The U.S. CEO Outlook - Conversations with business leaders about today’s biggest challenges

Today I’m launching a newsletter called “The U.S. CEO Outlook: Conversations with business leaders about today’s biggest challenges and opportunities.” In this fast-changing environment, CEOs are striking the delicate balance of driving a growth strategy inclusive of M&A that is aligned with their ESG and digital strategies, while still leading their organizations through uncertainty caused by the ongoing COVID-19 pandemic. These intersecting risks and opportunities provide CEOs the chance to uniquely lead and build trust with their key stakeholders in an environment where nearly all expect to grow.

According to the latest edition of our U.S. CEO Outlook, a survey of 400 U.S. CEOs from large companies, many U.S. CEOs plan to undertake mergers and acquisitions over the next three years that will significantly impact their organizations. They also are focused on transforming their businesses to gain digital and ESG advantages and building cyber and supply chain resiliency.

CEOs are hyper-focused on their people and organizational culture, as the future of work remains very much top of mind. This newsletter will include insights from KPMG leaders, U.S. CEOs that contributed to our latest report (to be released in mid-September), and other trusted sources.?

What we’re seeing:

—??Confidence in the face of a pandemic. Despite the COVID-19 pandemic, 86% of CEOs remain confident in the growth prospects of their companies. Eighty-three expressed confidence in growth of the U.S. economy, but less confidence in global economic growth (64%).

—??High M&A appetite. We expect the M&A market to continue to remain robust over the next three years as 86% said they had a moderate to high appetite for making deals. Sectors where we are seeing significant activity are banking and technology, media, and telecom (TMT). Our Financial Services Industry Leader for Deal Advisory, Timothy Johnson, reported that large-scale bank M&A has recovered from last year’s slump. In Q2 ’21, there were 62 deals, up from just nine in Q2 ’20. According to Chad Seiler and Phil Wong, deal activity across TMT rebounded quickly after the pandemic took hold. In Q2’21, the TMT sector saw 2,097 deals with total deal value of $338 billion.

—??Digital investment continues.?Seventy-seven percent of CEOs said they have an aggressive digital investment strategy intended to secure first-mover or fast-follower status. And 75% said they need to be quicker to shift investment to digital opportunities and divest businesses that face digital obsolescence.

—??Safeguarding against major threats by bolstering cyber and supply chain resiliency. While 65% said they have a plan to address a ransomware attack if faced with one, 70% said an industry-wide approach is necessary to properly address ransomware demands. As pointed out in a recent KPMG cyber security report by Fred Rica, COVID-19 has magnified both the opportunities and threats of digitization, and business leaders should ensure that cyber security specialists are part of the C-suite decision making process. Fifty-nine percent said they will be ensuring their supply chain is resilient in the event of a global lockdown and travel restrictions.

—??Monitoring the U.S. and global tax landscape. It’s no surprise that evolving tax policies were cited as a top threat to growth for many CEOs, with the intersection of the new Administration’s tax proposals coupled with renewed momentum on reforming the global tax code. The Biden administration proposed a number of domestic corporate tax reforms that have CEOs paying close attention. This informative podcast featuring Manal Corwin, John Gimigliano and Ron Dabrowski is worth a listen. ?In addition to the proposed domestic U.S. tax policy changes, the OECD and participating jurisdictions are working on a solution to modernize the taxation of the digitalized economy.

—??CEOs are leaning into their corporate purpose and values to drive action on ESG, recognizing both heightened expectations from stakeholders and new opportunities to gain competitive advantage. Sixty-one percent said the principal objective of their organization is embedding purpose into everything they do to create long-term value for all stakeholders. Fifty-two percent said they are seeing significant demand for increased reporting and transparency on ESG issues today from stakeholders. In a recent webcast from our Board Leadership Center, Pamela Marcogliese, a partner at Freshfields Bruckhaus Deringer LLP, believes “investors are no longer waiting for the engagement process to play out. Where companies can do better, investors expect them to do better faster, or the investors will vote against a director or for a shareholder proposal to really send a message.” The challenge may come for companies as they prepare for expanded ESG reporting rules in the United States. Our vice chair of Audit Scott Flynn explained how companies are gearing up for this “transformational event that’s going to have an impact on companies’ internal processes and how your companies document and attest to critical internal data.”

—??The future of work remains top of mind for CEOs with a sharp focus on their people’s well-being and development and building a more diverse and flexible workplace. CEOs identified their employee value proposition as the top operational priority to achieve their growth objectives. And focusing on employees’ mental health and well-being (42%) ranked as the top success factor to ensuring employees are engaged in a hybrid working environment. As our recent thought leadership on the way we work points out, employees now expect their employers to support hybrid and other alternative work arrangements. However, CEOs still see value in people coming together to work and collaborate in offices. When asked about the impact they foresee the pandemic having on their organization in the next three years, 59% of CEOs said they will be looking at shared office spaces to allow employees to work more flexibly and 35% said they have a majority of employees working remotely at least 2 or more days a week. My colleagues Felicia Lyon and Mike DiClaudio note that as the pandemic eases, organizations must rethink what work looks like and determine how they can bring employees safely back.

—??Final takeaway: CEOs are looking for new ways to solve problems. They see a need for industry-wide solutions to tackle cyber security risks, while actively and more deeply engaging a wider set of stakeholders to drive ESG actions that better society and help transform their businesses. ?CEOs are hyper-focused on their people and organizational culture, which underpin every investment they are making in M&A, digital, ESG, cyber, and supply chain. With pandemic-related burnout, disruption from remote work, and a red-hot labor market converging, the attraction, retention, and engagement of talent are top priorities.

For more noteworthy results, click here for today's news release. I look forward to your thoughts, please leave your comments below and let me know what you think of this year’s #CEOoutlook. Subscribe to the newsletter and follow me here and on Twitter.