CEO Insights for What's Ahead | 9.13.23
Banking Crisis Redux? Stress in Financial Markets is Returning
It has been six months since the height of 2023’s banking crisis, which forced the failure or rescue of Silicon Valley Bank, First Republic, and Credit Suisse, among others. While financial stability was quickly restored, concerns about the US banking sector are now resurfacing.
Warning signs: Notably, ratings agencies have issued a series of downgrades of banks heavily exposed to commercial real estate (CRE)—office space, in particular. With interest rates at multidecade highs and postpandemic occupancy rates still anemic, defaults are also rising quickly for CRE assets held by commercial mortgage-backed securities.
Meanwhile, mounting credit card debt and increasing charge-offs may also weigh on small- and medium-sized banks. Lending standards are tightening, and regulators are considering expanded restrictions for at-risk institutions.
Navigating turmoil: As the Fed’s aggressive rate hikes course through the economy, our base case remains a short and shallow US recession by year-end.
However, businesses need to be vigilant about larger downside risks. A new wave of banking woes tied to commercial real estate losses and/or overleveraged consumers could spark contagion across financial markets—and set the stage for a deeper and more painful downturn in 2024.
Number of the Week: 56%
More than half of US employees (56 percent)?are now using generative AI tools , at least occasionally, to accomplish work-related tasks.
In fact, in our latest survey of over 1,100 US workers, more than a quarter of respondents say they’re using generative AI weekly or more often, with 1 in 10 employing the technology on a daily basis.
Policies lag behind: Despite this rapid adoption, most companies still lack an established, clearly communicated policy governing the use of generative AI. According to our survey, just 26 percent of workers said their organization has such a policy in place, with another 23 percent saying an AI policy is under development.
AI quality impresses: The urgency for establishing clear AI usage guidelines will only rise as the technology continues to accelerate in capability and scope.
Already, 55 percent of respondents say the current output of generative AI tools they’re using matches the quality of an experienced—or even expert—human worker.
How New York City Can Reinvent Itself Postpandemic
New York City is facing a significantly changed economic and social landscape . Postpandemic challenges—and exacerbated preexisting ones—jeopardize its stature as a global commercial hub.
To ensure a prosperous future for the Big Apple, city and state officials will need to work with business leaders to leverage NYC’s many strengths, as detailed in an op-ed by the Committee for Economic Development , the public policy center of The Conference Board (CED).
Why it matters: As the largest economy nationally and among the largest globally, New York’s recovery is imperative to the country’s growth and can be a model for other major cities. Cities generate over 80 percent of global GDP, and America’s biggest cities provide the main engine for US growth.
The path forward: Policymakers and business leaders must revitalize the sectors that have played a long-standing role in the city’s vitality. Solutions include: strengthening the competitiveness of the financial sector, real estate sector, and leisure and hospitality; reforming the regulatory and tax burden on businesses and workers; increasing efficiency and fiscal sustainability of transportation networks; and investing in the future workforce.
By CED Trustees Phil Friedman , President and CEO of CGS (Computer Generated Solutions) , and Ed Cox, former Partner at Patterson Belknap Webb & Tyler LLP , and Dr. Lori Esposito Murray , President of CED.
As Companies Spend More to Address Natural Disasters, They Need to Measure Impact
With National Preparedness Month underway, a new survey from The Conference Board ESG Center reveals that 61% of companies have increased their total disaster philanthropy giving levels —and they anticipate this trend to continue: 89% expect climate change to significantly affect their disaster spending and programs over the next five years.
The measurement gap: Despite increased spending, only 43% of firms routinely evaluate the impact of their efforts in disaster philanthropy. Given the increasing frequency of natural disasters—as well as a shift toward disaster preparedness and not just disaster response—it’s important for companies to measure their impact and ensure resources are being used efficiently.
The path forward: Companies should take three steps:
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Many Consumers Would Reduce Their Energy Use to Positively Impact the Environment—but Balk at Major Lifestyle Changes
To lessen their impact on the environment , 45% of US consumers are willing to adjust their home’s room temperatures by 5 degrees—including 56% of consumers 55 and over.
By contrast, just 12% would pay more taxes to fund clean energy sources and just 13% would stop using a gas oven—with older consumers by far the most reluctant to make these changes.
Pricing and convenience matter: As part of The Conference Board Consumer Confidence Index?, we surveyed 2,145 US households to find what environmentally friendly actions they’re willing to take.
Unsurprisingly, sustainability steps with clear personal benefits poll best, putting the onus on companies to understand and cater to lifestyle demands as well as environmental goals. Just as turning the thermostat up or down slashes energy bills, 40 percent of consumers would also drive less and walk/cycle more—which not only saves on gas but also improves health.
Harder sells: Around one-third of consumers would also try products with no packaging, try brands focused on sustainability, and use natural ways to heat/cool their homes (e.g., shade trees, insulation).
Compared to those relatively minor purchases, consumers are far more wary of costly changes—like higher taxes, replacing gas stoves with electric, and reducing air travel—whose practical personal impacts are negative.
QUOTABLE: Walking the Leadership Tightrope
"Leadership is about being the number-one change agent. You have to set the bar higher. You have to define what's possible for the organization…But…you've got to find the right balance. You can't just solve for one thing at the expense of everything else. Our job is to figure out how to do better, but we also have to be affordable, and we have to be sustainable long term."
— Jim Fitterling , Chair and CEO of 陶氏化学 , and a recipient of our 2023 Distinguished Leadership Awards. Watch or listen to the conversation.
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