FINANCIAL REPORTING & IR

It has been almost two years since the World Health Organization declared a global pandemic, and there is still significant uncertainty about many aspects of the business world. The KPMG 2021 CEO Outlook survey explores how leadership strategies and concerns have shifted during these demanding times, drawing on the perspectives of 1,325 CEOs across 11 important markets and 11 key industry sectors.

We found that CEOs are confident in their companies’ growth prospects and the global economy in general. They feel a strong connection to their organization’s purpose and are looking to expand their business to emerge stronger.  

The road to renewal

Today, CEOs are facing new challenges as their organizations manage the ongoing impact of the pandemic. They’re balancing the potential to drive growth and transform their business with the uncertain prospects for global recovery and the impacts of new virus variants and vaccine inequality.

Rebounding growth – Despite the continuing uncertainty, the survey shows that the perspectives and confidence of CEOs has shifted in the past 12 months. CEOs are more optimistic about growth. For the first time since January/February 2020, prior to the pandemic, more than half (60%) of global CEOs are confident about the growth prospects of the global economy over the next three years. The research found that 88% plan to increase headcount over the next three years, with close to one-third (32%) planning an increase of more than 6%. While more CEOs are prioritizing technology investments when pursuing growth, 40% are putting more emphasis on investments in people, with a notable increase from 33% in 2020. CEOs identified supply chain, cybersecurity and climate change as the key threats to growth.

Leading with purpose – People care about what the companies they purchase goods from stand for – now more than ever. Purpose is connected to a company’s role in society, its impact on the environment, how it sustains long-term value and how it operates within its community. CEOs recognize the importance of the intersection of profit and purpose. The research found that 87% said that purpose is central to building their brand reputation, with nearly two-thirds (64%) stating purpose is the defining objective of their business. CEOs are also focused on driving hard value from purpose and embedding it within their business and operating models to achieve tangible value and growth. We found that 89% of CEOs said that purpose plays an important role in driving financial performance.

Accelerating growth and the digital agenda – Optimism is high, with 87% of CEOs confident in their own company’s growth prospects, with inorganic strategies key to achieving this ambition. Mergers and acquisitions (M&A) will likely be important to quickly building new capabilities and capitalizing on growth opportunities. Overall, 87% of CEOs say they’re looking to make deals in the next three years. Among that percentage, 50% characterize their M&A appetite as ‘high’, with CEOs likely to undertake acquisitions that will have a significant impact on their organization. In addition, the acceleration of digital technologies during the pandemic means that markets now operate more quickly. CEOs are shifting toward a cloud-first mindset, with 50% stating that, in pursuit of their growth objectives, they intend to secure a third-party cloud technology partner in the next three years.

Trusted purpose

Today, corporate purpose is a business imperative. Key stakeholders – from customers to institutional investors – expect companies to have a positive impact in a range of areas, from driving diversity to helping protect the planet. Focusing on a bold environmental, social and governance (ESG) program can help identify key opportunities and challenges that enable CEOs to demonstrate how they can deliver on their purpose.

Putting people first to drive societal return – Over the past 18 months, social justice unrest has been on the rise in major economies. We see a major focus on the ‘S’ in ESG, with 81% of CEOs agreeing with the statement, “our response to the pandemic has caused our focus to shift toward the social component of our ESG program.” On one hand, 71% of CEOs said they will increasingly be held personally responsible for progress in addressing social issues. On the other hand, over half (56%) admitted that with public, investor and government expectations of inclusion, diversity, and equity (ID&E) rising so fast, they may struggle to meet expectations. In addition, 46% of CEOs noted that the global pandemic’s negative impact on women in the workplace has made it difficult to achieve their gender parity goals at a leadership level.

Collaborating to power sustainability – Action to limit climate change and reduce carbon emissions in the race to net zero has never been more important. Making progress on addressing sustainability issues, including climate change and the decarbonization of the economy, will require strong collaboration between business and government. CEOs are looking to devote significant capital to becoming more sustainable, with 30% planning to invest more than 10% of revenues in these efforts.

Connecting ESG strategy to financial returns – While CEOs believe that social and environmental priorities are key, they’re less clear about the connection between ESG programs and financial results. Fully 52% of CEOs at high-growth organizations (CEOs who see earnings growth exceeding 5% per annum over the next three years) believe that their ESG programs will improve financial performance. This confidence in financial performance drops to 37% across the wider sample of CEOs. In fact, close to a quarter (24%) of CEOs said that ESG programs may reduce financial performance.

CEOs feel their organizations are struggling to report on and communicate ESG performance in a way that matters to key stakeholders, including investors. When we asked CEOs to identify the one critical challenge that was undermining their ability to communicate ESG performance to key stakeholders, the standout challenge (selected by 42% of respondents) was that they “struggle to tell a compelling ESG story”.

Digital agility

With people returning to places of work, and governments increasingly looking for businesses to lead a return to normal, CEOs are focusing more on flexibility rather than wholesale changes to office-based work.

Building a flexible future of work – Only 21% of CEOs plan to downsize (or already have downsized) their physical footprint or office space because of the pandemic and changing working habits. However, they’re prioritizing flexibility. Over half (51%) of CEOs are recognizing the demands created by a rapidly evolving future of work and will be looking to invest in shared office spaces to allow for increased flexibility.

Disrupting the disruptors – The research shows that CEOs are embracing the need to push the boundaries of their business and question long-held assumptions regarding what it will take to succeed in the mid to long term. When asked what action they plan to take in pursuit of their growth objectives, close to two-thirds said they intend to invest in disruption detection and innovation processes. CEOs also said that rather than waiting to be disrupted by competitors, they’re actively disrupting the sector in which they operate. The percentage who responded this way rose from 61% to 72% in the past 18 months.

Partnering for transformation and resilience – CEOs recognize the importance of collaboration, with 70% agreeing with the statement that: “new partnerships will be critical to continuing our pace of digital transformation”. With only 58% of organizations confirming they’re well prepared for a cyberattack, CEOs are also focused on ensuring cybersecurity extends beyond the four walls of the enterprise, with 48% of CEOs noting that focusing on the security and resilience of their supply chains and supplier ecosystem is the most important step they’re taking to build digital resilience.

Conclusions

The survey shows that our global business leaders are focused on delivering on their purpose commitments, making the ESG investments and changes necessary to address inequity, and launching the race to net zero. They look to drive growth and prosperity through digital agility and business model innovation, while aiming to ensure that aggressive technology investments are matched by investment in human capabilities and skills. They are actively pursuing purpose driven initiatives to drive profitability and long-term growth, while also recognizing their wider responsibilities to the planet and to people. To access the entire report, visit KPMG 2021 CEO Outlook.

Terry Liu, CPA, CA is a Partner, Accounting Advisory Services, and Rob Brouwer, FCPA, CPA is Canadian Managing Partner, Clients and Markets, for KPMG LLP in Canada.