By Matt Hammond, Head of International Markets for the UK and Midlands Region Leader – PwC
PwC 24th Annual Global CEO Survey
On 11 March 2020, the World Health Organization declared COVID-19 a global pandemic, marking the official start of a period of profound disruption and suffering. One year later, we still find ourselves in its grip, but vaccines developed at breakneck pace have enabled us to envision recovery. The details of that recovery are not yet clear.
However, it’s certain that we cannot simply go back to the way things were before. The pandemic has laid bare fundamental deficiencies in our global system, weaknesses in business operating models and challenges that will shape our world moving forward. It has also unleashed energy and creativity, as leaders seek out enduring solutions to these problems.
The pandemic’s dual role as accelerator of transformation and amplifier of disruptive forces is the thread that runs through our 24th Annual Global CEO Survey which this year polled 5,050 CEOs in 100 countries and territories over January and February. Most of the CEOs responding to the survey are bullish (76%) about a global economic comeback.
It will be enabled by a continuation of companies’ pandemic-induced digital acceleration, which promises productivity and other business benefits, but also increases the threat of cyberattack and the spread of misinformation. Although CEOs’ confidence in their own company’s revenue prospects has rebounded, they are anxious, too: about the trajectory of the pandemic, tax and regulatory policy uncertainty, and, to a slightly lesser extent, climate change.
The percentage of CEOs expressing confidence in growth is up from 22% in 2020 and 42% in 2019, representing the highest level of optimism since the survey started asking this question in 2012.
Optimism among CEOs over global economic growth is particularly strong in North America and Western Europe, with 86% and 76% of CEOs, respectively, from these regions predicting improved global growth in the year ahead.
Turning to the UK, our findings tell us that the UK is a more important growth prospect to global CEOs now than it was pre-Brexit and reveals that 11% of global CEOs selected the UK as a top 3 growth target, up from 9% in autumn 2019.
The US remains the number one market that CEOs are looking to for growth over the next year at 35%, seven percentage points ahead of China at 28%, although it has extended its lead (in the previous survey it was only 1 percentage point ahead). Germany holds on to its number three spot on the list of growth destinations, but strikingly post-Brexit UK moves up to number four (11%), surpassing India (8%).
China-based CEOs in particular look to prioritise the UK market, with 13% selecting the UK, compared to only 3% in 2019. Similarly, almost a quarter (25%) of India’s CEOs said the UK was a top 3 growth target, up from only 9.5% in 2019.
Canada, with whom the UK signed a trade agreement in December 2020 and will look to negotiate a new deal in 2021, also saw an increase in CEOs selecting the UK. In 2019, 13% of Canadian CEOs selected the UK, rising to 20% in 2021. New Zealand, a key trade target for the UK, also placed more emphasis on the UK as a growth target, with a fifth (20%) of CEOs picking the UK, up from only 9% in 2019.
The findings are a vote of confidence in certainty and stability, which have undoubtedly increased on the trade front. Not only has the UK grown in appeal to some of our newer trade targets, but it remains an important market among our European neighbours, with 15% of Germany’s CEOs saying the UK is a top 3 growth target, compared with 13% in 2019. Likewise, Germany remains the second most important target for CEOs in the UK behind the US.
These are indeed encouraging signs but there’s more to do to enhance the UK’s position and investment attractiveness in what remains a very uncertain world.
Entering New Markets
We see a third of UK CEOs (34%) are looking into entering new markets as part of their plans to grow revenue. The US (44%), Germany (23%) and China (19%) are the top three territories UK CEOs consider the most important for their organisation’s growth prospects.
For those UK CEOs looking into expansion, navigating new markets complexities can be challenging. Amongst the threats UK CEOs are most concerned about, many are related to cross border activities. Whether it be identifying a joint venture partner, providing regulatory advice on entering a new market or dealing with local talent issues and tax requirements.
CEOs More Optimistic About The Future
The CEO Survey has proved a good indicator of the direction of the global economy over the last 23 years, with CEO pessimism reaching a record high in the previous survey – just before COVID emerged into public consciousness. In that survey just 26% of UK CEOs were very confident their business’ revenue prospects would improve, whereas this year the figure has increased to 40%. Furthermore, almost 9 in 10 (89%) are confident their revenue prospects will improve to some extent over the next 12 months. Over a three year horizon this confidence increases further.
While CEOs remain concerned about broader economic uncertainty, three quarters (77%) of UK CEOs, and a similar proportion worldwide, expect the global economy to improve. Moreover, 26% of UK CEOs expect it to improve greatly, while only 15% of their global counterparts said the same.
We see that CEOs are largely confident the crisis has turned a corner – just 2% of them think economic conditions will get much worse. This improvement is fuelling activity and momentum, as chief execs plan ahead, invest and acquire in areas that will help them adapt for a more resilient future. We’re seeing this evident in deals activity, which is building apace, and it should also translate into headcount increases in growth sectors like tech, particularly as the economy opens up again.
On headcount, UK CEOs have a more positive outlook than their global peers. Although UK organisations saw bigger headcount reductions than global ones this year (46% say that their organisation’s headcount decreased either moderately or greatly compared to 37% of global CEOS), 56% of UK CEOs say that their organisation’s headcount will increase in the coming 12 months. For global CEOs, only 44% expect it to increase. In addition, although headcount has remained more stable in global organisations, 34% of UK CEOs have actually seen their headcount increase, compared to only 24% of global CEOs.
Wellbeing Is High On The Agenda
The majority (61%) of UK CEOs say declining workforce wellbeing is an issue of concern, up from 59% in 2019. They also see a clear link between workforce culture and business success. Some 45% of UK CEOs surveyed believe that changing their workplace culture and behaviours will have the greatest impact on competitiveness. Less than a third (32%) of global CEOs selected this – instead they favoured a focus on productivity through automation of technology.
A common theme we’ve seen over the past few years is the emphasis UK CEOs put on their people and wellbeing. When asked how to ensure their business remains competitive, four of the top five areas chosen by CEOs are people-centric, whether that be workforce wellbeing or focussing on diversity and inclusion.
The pandemic has shone a light on the importance of employee mental and physical health, particularly with so many people working from home. Many businesses have upped the ante on employee wellbeing initiatives and engagement and it’s important this outlasts the pandemic. We know that companies prosper when their employees are healthy, motivated and supported, and it’s heartening that CEOs in the UK continue to put their people at the centre of their business plans.
Climate Change Less of a Focus Globally in the Wake of COVID-19
While the percentage of global CEOs expressing concerns about climate change has risen from 24% to 30% in 2021, this represents a fairly marginal increase in the context of COP26, which is being held in Glasgow later this year. It’s a similar picture for UK CEOs, with 31% saying they are extremely concerned, up from 25% in 2019.
Climate change still only ranks ninth among CEOs’ perceived threats to growth, with 27% of global CEOs saying they are “not concerned at all” or “not very concerned” about the issue (29% in the UK). This may be because climate change is not seen as an immediate threat to growth compared to other issues such as the COVID-19 pandemic, over-regulation and cyber threats.
More positively, 39% of the CEOs polled believe their organisation needs to do more to ‘measure’ their environmental impact. And 43% believe their organisation needs to do more to ‘report’ on it, a greater share than any other disclosure area.
Momentum is definitely building for better measurement and reporting of environmental impact. This is hugely encouraging – more and better corporate information on environmental impact is key to driving change to get to a net zero economy.
Worries About Cyber, Tax Policies and Misinformation On The Rise
Not surprisingly, pandemics and health crises top the list of threats to growth prospects, overtaking the fear of over-regulation, which has been the perennial number one concern for CEOs globally since 2014.
Rising digitisation is increasing the risks posed by cyber threats. This, coupled with the significant increase in cybersecurity incidents in 2020 including ransomware attacks, has resulted in cyber threats leaping up the list to become the number two concern, cited by 47% of CEOs compared to 33% in 2020. Cyber threats are a concern particularly for CEOs in North America and Western Europe, where they are considered a greater threat than the pandemic.
Also rising rapidly up the list of CEO concerns is the spread of misinformation (28%, up from 16% in 2020), which has had an impact on elections, reputation, and public health – further contributing to a decline in trust across society.
In 2020, tax policy uncertainty ranked outside the top ten concerns for CEOs, with only 19% of CEOs concerned. This year, it has increased rapidly in importance, leaping up to seventh place (31%), with CEOs undoubtedly watching government debts accumulate and realising that business taxes will likely need to rise.
Digital Investments For The Future
Asked about their spending on digital transformation, nearly half of CEOs (49%) project increases of 10% or more. Despite the rising level of concern CEOs are voicing about cyberattacks, this has not translated into definitive actions. Less than half of the CEOs planning for heightened digital investment are also planning to boost their spending on cybersecurity and data privacy by 10% or more.
At the same time, a growing number of CEOs – 36% – plan to use automation and technology to make their workforce more competitive, more than double the share of CEOs who said the same in 2016.
Moving Forward With Confidence By Thinking Differently
At the pandemic’s one year mark, we’re at an inflection point as vaccination begins to ramp up around the world. Although the shape of the recovery remains unknown, it is clear that we cannot simply go back to the way things were before. To achieve the kind of change that’s needed, CEOs will need to think differently and constantly evaluate their decisions and actions against broader societal impacts. In doing so, they’ll set a course that builds trust and delivers sustained outcomes for shareholders, society and our planet.
Visit the PwC website for the full findings of the Survey, where you can also read interviews with leading UK CEOs: pwc.co.uk/ceo-survey
Matt Hammond is PwC’s Head of International Markets for the UK and Senior Partner for the Midlands. Based in Birmingham he has overseen the growth of PwC’s investment in the Midlands over the last 5 years with the creation of 1,000 new roles, leading a team of 3,000 across the Midlands. He is a Deals and Restructuring Partner with 30 years’ experience in professional services. He Chairs the West Midlands Growth Company working closely with the region’s leading Universities, inward investors and local government.