Central and Eastern Europe
The new equation for leadership in CEE
Following the launch of the 25th Annual Global CEO Survey, on 17 February we held a CEE Executive Webcast to present and discuss the results for our region. The event was hosted by PwC CEE CEO Nick Kós, CEO of PwC CEE and moderated by András Batiz, TV presenter and owner of Impact Works.
We were joined by regional business leaders. Many thanks to our panelists:
Missed the event? Watch the highlights below:
To meet challenges such as the impact of the COVID-19 pandemic, leaders will need to create sustained outcomes for their many stakeholders, even when their interests do not overlap. The need to take decisive action has never been as strong. The business of business is no longer just business. In many cases it is now expanding to include larger societal issues such as mitigating climate crisis and bridging the socioeconomic divide.
Our 25th Annual Global CEO Survey tracked the responses of 4,446 CEOs from 89 countries and territories, including 178 business leaders from the CEE region. This year, the results help provide a glimpse of what is possible when we reimagine the status quo. When we adjust to the new normal, and put effort into decarbonisation efforts and building trust.
Above all, the insights of our 25th Annual Global CEO Survey highlights the need for bold leadership to think and act as global citizens and problem solvers.
Here are key results and insights from our survey of CEOs across Central and Eastern Europe.
Around the world, despite the pandemic, business leaders continue to be confident in economic growth prospects. When it comes to their outlook on the global economy, whilst CEOs in our region are more cautiously optimistic about economic growth compared to the rest of the world, they are more positive about areas they can control.
Globally, 77% of CEOs said they believe global economic growth, such as gross domestic product, will improve over the next year. This is compared to 68% of CEOs in CEE who think the same. While the majority of CEOs in CEE are optimistic about the future of global economic growth, they remain more conservative than their global counterparts in their estimations.
CEOs were more optimistic about their own company’s revenue growth. The same percentage of CEOs (CEE: 84%, global: 85%) expressed confidence in their company’s growth prospects for the coming 12 months. In spite of, or perhaps even because of, the past year of uncertainty, leaders in the region are showing more confidence that they are moving their company in the right direction.
(Showing only 'improve' responses)
(Showing ‘extremely, very and moderately confident’ responses)
CEE leaders are now looking closer to home when it comes to potential growth opportunities. Germany remains, by far, the top focus for growth (38%). This interest in Germany is also mirrored by global CEOs, though not to the same extent, with the US remaining the most important location for growth overall at 41% and Germany in third place at 18%.
These numbers reflect the regional operational footprint of many companies in CEE, which are looking closer to home for growth opportunities. Within the CEE region, CEOs indicated an increased focus on Russia for their future growth – putting the country on par with China (12%), the UK (11%) and Italy (10%).
Comparing this to last year’s survey, our region shows dynamic changes in where CEOs see the most growth potential. The importance of Germany is increasing in CEE, up ten percent from 28% in 2021. The US has slipped four percent from 23% in 2021, with China also down from 18% last year to 12% in 2022. Among global chief executives, meanwhile, the US increased in perception of importance as a business growth destination from 35% last year to 41% this year. Germany (from 17% in 2021 to 18% in 2022) and China (from 28% in 2021 to 27% in 2022) remained stable as growth destinations in the eyes of global business leaders.
Are we seeing a pivot to localising supply chains and markets in the region? With the events of the COVID-19 pandemic and the new world which is emerging, global logistics and operations have become more difficult to maintain. Having near-shore suppliers and markets may help businesses to grow more securely.
Concern over major threats has grown across the board, as business leaders strive to adjust to the new normal in this period of uncertainty. CEE business leaders are more aligned with their global counterparts than last year in their perception of the major threats to their business. Health risks were stated to be the biggest concern by CEE CEOs (53%). For global CEOs, however, cyber risks took the top spot (49%) with health risks following closely as a top concern (48%). Macroeconomic volatility was ranked second in CEE and third globally (CEE: 48%, global: 43%). Fourth on the threat list for both global and CEE chief executives were concerns about climate change, with 33% of CEOs expressing concern over its impact on their business.
(Showing only ‘very concerned’ and ‘extremely concerned’ responses)
In comparison to last year's CEO Survey findings, cyber risks and climate change have climbed up the list of top threats perceived by regional business leaders. In 2021, only 33% of CEOs named cyber threats among the top risks to their business, and climate change did not make into the top five. The numbers show that the immediacy of the pandemic still weighs heavily on the minds of CEOs. But, it does seem that more and more leaders understand that, in our increasingly complex and digital world, mitigating the effects of future challenges on businesses will rely heavily on cybersecurity and privacy. In fact, in our 2022 Digital Trust Insights Survey, over 50% of CEOs in CEE stated that too much cyber complexity is leading to concerning levels of risk to their business. However, fewer than 20% had realised benefits from the previous investments in cyber simplification, showing that while cyber grows as a threat profile, CEOs in the region are struggling to manage potential risks to their systems.
The business threats accounted for by CEOs from 2021 to 2022 have changed significantly. And this sends the signal that a more sustainable mindset may be driving the actions and perceptions of leaders in the region – it gives hope of a more progressive outlook. The problems CEOs are monitoring closely may not pose an immediate threat today, but if not managed in the short term, then they may cause bigger issues in the future, even after the CEO has left a company.
From the threats perceived, it appears that CEE CEOs are starting to grasp the role they need to play in driving action against global challenges such as climate change and the pandemic. Following that, we asked chief executives which non-financial outcomes they will be most focused on. An interesting picture emerges when mapping which of these outcomes are included in a company’s long term corporate strategy and which are included in the CEOs long-term incentive plan.
CEE figures match or even exceed those reported globally for the non-financial outcomes “Customer satisfaction metrics”, “Employee engagement metrics”, and “Automation and digitisation goals”. It could be argued that these are the most business-minded non-financial outcome metrics, and so it is not surprising that these are by far the most mentioned among all CEOs.
On the flip side of things, fewer CEOs globally and relatively fewer in CEE reported that their long term company strategy and personal bonus or incentive plan is linked to the emerging non-financial related outcomes of “Gender representation rates”, “Greenhouse gas emission targets’, and “Race and ethnicity representation rates”.
Globally, those CEOs who have more emerging non-financial related outcomes in their incentives plan also perceived that their customers trusted them more. By this logic, tying ESG metrics to executive pay may help show customers how seriously a CEO takes their ESG commitments. However, this merely demonstrates commitment to customers. For real ESG action, pay needs to follow strategy. As a recent PwC report makes clear, ESG metrics need to be part of a company’s strategic priorities, which are then encouraged with incentives.
After the past year of extreme weather events and widespread attention to ESG and COP26, climate concerns are more prevalent on the business agenda. Where they have typically fallen short, CEE CEOs have caught up with their global peers when it comes to making decarbonisation commitments. But the nuts and bolts of how those commitments are measured and incentivised could still be improved in CEE businesses.
The percentage of CEOs in CEE that have made a carbon-neutral commitment exactly matches the global figure, at 26%. And a slightly lower percentage of CEOs in CEE have made a more ambitious net-zero commitment, at 19% compared to 22% globally. The dial has definitely moved up regarding where CEOs in the region stand on mitigating climate change – in 2021 when asked about areas of value they believe their organisation should be doing more to measure, 39% of CEOs globally chose Environmental impact, vs just 29% in CEE.
When we look closer at the businesses who have made a decarbonisation commitment in CEE, leaders are less likely to have science based targets, and they are less likely to link non-financial results to their own reward packages. Of those who have made a net-zero commitment, 23% of CEOs in CEE said they don’t know which science-based target, if any, their commitment is aligned to, compared with 11% globally.
Without a science-based target, CEE leaders will find it harder to measure the impact of their net zero actions. In comparison, the global numbers show large companies are highly represented in committing to a science-based target: nearly two-thirds of those with revenues of $25 billion or more have made a net-zero commitment, compared to 10% of companies with revenues of less than $100 million. And the public companies in our sample are more than twice as likely than the private companies to have made a net-zero commitment. These findings point to the oft-cited echo chamber phenomenon – the leaders of companies that understand the need to take dramatic action, which tend to have larger revenue and resources, are the most vocal and active.
Having transitioned to a capitalist market three decades ago, businesses in CEE are still relatively young compared to their global counterparts. However, with new EU legislation on the horizon, net zero efforts will become mandatory to report for businesses, making decarbonisation more urgent. The reverberations of this can also incite a domino effect in surrounding non-EU states in the region. So how can CEE CEO’s map the global need for net zero to the realities of our region? We will explore this and more in our decarbonisation webcast.
ESG commitments are not the only way the business community can contribute to building trust and achieving sustained outcomes for society. Notably, business leaders in CEE are much more vocal and proactive on another lever of the business community’s contribution to society: taxes. CEOs in CEE have occupied a position that is somewhat more progressive and proactive than their global peers.
(Showing ‘strongly and moderately agree’ responses)
In a broad sense, company boards in CEE and globally are equally focused on reviewing tax strategies, but there are some interesting divergences in responses on three other tax related questions. While 37% of CEOs globally said they strongly or moderately agree their company aims to minimise the amount it pays in taxes, only 28% of chief executives in CEE said the same. In CEE, 49% of CEOs in CEE strongly or moderately agreed that their company effectively communicates to the public all the taxes it pays, compared to the global figure of 33%. Finally, CEOs in CEE reported a greater concern than their global counterparts about the link between the amount of taxes it pays and reputational risk: 27% strongly or moderately report increasing concern compared to only 20% globally.
Why is this? In CEE contemporary tax systems were introduced only after the fall of Communism – one of the key attributes developed of what it meant to be a good corporate citizen was to be a good/trusted taxpayer. Thus, communicating effectively to the public all the taxes a large company pays became a cornerstone of corporate communications in CEE.
However, when it comes to planning for the discussions of a global effective minimum corporate tax rate, business leaders in CEE seem to be slightly behind the curve than their global counterparts in scenario planning for this.
Looking ahead for business leaders in the region, the conservative outlook they share on growth may not play to their advantage when it comes to strategy and transformation.
Overall, the results show major shifts in CEE CEO mindsets and commitment to tackle global challenges and net zero. However to drive these commitments fully into actions, they will need to better support their intentions with tangible actions. This means improving on their flexibility and agility when it comes to feeding commitments into their company’s long term strategy.
When asked about how often they communicate major initiatives internally and reassess strategy, the majority (57%) of the global companies said they communicate their major initiatives at least twice a year. Far fewer CEOs in the CEE region reported doing the same (44%). We see the same gap in the flexibility when it comes to how often they assess major initiatives: 35% in CEE said they assess at least twice a year, compared to 43% globally. And in how often they change their major initiatives: 12% in CEE make changes at least twice a year, vs 17% at the global level.
Across the board, perceptions are more aligned on the problems the world is facing, but how our regional CEO’s go about fixing them will require a higher level of agility, openness and flexibility when initiating net-zero commitments and regularly checking on their impact. How can this be better improved? We will be exploring more on decarbonisation, trust and delivering sustained outcomes in our upcoming CEE Executive Webcast.
PwC surveyed 4,446 CEOs in 89 countries and territories in October and November of 2021. The global and regional figures in this report are weighted proportionally to country or regional nominal GDP to ensure that CEOs’ views are representative across all major regions. The industry- and country-level figures are based on unweighted data from the full sample of 4,446 CEOs. There were 178 CEOs from Central and Eastern Europe included in the sub-sample. Further details by region, country and industry are available on request. Ninety-four percent of the interviews were conducted online and 6% by post, by telephone or face-to-face. All quantitative interviews were conducted on a confidential basis.