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CEOs most concerned economic downturn

CEOs' confidence about prospects for business declined for the first time since the 2003 and fear of a global recession emerged as the major threat to growth in PricewaterhouseCoopers 11th annual global CEO survey.

This year's results marked the first time since the survey's inception, that CEOs cited a potential economic downturn as the major threat to their business growth prospects.

All other risks to growth - including energy supply, global climate change, and terrorism - declined as business threats. Over-regulation and availability of talent were also top CEO concerns.

Until now, CEOs had consistently rated over-regulation as the primary risk to their business. Terrorism and the threat of pandemic, once major CEO concerns were cited by only 31% and 28% of respondents, respectively.

The percentage of CEOs who said they are "very confident" about revenue growth over the next 12 months fell by 2% from last year to 50%.

Concern about the global economy also impacted CEOs' plans for expansion over the next 12 months. More CEOs now see their main opportunities for short-term growth coming from better penetration of existing markets or developing new products rather than from mergers and acquisitions or geographic expansion. As they did last year, CEOs said they preferred to finance future growth from within the company, rather than external sources such as the debt or equity markets.

The survey results were released at the World Economic Forum annual meeting in Davos, Switzerland.

#AM_ART_SPLIT# The overall drop in business confidence was most pronounced in North America, where just 35% of CEOs said they were ‘very confident’ about growth, compared to 53% last year. Confidence among Western European CEOs also declined to 44%, down by 8%. In contrast, CEO confidence in the surging economies of Asia Pacific, Latin America, and Central and Eastern Europe, increased, rising to about 55% in each of those regions. This growing confidence is especially strong in China and India – where 73% and 90% of CEOs, respectively, were "very confident" about the prospects for growth in the next 12 months.

Samuel A. DiPiazza, global CEO of PricewaterhouseCoopers, said: “The credit crunch and the slowdown in the Western economies have created a clear split in the confidence levels of CEOs around the world.

“The possibility that the downturn could worsen into recession looms large for CEOs in established economies like the US and Western Europe. In the newly-emerged economies CEO confidence remains strong, perhaps because they have experienced nothing but rapid expansion for a decade or more.”

Climate change, despite the highly-visible debate over global warming, was cited as a concern by only 34% of CEOs worldwide (down from 40% last year), while the remainder said they did not feel this was a threat to their business. Only 37% said their organisation was investing significant resources to address the risks and opportunities presented by climate change. However, in marked contrast to their fear of over-regulation, four-fifths of CEOs, called for an increase in government action to reduce emissions.

Support for increased government intervention was highest among CEOs in Asia Pacific, at 90%, and lowest in North America, 64%. CEOs also favoured collaborative efforts to mitigate climate change. Overall 73% of CEOs believed that businesses need to collaborate more effectively with industry peers and business partners in mitigating climate change. This number rose to 82% in Asia Pacific and declined to 58% in North America.

In contrast to previous years, when regulatory issues dominated CEOs thoughts, the threat of over-regulation declined this year, though it remained among the top three concerns of CEOs. Over-regulation was mentioned by 59% of respondents, down from 73% in the previous survey. CEOs felt labour laws, tax regimes, and education were the top areas in which governments could make improvements. Just 5% felt improvements were needed in regulation over initial public offerings or listings on stock exchanges. Overall, more than half of CEOs said that governments should drive convergence of tax and regulatory frameworks.

#AM_ART_SPLIT# Globally, 24% of CEOs said their company had completed at least one cross-border merger or acquisition within the past 12 months, while 31% plan to do so within the next 12 months. CEOs in Western Europe were most likely to have participated in cross-border M&A activity. The most popular destinations for M&A activity are Asia, Western Europe, Eastern Europe and North America.

Overall, more than half the CEOs said that collaborative networks will become a major organisational principle for business, and only 17% ‘think the costs and risks of networks outweigh the benefits’. Nevertheless, 37% still regard the establishment of networks as a secondary activity.

There was marked regional difference in support for business networks. More than 60% of CEOs in Asia Pacific believe that networks will be a defining organisational principle, with the number rising to 83%in India. However, the percentage fell to 44% in Central and Eastern Europe.

The war for talent remains a key concern among CEOs. Overall, more than two-thirds of all CEOs, 85% in North America, said their time was best spent dealing with people issues.

CEOs said that combined technical and business experience, global work experience and leadership skills are the most difficult areas for their companies to recruit. Global experience, however, was ranked last among a list of skills that are critical to their organisation.

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