come to grips with the fact that geopolitical risk is not only a short-term consideration. In a geopolitically fragmented world, CEOs often become de facto political players. Their approach should elevate politics on the boardroom agenda while also creating a strategy around geopolitical risk that includes specialized insights, scenario planning and stress testing.
CEOs face shorter-term barriers to delivering growth over the next 12 months. For example, more than three in four (77 percent) say that rising interest rates and tightening monetary policies could prolong any potential or current recessions, while over the next three years, 77 percent believe cost-of-living pressures will negatively impact their organization’s prosperity.
As CEOs navigate and respond to these challenges, they recognize that demonstrating personal integrity is key to building trust, with a majority (71 percent) saying they are prepared to divest a profitable part of their business if it was damaging their reputation. As geopolitics rise on boardroom agendas, 61 percent of CEOs say they would take a public stance on a politically or socially contentious issue, despite board concerns.
Generative AI is an increasingly hot topic in boardrooms, with leaders looking to better understand its potential and how to implement this technology in their business strategies. The challenge is spending the money in the right places and having the right skills to fully exploit the opportunities it presents.
Lisa Heneghan
Global Chief Digital Officer
KPMG International
Artificial intelligence (AI) is transforming nearly every field of human endeavor and is embedded in more and more aspects of everyday life, businesses and society. As tools like Bard and ChatGPT have gained prominence, global CEOs increasingly recognize generative AI’s seemingly limitless potential and are keeping their foot on the gas in terms of their investment and exploration of the technology.
Global CEOs are making generative AI a top investment priority. The survey shows that 70 percent are investing heavily in generative AI as their competitive edge for the future, with most (52 percent) expecting to see a return on their investment in three to five years. In fact, increased profitability was cited as the number one benefit of implementing generative AI within an organization (22 percent).
According to our recent KPMG global tech report, 55 percent of organizations said progress toward automation has been delayed because of their concerns about how AI systems make decisions.
Despite a willingness to push forward with their investments, global CEOs recognize that emerging technologies can introduce risks that should be addressed. Fifty-seven percent cite ethical challenges as the top concern when it comes to implementing generative AI, followed closely by a lack of regulation. As scrutiny and regulation of AI increases, organizations may need policies and practices they can articulate and apply with confidence.
CEOs are also grappling with how AI technologies have heightened cyber security risks. Despite how AI may help detect cyber attacks, 82 percent believe it could also bring about new dangers by providing new attack strategies for adversaries. And even with all the attention that has been placed on cyber security in the past few years, more than a quarter (27 percent) of CEOs still are not prepared for a possible cyber attack (up from 24 percent last year) while more than half (53 percent) say they are.
It is essential for CEOs to lead from the front, ensuring their organizations adopt responsible, robust AI frameworks and focus on safeguarding and governance.
The data underscores the immense pressure on CEOs to make quick decisions on the big issues. The war for talent may have softened in this period of economic uncertainty, but the evidence suggests a one-size-fits-all approach to return-to-office could be detrimental.
Nhlamu Dlomu
Global Head of People
KPMG International
This year’s challenging global landscape underscores the pressures CEOs feel to make decisions on a variety of critical issues — and they impact how CEOs plan to support and attract talent over the next three years.
Notably, global CEOs are steadfast in signaling their support of pre-pandemic ways of working, with a majority (64 percent) anticipating a full return to office is only three years away. This remains consistent with their views in the 2022 CEO Outlook. What’s more, 87 percent of CEOs say they are likely to reward employees who make an effort to come into the office with favorable assignments, raises or promotions.
This sentiment underscores the persistence of traditional office-centric thinking among CEOs. It comes against a backdrop of the debate surrounding hybrid working, which has had a largely positive impact on productivity over the past three years and has strong employee support, particularly among the younger generation of workers. As organizations continue to roll out their return-to-office plans, it is crucial that leaders take a long-term view that embraces the employee value proposition and encompasses the considerations and needs of employees to ensure that talent is nurtured and supported.
While there is broad alignment on the importance of inclusion, diversity and equity (IDE), there continues to be concern around the pace of progress. Two-thirds of global CEOs (66 percent) maintain that progress on inclusion and diversity has moved too slowly in the business world and a strong majority (72 percent) say that achieving diversity in workplaces requires implementing a change across the senior leadership level.
Despite increasing economic and political uncertainty, the latest survey findings reflect a growing sense of resilience and focus from CEOs on ESG. With continued financial and geopolitical pressures ahead, it will undoubtedly be a test of nerves for many CEOs, but the data shows that the vast majority of senior executives are now fully onboard and recognize that E, S and G are no longer optional extras for successful, sustainable businesses.
John McCalla-Leacy
Head of Global ESG
KPMG International
ESG is increasingly being recognized by CEOs for what it is: an indispensable part of their corporate strategy that helps ensure their business is resilient and can deliver long-term growth — even when faced with numerous geopolitical and economic challenges.
Despite a polarizing debate surrounding the term ESG, CEOs recognize that it remains an integral part of their business operations and corporate strategies — and are taking a more outcomes-based approach. More than two-thirds (69 percent) of global CEOs have fully embedded ESG into their business as a means to create value. It is also important to note that 35 percent of CEOs say they have changed the language they use to refer to ESG both internally and externally, reflecting a shift in the dialogue about ESG and signaling a trend toward prioritizing the areas that make the most sense for their organizations.
While global CEOs believe they are still a few years away from seeing a return on their ESG investments, they recognize the importance it has with their customers and on their brand. Nearly a quarter (24 percent) believe that, over the next three years, ESG will have the greatest impact on their customer relationships, and a further 16 percent believe it will help build their brand reputation.
Global CEOs are keenly attuned to new regulations and shifting politics when it comes to ESG. Despite this, 68 percent indicate that their current ESG progress is not strong enough to withstand potential scrutiny from stakeholders or shareholders. The difficulty in balancing progress with business growth is further supported in our ESG Assurance Maturity Index, where more than half of senior executives that consider themselves ready for ESG assurance said it was a challenge to balance assurance goals with the profit expectations of shareholders.
Exploring opportunities for growth
Methodology
About the KPMG 2023 CEO Outlook
The 9th edition of the KPMG CEO Outlook, conducted with 1,325 CEOs between 15 August and 15 September 2023, provides unique insight into the mindset, strategies and planning tactics of CEOs.
All respondents have annual revenues over US$500M and one-third of the companies surveyed have more than US$10B in annual revenue. The survey included leaders from 11 markets (Australia, Canada, China, France, Germany, India, Italy, Japan, Spain, UK and US) and 11 key industry sectors (asset management, automotive, banking, consumer and retail, energy, infrastructure, insurance, life sciences, manufacturing, technology, and telecommunications).
NOTE: Some figures may not add up to 100 percent due to rounding.
