01/31/2013

Today’s CEOs worry more, and have more to worry about

CEOs are more concerned about threats beyond their control. But is investing in trying to predict the future the best option? Not necessarily.

If it seems to you as though disasters are striking with increasing frequency and severity, you’re partially right. Some of it’s a matter of perception. For example, I’ve worked in New York and lived in New Jersey through 9/11, the financial crisis and Hurricane Sandy - and from my vantage point, the world has become a riskier place. The reality is that at least part of the increased threat is a result of concentration risk – i.e., putting many eggs in one basket, whether that has to do with human migration to vulnerable places (e.g., coastal cities and urban centres), or, in business, with the search for greater efficiency in supply chains, manufacturing sites, and technology networks, when one weak node can take a whole system down. In general, the accelerating rate of change we’re experiencing comes from the pursuit of exciting opportunities that also make us susceptible to uncertainty and risk.

The results of PwC’s 16th Annual Global CEO Survey show that CEOs are increasingly concerned about economic and policy threats beyond their direct control, especially economic volatility and public debt. Moreover, concern about business threats – especially taxes, talent, and raw material costs – is higher than it was a year ago. We asked CEOs to envision several threat scenarios playing out. Of all the scenarios, social unrest in the country where they’re based was the most worrisome by a significant margin. But every scenario – from economic downturn, to pandemic, to natural disaster, to cyber attack – was viewed as having a negative impact by more than half of CEOs.

In Davos last week I met CEOs who confirmed that, like the rest of us, they worry more - and have more to worry about, than before. To address these worries, a majority of CEOs are investing in event-prediction and centralising risk management accountability, according to our survey. However, I’m not sure that’s the right approach to take in a world of increasing complexity. Even with the benefit of hindsight, it’s pretty clear to me that I couldn’t have predicted the level of devastation that the events I’ve experienced directly have wrought. What’s clear to me, though, is that I’ve learned a lot about resilience – the ability to recover from such shocks and changes. Translating that to my role as a business advisor, I’m convinced that investing in organisational and systemic resilience, at every level, is a surer path to success than depending on a brain at the centre of the system to anticipate what’s going to happen.

In the spirit of sharing resilience practices, PwC recently worked with the World Economic Forum (WEF) to analyse three global case studies – on fragile states, regulation, and cybersecurity – a year on from their original publication in the WEF’s Global Risks 2012 report. PwC’s CEO survey results show that these topics register as high concerns for CEOs whose companies are exposed to them. However, the systemic nature of these threats means that companies cannot resolve these concerns on their own. For instance:

  • Social unrest is a grave concern for Middle Eastern and African CEOs – and, presumably, for multinationals operating in politically volatile regions. But such unrest is the product of longstanding political and social tensions that can’t be resolved in a single spring.
  • Overregulation has shown up in our survey as a top concern of CEOs for at least a decade, but what’s more important to CEOs than less regulation is good regulation. We’ve seen CEOs asking for more regulatory clarity on such issues as climate change, pandemic preparedness, and even capital reserves ratios, knowing that systemic resilience requires that each link in the chain is robust.
  • Many CEOs have a way to go to understand cybersecurity, though 63% of them acknowledge that a major cyberattack or Internet disruption would negatively affect their businesses, compared to only 4% who think their organisations could capitalise on the resultant opportunity.

The analyses, including resilience practices, are published by the WEF and will be available soon in PwC’s Resilience: Winning with risk.

 

Miles Everson
US Advisory Financial Services Leader
Email: Miles Everson


 


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