Optimism varies among global CEOs, but slow economic growth expected in 2015

BY Fraser Tennant

CEOs are less optimistic about the prospects for global growth than they were one year ago, according to PwC’s new Annual Global CEO Survey.

The Survey, the 18th of its kind, conducted 1322 interviews with CEOs in 77 countries during the last quarter of 2014. Its key findings include: (i) 37 percent of CEOs think that global economic growth will improve in 2015, down from 44 percent the previous year; (ii) 17 percent of CEOs believe global economic growth will decline, more than twice as many as a year ago; and (iii) 44 percent of CEOs expect economic conditions to remain constant.

Broken down regionally, CEOs in Asia Pacific were found to the most optimistic about the global economy, with 45 percent expecting improvement. In the Middle East this figure was 44 percent and in North America, 37 percent. However, only 16 percent of CEOs in Central and Eastern Europe expect economic improvement.

Despite the overall declining outlook for the global economy, CEOs are confident about the prospects for their own company - 39 percent believe their company’s revenues will grow in the next 12 months.

“The world is facing significant challenges: economically, politically and socially," said Dennis M. Nally, chairman of PricewaterhouseCoopers International. “CEOs overall remain cautious in their near-term outlook for the worldwide economy, as well as for growth prospects for their own companies.

“While some mature markets like the US appear to be rebounding, others like the Eurozone continue to struggle. CEO confidence is down notably in oil-producing nations around the world as a result of plummeting crude oil prices. Russia CEOs, for example, were the most confident in last year's survey, but are the least confident this year.

“Finding the right strategic balance to sustain growth in this changing marketplace remains a challenge.”

Other concerns highlighted by CEOs include: the availability of key skills; over-regulation; fiscal deficits and debt burdens; geopolitical uncertainty; increasing taxes; cyber threats and the lack of data security; social instability; shifting consumer patterns; and the speed of technological change.

Report: A marketplace without boundaries? Responding to disruption

Collaboration and board engagement leads to business sustainability claims new research

BY Fraser Tennant

Companies that embrace collaboration and foster board engagement have a greater chance of achieving business sustainability, according to a new global research study.

The study, carried out for a sixth consecutive year by MIT Sloan Management Review (MIT SMR), the Boston Consulting Group (BCG) and the UN Global Compact, surveyed more than 3,795 executives and managers from 113 countries about the sustainability challenges they faced.

 “While collaboration is not yet the norm, among those who are doing it, we are increasingly seeing a focus on transformational, strategic results”, said David Kiron, executive editor of MIT SMR and co-author of the study. “More than half of reported collaborations aspire to fundamentally change the market in which the business operates, so sustainability efforts are much less likely to be discrete projects and much more likely to engage a company’s entire ecosystem—from suppliers and customers to governments and academic institutions.”

The study’s key findings include: (i) 61 percent of executives whose companies participated in sustainability-related partnerships view these collaborations as quite or very successful; and (ii) 90 percent of respondents recognise the importance of sustainability collaboration but only 47 percent reported that their companies are actively collaborating.

Focusing on board engagement as a driver of sustainability success, the study found that 86 percent of respondents felt that company boards should play a significant role in driving their company’s sustainability efforts. However, just 42 percent considered their own boards to be at least moderately engaged with the sustainability agenda.

“We identified several ways to overcome the barriers to board participation," said co-author Knut Haanaes, a Geneva-based senior partner at BCG. “They include establishing a broader vision of the board as steward of all stakeholders and managers of risk versus the traditional maximising only of shareholder financial value.”

Summing up the findings of the study, co-author Georg Kell, executive director of the UN Global Compact, said: “With commercial activities and investments reaching every corner of the earth, companies increasingly face complex uncertainties and risks related to social, environmental, and governance issues. Companies are starting to see that when they provide a collective voice, share risks, and pool resources, they can deliver transformative solutions that benefit both business and society.”

Report: Joining Forces: Collaboration and Leadership for Sustainability

2015 to bring uncertainty and optimism for largest UK companies suggests Deloitte survey

BY Fraser Tennant

Uncertainty over domestic policy as well as foreign economic and geopolitical risks are the biggest challenges facing the UK’s largest companies in 2015, according to a survey of chief financial officers (CFOs) carried out by Deloitte.

The survey, which features the views of 119 CFOs of FTSE 350 and other large private UK companies, also shows that, despite uncertainties, CFOs are confident as to the prospects for UK growth and business investment in 2015, with their businesses expected to see earnings rise by 2.9 percent. 

Carried out between 27 November and 15 December, Deloitte’s Q4 2014 CFO Survey highlights that: (i) 56 percent of CFOs say that now is a good time to take greater risk onto their balance sheets, down from a record reading of 71 percent in Q3 2014 but still well above the long-term average; (ii) 60 percent of CFOs enter 2015 with above normal, high or very high levels of uncertainty facing their businesses, up from a low of 49 percent in Q2 2014 but at the same level seen 12 months ago; and (iii) 88 percent of CFOs rate the UK as a “good” or “excellent” place to do business, with a quarter placing it in the top-tier of industrialised economies.

“The central challenges facing the UK’s largest companies as they enter 2015 are policy uncertainty at home and economic and geopolitical risks overseas," said Ian Stewart, chief economist at Deloitte. “Rising levels of uncertainty have caused a weakening of corporate risk appetite which, nonetheless, remains well above the long-term average.

“Concerns about policy change after May’s General Election have risen significantly and this is seen as the biggest risk facing UK business in 2015.  Deflation and weakness in the euro area is a growing concern and is now the second greatest business risk, followed by a UK referendum on EU membership and by emerging market weakness.

“This marks a big shift in thinking. Going into each year, from 2008 to 2013, CFOs’ main concern was the state of the UK economy. Now the risks are seen as lying elsewhere.” 

The Deloitte Q4 2014 CFO Survey is the 30th quarterly analysis of CFOs of major UK companies. It is the only survey concerning valuations, risk and financing which seeks the views of major financial players in the UK.

Report: The Deloitte CFO Survey: 2014 Q4

Asia Pacific investment: PwC presents executives’ 10 year perspective on growth

BY Fraser Tennant

Senior business executives’ views on the opportunities for growth and business investment in the Asia Pacific region over the next 10 years form the basis of PwC’s 2014 APEC CEO Survey.

The Survey – ‘New vision for Asia Pacific: Connectivity creating new platforms for growth’ – shows that business leaders believe that a more connected, more balanced APEC region is the way forward.   

The 600 senior executives surveyed as to their perspectives on investment, trade and connectivity, were unanimous on what they believed the region had to do to drive investment over the next decade – 'be bold and break down barriers to growth'.

The Survey also reveals that the senior executives see the momentum swinging toward free trade across the APEC region and goes on to speculate as to where businesses are likely to be building their platforms for growth.

Key findings in the report include: (i) investments are set to rise across the region; (ii) confidence in revenue growth continues to improve; (iii) process barriers to trade can be as material as tariffs; (iv) executives aspire to do more with business partnerships; and (v) confidence lags on returns from social network investments.

Dennis Nally, PwC’s global chairman, said “As more of the world’s economic activity shifts to the APEC region, confidence and revenue growth continues to improve. Our survey revealed that 46 percent of executives are very confident as to near-term revenue growth over the next 12 months.

“Businesses are acting on opportunities across the APEC region and a majority of CEOs plan to increase investment over the next year. Supporting much of this confidence is a vision of a more connected Asia Pacific region.

“As the world becomes more inter-connected, there is no choice for businesses to not only adapt, but to innovate.”

While the survey makes clear that many barriers to business growth in the Asia Pacific region have receded, others remain firmly in place. What business leaders say they are looking for is greater clarity and transparency around regulations and other 'soft barriers'.

Whether they get their wish remains to be seen.

Report: New vision for Asia Pacific: Connectivity creating new platforms for growth

HP splits in two

BY Richard Summerfield

Computing giant Hewlett Packard has unveiled plans to separate its business into two distinct publicly traded entities, one consisting of the company’s personal-computer and printer operations, the other its corporate hardware and services business. The division of the company will see HP shed around 5000 jobs and is expected to be complete by the end of 2015.

According to HP, the company’s software and services businesses will be known as Hewlett-Packard Enterprise. The other side of the business – the PC and printing units – will be known as HP Inc, and will keep the existing HP logo. The firm’s incumbent chief executive, Meg Whitman, will continue to run Hewlett-Packard Enterprise and act as chairman of the PC and printing business. HP’s chief financial officer, Cathie Lesjak, will also remain with the enterprise company. Dion Weisler, current head of the printing and personal systems group, will lead HP Inc. Pat Russo will assume the role of chairman of HP Enterprise. “In short, by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders,” said Ms Whitman in a statement announcing the division.

HP is believed to have considered a separation of its PC business for some time. Indeed, in 2011 the firm announced that it was contemplating spinning off or selling its PC unit, allowing it to focus on selling servers and other equipment to business customers, much like competitor IBM had done six years earlier. However, the proposed spinoff was halted by spooked investors who felt that the separation would jeopardise both branches of the company. The plan was cancelled and the chief executive responsible for the proposal – Léo Apotheker – was dismissed.

Based on revenues generated during the last financial year, the separation of the HP units will create two roughly equally-sized firms. The company’s PC and printer businesses produced revenues of $55.9bn in its last financial year, almost identical to the combined $55.7bn of its enterprise computing, services and software divisions. In trading following the announcement, HP’s stock jumped nearly 5 percent.

HP’s announcement came just days after US e-commerce giant eBay Inc declared its intention to spin off its PayPal business into a separate publicly traded company in 2015.

Source: HP to Separate Into Two New Industry-Leading Public Companies