A leadership agenda to take on tomorrow

Sustaining COVID-era urgency. As leaders prepare for the anticipated rebound, a critical question will be: which management approaches should businesses retain from the rapid response mode most of them embraced during 2020? Fast, high-quality decision-making—a hallmark of many companies’ pandemic responses—will be on the top of most leaders’ ‘keep’ lists. Priorities include ensuring top management is focused on the big issues that matter most, engaging with people up and down the organisation, revisiting critical decisions frequently, and pushing, early, to understand unintended consequences.

Industry effects

Industries were affected in different ways by COVID-19, as lockdowns and other restrictions changed the way we work, live, travel and shop. This disparity is reflected in confidence levels, both in our survey results and in our interviews with CEOs.

The hospitality and leisure and transportation and logistics sectors are among those with the lowest reported confidence levels. “Whether we like it or not, the next 12 to 24 months are going to be bumpy…. Our goal is to get back to at least 2019 levels in three years,” says Dillip Rajakarier, group CEO of the Thailand-based hospitality firm Minor International, which operates luxury hotels and spas in more than 50 countries. Noni Purnomo, president director of Indonesia-based Blue Bird—which, among other holdings, operates the country’s largest taxi fleet—also acknowledges the challenges of recovery: “We hope by the second half of the year we’ll be able to see significant improvement. But the impact on business will be lagging…. Our target is to reach 90% of our January/February 2020 revenues by the end of 2021.”

In contrast, CEOs in technology are more confident than their peers in every other industry, a natural byproduct of the pandemic’s digital acceleration. “We’re feeling surprisingly optimistic,” notes Steve Hare, CEO of UK software firm Sage Group. “We’ve started to see new customer-acquisition levels normalise…and small and medium-sized businesses in general are pretty optimistic about the longer term because they are agile.”

CEOs of companies in industries that witnessed favourable changes in consumption patterns during the pandemic also have a positive outlook. A case in point: sales of electric guitars. Revenues at US-based stringed instrument manufacturer Fender Musical Instruments grew by about US$100m in 2020. Says CEO Andy Mooney, “The complete reverse of what we anticipated happening is happening. We’re now looking at expansion…. I’m very optimistic that we’ll get significant growth again in 2021 and beyond.”

The pandemic experience, sector by sector. Taking a closer look at the effects on companies in different industries, we see how many will be reinventing their workplaces as the vaccine rollout continues—with flexible work models becoming a permanent fixture for a range of roles, including sales, finance and technology. But striking the right balance will be more challenging in industries such as hospitality, transportation and retail, where business model changes are likely to require significant shifts in deeply ingrained customer behaviours and employee ways of working.

Lingering anxiety

Despite their confidence, CEOs are acutely aware of threats in the external environment, starting with the obvious: pandemics and other health crises are the number one threat on this year’s list, with 52% of CEOs stating they are ‘extremely concerned.’ The last time we asked this question, six years ago, this threat was selected as an extreme concern by just 9% of respondents.

At the time our survey was in the field, new variants of COVID-19 were being tracked around the world, vaccine rollout efforts were uneven in many wealthier nations, and governments in many emerging markets were struggling to procure vaccine doses. The pandemic’s staying power raised a host of business-specific questions for CEOs. For example, Deryl McKissack, president and CEO of McKissack & McKissack, a US-based architecture, engineering and construction management firm, reflected on the design of public spaces, observing, “The anxiety isn’t going away. I believe many of these measures [to implement design changes] will be permanent. Public health officials are speculating that COVID-19 will be endemic, with sporadic repeats thanks to globalisation.”

The wall of worry. Overall, the sheer magnitude of concern about most threats has increased since our 2020 survey, despite CEOs’ rise in confidence. Navigating this tension is a perennial leadership challenge that feels particularly acute at the moment. When we convened PwC’s global network leaders in mid-February to review our survey results, they observed that, although CEOs tend towards optimism, many had been asking questions about the potential for inflation and the possibility that global markets had priced in too perfect a recovery. The tug-of-war between anxiety and optimism has only increased in recent weeks, with market volatility on the rise.

Cyber threat is the top concern for CEOs in the asset and wealth management, insurance, private equity, banking and capital markets, and technology sectors. Says Uday Kotak, founder and CEO of India-based Kotak Mahindra Bank, “During COVID, we have witnessed increased fraud in the banking system. The thought of losing my customers’ money to theft is what keeps me up at night. So, while COVID has brought about a significant increase in digital adoption and transactions, it has also increased the risks associated with digital.”

Also rising rapidly on the list of CEOs’ concerns is the spread of misinformation (28% are ‘extremely concerned,’ up from 16% in last year’s study), the recent impact of which on elections, reputations and public health has been profound. At its core, misinformation reflects today’s historically low levels of trust. For business leaders who need to build back this trust, being transparent about the efficacy of products and sharing data can help.

Albert Bourla, chairman and CEO of US-based pharmaceutical company Pfizer—which partnered with the German firm BioNTech to develop one of the first vaccines to earn widespread regulatory approval—acknowledges the importance of transparency and trust in encouraging COVID-19 vaccination. “Let’s focus on getting as many people as possible vaccinated and generate data that will convince even the more sceptical…. We have to teach people that the decision not to take it isn’t a decision that will affect only themselves. It is a decision that will affect society.”

The perils of corporate complexity. As companies expand their use of external partnerships to enable digital solutions and layer them onto legacy IT structures, the complexity created tends to generate ever-greater cyber risk. The temptation is to focus security efforts on risk dashboards, surveillance and technical initiatives. But leaders who are serious about cybersecurity also need to embrace simplicity in their strategic dialogue about their business models, ecosystems and in-house processes.

Digital acceleration

The increase in CEOs’ concern about cyber threats and misinformation coincides with the rapid acceleration of many companies’ digital transformation during the pandemic—efforts that are not slowing down. “We were on our digitalisation journey before COVID-19, but now it has gained its own momentum,” notes Jeffri Salim Davidson, group CEO of Malaysia-based conglomerate Sime Darby Berhad, with holdings in heavy equipment, auto, healthcare and logistics. “In the past, we wanted to get everything 100% correct before we launched a digital product, but now it’s a matter of getting it out there and refining it as we go.”

Adds Blue Bird’s Noni Purnomo, “People still need to move, and transportation is still needed—it’s just they want to have it be as low touch as possible. It’s why we’ve been focusing on developing our reservation service, our e-money and the noncash payment service, both for our customers and for our own drivers.”

Nearly half of CEOs plan increases of 10% or more in their long-term investment in digital transformation. Paradoxically, despite the level of concern CEOs registered about cyberattacks, just under half of those planning for heightened digital investment are also planning to boost their spending on cybersecurity and data privacy by 10% or more.

Today’s digital focus contrasts with the situation in 2010, after the global financial crisis, when the biggest investment priority for CEOs in our survey was gaining cost efficiencies. Sage’s Steve Hare captures today’s urgency: “I think finally, and particularly among small and medium-sized businesses, people realise that digital transformation is absolutely essential…. We need to invest.”

Making the most of tech investment. Quietly riding on the back of the pandemic-induced digital acceleration was a less-visible surge in the adoption of advanced analytics and artificial intelligence (AI) to inform decision-making. Partly as a result, the gap between AI leaders and laggards is widening, according to PwC research. Companies on the leading edge are more deeply embedding AI in customer-focused applications, back-office applications and risk management—while addressing algorithmic bias so that stakeholders trust the outputs.

People and productivity

When asked to prioritise the societal outcomes that business should help deliver, CEOs put the creation of a skilled, educated and adaptable workforce at the top of the list. At the same time, a growing number of CEOs are seeking to boost their organisation’s competitiveness through digital investments in the workforce; 36% aim to focus on productivity through technology and automation, which is more than double the share of CEOs who said the same in 2016. Anecdotally, CEOs in a variety of industries have told us about their plans to incorporate or expand their use of automation.

“It’s about automating inspection: of the tracks, of the rail itself, of the rolling stock,” says JJ Ruest, CEO of CN, a North American freight rail and transportation company based in Canada. “Historically, experienced people would do inspections and decide when it’s time to do a repair. But now we want our people to be fixers, not finders.” Wayne Peacock, CEO of US-based insurer USAA, explains that previously, “we would create a paper [claim] file, and then a few days later a person in the field would show up. Today, it is digitised all the way through. Now we’re applying the capability to bring photos and images into the equation, and then use those images to calculate the cost of damage rather than having a human do it in person.”

Addressing asymmetries. There is another side to this conversation, of course, as productivity through automation threatens to leave some behind. Although just 20% of CEOs are ‘extremely concerned’ about economic inequality as a threat to their growth prospects, the pandemic has amplified asymmetries among individuals, companies and countries, and has raised questions about how we can recouple social and economic progress. Upskilling or reskilling employees to enable their full participation in the workforce means creating more inclusive and sustainable economies and societies that pull people along and catalyse deeper connections between humanity and the economic marketplace.

Taxing times ahead

Increased productivity will be an important driver of economic recovery, but in the meantime, governments seeking to mitigate the impact of the pandemic both on the domestic economy and on individuals have taken on substantial debt. It is perhaps no surprise, then, that tax policy uncertainty made a notable rise on the list of threats (it ranked seventh, up from 15th last year). CEOs are undoubtedly watching debts accumulate as governments intervene with stimulus packages, and realise that the public will expect business to pay its fair share.

Cross-border competition seems likely, as governments develop tax schemes to benefit their national interest—creating significant complexity for multinationals with global operations. “I’m pretty confident that in a couple of years’ time, the economy, by and large, will be back on its trajectory: less steep, less global and maybe less interwoven or more balanced,” says SHV Holdings’ Jeroen Drost. “I don’t think it will be completely back, because I think there will be a couple of fundamental changes in global trade. That has [mainly] to do with the impact of geopolitics, local politics, the closing of borders and introducing cross-border taxes.”

Platform-based companies, for example, which have profited during the pandemic, could face rising digital taxes from multiple sources. Moreover, greater tax transparency is coming; although already the norm in some parts of the world, this will represent a sea change in others. Anxiety and accountability for how much companies pay in taxes, and where they pay them, appear to be rising in tandem.

A new era of compromise. The tone of tax policy discussion, especially during challenging economic times, tends towards the confrontational. But what we need right now is collaboration based on balance and fairness. Balance is needed because tax is a global issue; it affects where countries invest, where companies operate and where people work. Fairness may get a boost from stakeholder capitalism metrics that set standards for tax contribution reporting: transparency goes a long way in building trust.

Global nuance

As cross-border competition heats up global tax debates, CEOs foresee some cooling of global trade tensions. Both trade conflict and protectionism dropped on the CEO threat list, in relative and absolute terms.

But there’s considerable nuance behind that top-line story. Trade conflict still ranks as a top-ten threat in China and Germany, both of which depend on export-driven growth. In China, which has often found itself at the centre of debates, trade conflict is CEOs’ second-highest source of worry. It’s hard not to wonder whether fundamental tensions will reassert themselves as we move past the landmark moments, such as resolution of the US presidential election and of Brexit uncertainties, that immediately preceded our survey period.

It’s also important to recognise that trade patterns and partnerships are in flux. For example, CEOs in the US are reducing their emphasis on China as a growth driver, and increasing their focus on Canada and Mexico; compared to the findings in our last survey, US CEOs’ interest in the latter two countries rose by 78%. Those trends are contributing to a broader shift of the US extending its lead over China as global CEOs’ most important growth destination. China CEOs, meanwhile, report growing interest in large economies such as Japan, Germany and the US—prime sources for exports. The UK, post-Brexit, moved to the number four spot overall on the list of growth destinations, surpassing India. And in recent months, we’ve seen the emergence of new trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) in Asia, that could have a deep impact.