FINANCIAL REPORTING & IR

As we all work through the global pandemic and the attendant challenges and uncertainties it presents, KPMG’s 2020 CEO Outlook: COVID-19 Special Edition, finds that global CEOs are using this unparalleled moment in history to lead with increased purpose, rethinking their workforce strategies and positioning their organizations for growth and success in this new reality.  

The 2020 CEO Outlook offers a unique lens on evolving attitudes as the pandemic continues to unfold. KPMG initially surveyed 1,300 CEOs (75 from Canada) in January and February, before most key markets were beginning to feel the impact of lockdowns. Then, in July and early August, KPMG conducted a follow-up ‘pulse’ survey of 315 CEOs (25 from Canada) to understand how thinking has evolved.

The pulse survey reveals that CEOs are focused on finding opportunity in adversity. Three key themes emerged from this year’s survey, which we characterize as Purpose, Priorities and Prosperity.

Purpose

At the beginning of the year, we found that most CEOs saw the primary objective of their organizations shift from purely profit to also consider their purpose in society. Less than a quarter (23%) saw the organization’s overall objective solely through the lens of ‘managing for shareholder value’ terms, with 54% taking a broader, purpose-driven approach focused on multiple stakeholders. And about one in five (22%) went as far as to say that their primary objective is to improve society.

Today, purpose helps CEOs understand what needs to be done to meet the needs of stakeholders, such as employees and communities; 79% say they feel a stronger emotional connection to their corporate purpose since the crisis began. At the same time however, the massive disruptive impact of the pandemic has caused many CEOs to question whether their current purpose really meets the needs of stakeholders; 79% say they have had to re-evaluate their purpose as a result of COVID-19.

This increasingly personal and emotional connection to purpose during the pandemic reflects the fact that CEOs face the same health and family challenges as their people and communities when it comes to COVID-19. In fact, well over one-third of chief executives (39%) have had their health, or the health of one of their family members, affected by COVID-19, and 55% acknowledged they changed their strategic response to the pandemic as a result.

At the beginning of the year, we also found that CEOs were increasingly prepared to personally lead the way in tackling society’s major challenges. About two-thirds (65%) said that ‘as confidence and trust in governments decline, the public are looking to businesses to fill the void on societal challenges.’ At the same time, 76% said they had a personal responsibility to be a ‘leader for change on societal issues.’ In the wake of widespread protests following the death of George Floyd at the end of May, 81% of CEOs have either publicly announced new anti-Black racism measures or plan to do so in the near term.

Priorities

COVID-19 is clearly not the only threat we face that has profound economic and humanitarian consequences; climate change also offers a significant threat over the coming decades. CEOs recognize this, and are not being deflected from their environmental, social and governance (ESG) goals as they look to rebuild their organizations in a way that supports a new and sustainable economy. The seriousness with which CEOs take the issue of climate change is reflected in the fact that 65% say that managing climate-related risks will likely be a key factor in whether they keep their jobs over the next five years. To move forward, they are looking to double down on the structural shifts that have emerged during the crisis, such as less business travel; 71% say they want to lock in climate change gains made as a result of the pandemic.

CEOs are also thinking carefully about the future of work, with COVID-19 having effectively forced many organizations to experiment radically with how work is done. For many organizations, virtual working kicked in literally overnight. With the pandemic transforming the world of work, 77% say they will continue to build on their current use of digital collaboration and communication tools, and 73% believe that remote working has actually widened their available talent pool.

As they look to accelerate digital innovation, CEOs are also acutely aware of the people who must deliver: their employees. Many employees are grappling with significant anxiety – or even fear – about today’s situation and what the future holds and also have had to embrace very different ways of working. While ‘talent risk’ was the threat that CEOs ranked behind 11 others at the beginning of the year, it has now risen to be the number one threat to long-term growth, with CEOs recognizing they must keep their people feeling safe but also connected, engaged and productive.

In terms of the future operating model, supply chains have also been hard hit; 67% say they have had to rethink their global supply chain approach given the disruptive impact of the pandemic. However, CEOs are using this opportunity to ask how their supply chain can become a competitive advantage in the new reality that is emerging. When asked what was driving this supply chain rethink, the top-ranked reason was to ‘become more agile in response to changing customer needs.’ In contrast to what we may hear from politicians, ‘pressure from governments to bring production closer to home’ was second from the bottom.

Prosperity

Interestingly, confidence in global economic growth has not significantly changed from the beginning of the year, with an equal number being more, and less, optimistic than they were at the start of the year. CEOs are, however, more optimistic about their own country’s growth prospects, their sector’s prospects, and fully two-thirds are more optimistic about their company’s growth prospects than they were at the start of the year. A key growth lever is digital acceleration. With commerce increasingly taking place online because of factors such as social distancing, companies are having to rethink what customers want and how to deliver; 75% say the pandemic has accelerated the creation of a seamless digital customer experience and 64% say it has also accelerated the creation of new digital business models and revenue streams. The challenge now is to focus efforts and investment on the areas that generate most value and to maintain cybersecurity resilience. It is also observed that Canadian CEOs are more optimistic about growth than their global peers and are using this unparalleled moment in history to shift their strategies and enhance relationships with their employees and society at large.

Conclusions

From KPMG’s 2020 CEO Outlook COVID-19 Special Edition, CEOs recognize that recovery from the pandemic does not mean a return to ‘normal.’ Instead, there is an opportunity to define a new future, and while the pandemic has given companies the opportunity to demonstrate how they can make a real difference to society, scrutiny of corporate actions has also never been stronger. To maintain the trust of employees, customers and communities, CEOs must demonstrate that they live and breathe their organization’s purpose. Our survey shows that chief executives are more than willing to lead by example in these most challenging of times.

Terry Liu, CPA, CA is a Senior Manager, and Rob Brouwer, FCPA, CPA is Vice Chair, KPMG in Canada, Regional Head of Markets, KPMG's Americas Region.