For example, businesses feel they can be trusted to do the right thing – but in many cases, regulators disagree. Geopolitical uncertainties are effecting CEOs’ willingness to invest heavily in the innovation needed to achieve growth. Businesses are showing the strain as they watch the traditional economic and social tapestry unravel, as they define and managing yesterday’s risks. The atmosphere between business and the increasingly empowered customers they serve is changing. And though many businesses already subscribe to responsible business as an essential investment that contributes to the bottom line, they’re struggling to measure and communicate their achievements, putting stress on their relationships with government and the public.
But it’s not all bad news – where tension exists, so does opportunity. Those companies that manage their risks, relationships and reporting well may be able to take advantage of a market that rewards agility, transparency and a long-term outlook.
The results from the CEO Survey highlight tensions in four areas:
CEOs selected over-regulation as their top threat. Fully 79% were concerned that over-regulation posed a threat to their organisation’s growth prospects. The CEOs from Latin America were most concerned on this – notable, considering 54% of CEOs selected one or more BRIC countries as the most important for their overall growth prospects in the next 12 months. This may suggest that a volatile regulatory environment might very quickly affect where, and how positively, CEOs see growth markets.
It comes down to approach. Those organisations that handle regulation on a case-by-case basis are likely to find themselves at best treading water with the regulators and at worst continually having to pull the organisation back from the brink of – or from actual – disaster.
Good organisations recognise that their approach to regulation defines their resilience, contributes to good practice in the market overall, helps control the competition, keeps compliance costs down and contributes to good governance and their company’s performance.
"However, there is so much coming in terms of new rules and regulations, and there is so much coming in terms of additional capital requirements and liquidity requirements, that it starts to pose a threat to economic recovery on one side. But it also starts to become a threat for regulators to really have the right and complete picture, because a lot of this regulation comes at us in a very uncoordinated way from different regulatory bodies."
CEO, ING Group, Netherlands
The last few years have seen increasing tension over the possible roles of business in society. CEOs’ chief challenge is: how can they shape their businesses to protect and grow the bottom line while meeting the needs of disparate stakeholders with divergent views? Companies have to discover who matters to them as a stakeholder, and to whom they matter.
The survey revealed that multiple divergent forces are making life hard. CEOs’ customer and client base is not nearly as homogenous as it used to be (nor as local). And their clients and customers are playing a much greater role in setting priorities that had previously been the remit of (primarily) business and government. Eighty-three percent of the CEO respondents saw the world moving towards multiple value systems. And CEOs told us that in spite of the cohering benefits of the web and continuing globalisation, other factors are pulling their companies in opposite directions: nationalism, multiple economic models, opposing value systems, varied laws and trading blocs.
But a closer look at the data shows that CEOs themselves are split about how to respond consistently to demands beyond the bottom line. To one question, 67% respond that their ‘purpose’ is centred on creating value for stakeholders beyond the customer. But to another, 53% respond that the purpose of their organisation is to create value (primarily) for the customer, with ‘wider society’ only getting 31% of the vote.
But technology has revolutionised the ability to know and understand the breadth of their stakeholders. Companies have stacks of information that can tell them about habits, beliefs, intentions and expectations of their customers and clients. Some CEOs are using this data effectively to manage their business better. And much of this data is available to regulators too, allowing them to build a much better picture of how individual businesses arrange and undertake their operations.
"We have to have propositions which are based on sound ethics but which customers are prepared to pay a commercial price for. And getting that balance right is fascinating and not necessarily straightforward. "
CEO, The Cooperative Group, UK
The results of the CEO Survey reflected leaders’ desire to better measure traditionally ‘harder’ elements of their business but better communicate the ‘softer’ aspects. This is most likely a response to increased pressure on companies to provide more than just a financial window into their operations and performance, but it also suggests that CEOs feel there are improvements to be made to traditional financial reporting too.
CEOs were asked what they wanted to measure better, and separately what they wanted to communicate better. Their responses indicated that they believe measurement has value far beyond reporting. Fifty-five percent of CEOs stated that they were keen to better measure innovation – even above areas like environmental impact (39%) and non-statutory financial information (37%).
While financial information remains the bedrock of performance reporting, the survey results show that CEOs recognise the importance of providing insights that tell their shareholders how they create value. At a time when the balance of global corporate worth rests overwhelmingly in intangible assets, it might be hard to see how a company is – and might remain - successful
What CEOs should be concerned about is discovering the level of comfort or assurance stakeholders (including their own decision-making infrastructure) require over reported non-financial information and then acquiring the tools to enable it.
Even before they address what level of quality or maturity of information they are willing to rely on, companies should be questioning the way they collect and examine the information in the first place. Should they wait until there are tools or best practice for collecting such information and frameworks for providing comfort over it, or should they create and test their own frameworks?
Seventy-six percent of CEOs agreed that business success in the 21st Century will be defined by more than just financial profit, so it is arguably high time that robust measurement and ‘confidence’ methodologies – whether market-wide or on a business-by-business basis – were put in place to calculate and understand the indirect value that allows companies to continue to operate in their chosen environments.
of CEOs agreed that business success is defined by more than just financial profit.
CEOs believe risk has generally increased and diversified. Many were extremely concerned about supply chain disruption, bribery and corruption, exchange rate volatility, new market entrants and the speed of technological change.
But the CEO Survey highlighted a group of CEOs that were able to remain confident despite these mounting threats. Fourteen percent of the total sample of CEOs were optimistic about the global economy at the same time as acknowledging the spread of risks. For example, within this group of CEOs, 72% also believed there are more opportunities today than there were three years ago, versus 60% of all CEOs. They were also much more likely than the CEOs overall to be increasing headcount, by a 70% to 48% margin.
The tensions that other CEOs were struggling to manage – between the long and short term, between profit and value for stakeholders beyond the balance sheet and between cutting back and investing to succeed – were proving less difficult for this small slice of leaders. Their answers suggested that these CEOs were keen to achieve not just financial profit, but to address a broad range of concerns as part of their business model.
In managing these risks, CEOs also put their companies in a strong position to handle different, but related, areas of tension. Whether or not they decide to serve a wider range of stakeholders, they have examined the purpose of their business, and have got their story straight.
The CEOs in this year’s survey told us they don’t want to be over-regulated; they want to know how to shape their business to deliver for a diverse set of stakeholders; they want to know how to best communicate how they see their business surviving and providing value; they want to know how to harness technology to manage new and evolving challenges and they want to know which of the myriad risks in today’s global business environment to focus their efforts on, and which to filter out.
But with their answers, the CEOs also described a future that is far from bleak. Resilient, innovative businesses are finding ways to address the challenges particularly by looking to the long-term. They are unafraid to investigate the true motivations and impacts of their business, and secure the future of their company using improved information to make crucial decisions.