CEO Insights for What's Ahead | 11.16.22
The US Consumer Price Index (CPI) rose?7.7 percent?year-over-year in October, down substantially from 8.2 percent in September. In month-over-month terms, CPI growth held steady at 0.4 percent.?
Welcome relief:?While inflation remains at a 40-year high, October’s readings are consistent with our forecast that topline year-over-year CPI growth likely peaked in Q2 2022. Improvements in October were fairly broad based, with month-over-month inflation moderating in many categories and some—like used vehicles and apparel—even seeing prices fall. However, this progress was partly offset by elevated shelter and energy prices.?
A long way to go:?October’s data are a promising signal that the Federal Reserve’s fight against inflation is gaining ground. But a return to its 2 percent inflation target remains a distant goal—and a long-term struggle likely to last the whole of 2023. We thus expect the Fed to raise interest rates by another 50bp in December and continue monetary tightening well into next year. These moves are likely to trigger a short, shallow recession by year-end.
According to the quarterly American Customer Satisfaction Index, customer satisfaction has declined consistently in the past four years, except for two quarters. That is despite customers remaining companies’ number-one stakeholder, as research by The Conference Board has shown.?
The issue:?Often a less costly fill-in for humans, technology can provide 24/7 self-service, give access to a wealth of information, leverage its AI savviness for customers’ benefit, and serve many customers concurrently. But it can also frustrate customers and make service feel impersonal. The labor shortage, which may be more systemic rather than temporary, will continue to challenge companies to provide an experience that keeps customers happy.?
The opportunity:?While product and labor shortages have kept customers patient and loyal despite disappointments, the strong demand might soften soon given the weakening economy and increasing interest rates. That may increase competitive pressure and could be an opportunity for companies to differentiate themselves with great customer service. Such differentiation can benefit companies’ financial results not just by generating repeat and new business, but also by increasing people’s willingness to pay.
Signaling to stakeholders that ESG is a priority is the number-one reason companies are linking pay to ESG performance, according to a recent roundtable discussion at The Conference Board. Other popular drivers are responding to investor expectations and achieving ESG commitments that a company has previously made.
A possible red flag:?While these are valid reasons, they also raise concerns. Investors want companies to have executive compensation programs that drive performance, not that send signals. They also want to be sure that compensation is truly performance-based. If ESG goals in annual incentive plans are vague or easy to achieve, investors will see it as shifting a percentage of executive compensation from performance-based to guaranteed.
The path forward:?Companies should incorporate ESG goals into executive compensation because they are linked to the?company’s strategy?and can drive?meaningful change. They may want to build ESG goals into their business plans for a few years before incorporating them into compensation programs. And if they are looking to positively impact an environmental or social issue, they can consider other ways of advancing ESG goals beyond executive compensation.
You’re invited to be our guest at our global virtual conference, Navigating The Economic Storm: Real-Time Solutions, including a complimentary registration.
?Date:?Tuesday, November 29
?Times:
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The risk of another global recession is growing larger by the day:?While it may not be possible to avoid an economic downturn in some economies at this point, there are strategies that governments and businesses can adopt to moderate the impact.
Join The Conference Board on November 29:?Explore the global economic outlook, the path forward for policy makers, and the strategies that businesses can implement to help weather the storm.
With COP27 in full swing, climate change mitigation is top of mind. A key component of sustainability is responsible packaging, the focus of a new podcast from the Committee for Economic Development, the public policy center of The Conference Board (CED). The episode’s guest is CED Trustee Stan Bikulege, Chairman and CEO of Novolex, a manufacturer of diverse packaging products.?
Will bans improve responsible packaging??As Bikulege notes, bans on products often prevent innovation and can sometimes cause unintended consequences. For instance, New Jersey banned plastic and paper bags; now, home delivery products are being placed in reusable bags, but there isn’t a way to recycle them. Both the consumer and environment would be better served with materials like recyclable plastic or paper bags.?
The path forward:?Maximizing the benefits of recycling will require proper consumer education and improvements to recycling infrastructure. Consumers need more information on how to recycle, and products must be labeled in a way to promote consumer education. Achieving this will require more robust recycling infrastructure, which federal funding could help support.
QUOTABLE
“This has got to be an integrated, enterprise-wide approach…We have to tell the story about where we're headed and how our people are going to be getting us there.”?
—? Rebecca Ray , Executive Vice President of Human Capital at The Conference Board. Ray joined the?CEO Perspectives?podcast for a conversation on how businesses can—and should—tell their human capital story.
Register for a complimentary webcast?this Thursday, November 17, on how to improve investments in, and disclosures about, human capability.
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