Executive teams the world over are buckling down to ready their businesses for economic uncertainty. However, new research has revealed that CEOs are surprisingly optimistic about their growth prospects despite the threat of a potential recession.

CEOs worldwide are confident that a possible recession will not kill their plans for growth, according to a new report.

KPMG’s 2022 CEO Outlook, which drew on the perspectives of 1325 global CEOs across 11 markets – including 50 from Australia – found that global economic confidence had risen to 71 per cent, 11 points higher than confidence levels in February 2022.

Globally, 86 per cent of CEOs believe there will be a recession in the next 12 months. However, over half (58 per cent) say any anticipated recession will be mild and short, and three quarters (76 per cent) have plans in place to deal with it.

“One of the reasons why I think there’s a bit more optimism in the market is because we are seeing wage growth [3.1 per cent in Sept 2022 quarter] and revenue growth, and there is digital transformation happening,” says Susie Quirk, Partner in charge of HR Advisory at KPMG Australia.

“Also, since COVID-19, which completely changed the way we work, businesses feel that they have more agility to [cope with] change, which is contributing to that positivity.”

KPMG’s researchers believe it’s unlikely Australia will see a full-blown recession in the next 12 months, and if we do, it will be shorter and less severe than what was expected in early 2022. Nonetheless, they predict that Australian businesses will be impacted by economic uncertainty in the coming years.

So how can HR leaders help their CEOs to prepare?

What strategies are CEOs using to boost resilience?

Based on the findings from KPMG’s report, Quirk outlines a number of strategies that executives have employed to prepare their organisations for economic uncertainty.

1. Keeping up with digital transformation

It’s no surprise that in the short term, CEOs saw the greatest threat to organisational growth as pandemic fatigue and economic factors like rising interest rates and inflation. However, when executives considered their growth strategies over the next three years, it was disruptive technology that emerged as the greatest risk.

The advent of various disruptive technologies – that is, innovations that have the potential to change the way we work, such as AI – often means that businesses need to scramble to adopt new solutions to avoid being left behind. And with every new piece of tech, there are new security risks to consider.

Adding to these concerns, the rise of remote and hybrid work has led to increased demand for faster and more secure software, and many executives report that they are struggling to keep up with the pace of change. Nearly three quarters (72 per cent) of Australian CEOs surveyed said that they didn’t have enough talent to handle the strategic and operational roll-out of new digital and business transformation.

“Six or seven years ago, the number one role that was being looked for around the world was data scientists,” says Quirk. “That was because people were getting ready for digital transformation. What’s the number one role or skill that everybody’s looking for now? Cybersecurity.”

She predicts that the next in-demand skill will be value realisation – the ability to extract maximum benefit from technology and demonstrate its actual business impact on employees, customers and stakeholders.

2. Cost-cutting with a human touch

The unique challenges posed by today’s talent market mean that organisations must be especially strategic in finding ways to reduce expenses.

KPMG’s report found that while 2 in 5 employers (39 per cent) had implemented a hiring freeze in anticipation of a recession, in the long term, the employee value proposition to attract and retain the necessary talent was reported as the top operational priority to achieving three-year growth objectives.

“We’re seeing the same thing in every country, which is a focus on cost efficiency while still trying to create value for employees. They’re not cutting costs at the cost of the employee experience,” says Quirk.

“We’re seeing those operating costs as the target, as opposed to getting rid of people. [Executives] are looking at other ways to get the operating costs down and digitise quickly and effectively, so they can focus their talent on other areas that add value to the business.”

Quirk offers some examples of ways that employers are trying to streamline their operational expenses, from investing in more efficient tech to cutting down on travel costs by holding meetings via video conferencing where possible.

3. Investing in social responsibility

With the employee experience front of mind, businesses are increasingly focused on their ESG (environmental, social and governance) strategies to position themselves as employers of choice in a competitive market. These strategies might include measures to support charitable causes, sustainability and workforce diversity (more on that later). 

A business’s ESG approach is increasingly seen as a differentiator when it comes to attracting and retaining talent. The CEOs surveyed in KPMG’s report said that one of the primary downsides to not meeting ESG expectations is recruitment challenges (22 per cent), right behind the ability to raise financing. Over three quarters of leaders believed stakeholder scrutiny in this area would accelerate over the next three years. 

“We’re seeing the same thing in every country, which is a focus on cost efficiency while still trying to create value for employees. They’re not cutting costs at the cost of the employee experience.” – Susie Quirk, Partner in charge of HR Advisory at KPMG Australia

“[Social issues] are far more important to people now than they were, say, 20 or 30 years ago,” says Quirk. “The notion of corporate governance of a social agenda and the importance of access to equity and diversity has been a slow evolution. But now, we’re right in the middle of it, and we are seeing the link between performance outcomes and those strategies.”

Almost half (45 per cent) of CEOs surveyed agreed that ESG programs improve financial performance, an increase from 37 per cent one year prior. 

4. Prioritising diversity and inclusion

Like many other ESG issues, initiatives to support diversity and inclusion are non-negotiable in the current talent market. CEOs increasingly understand that businesses embracing D&I are better able to secure talent, strengthen their employee value proposition, attract loyal customers and raise capital. 

“Because the number one issue in the CEO report is access to talent, [D&I] gives you the ability to tap into talent pools that you haven’t previously tapped into, and that links to the performance of the organisation,” says Quirk.

Encouragingly, Australian CEOs are ahead of the global pack on their thinking on inclusion and diversity and gender equity, the report found.

Three quarters (76 per cent) of Australian CEOs said that progress on inclusion, diversity and equity has moved too slowly in the business world, compared to 68 per cent of global CEOs. Moreover, 86 per cent of Australian CEOs believe more gender equity in their C-Suite will help achieve growth ambitions.

Quirk stresses that the business case for gender equity is stronger than ever – in 2019, research by McKinsey found that companies in the top quartile for gender diversity on executive teams were 25 per cent more likely to have above-average profitability than companies in the fourth quartile.

Whether or not a recession is on the horizon, executives’ strategic investments in long-term growth initiatives are a testament to their increased resilience and optimism in the wake of the upheaval brought by the last few years. CEOs are plainly aware that more disruption is on its way – but this time, they have a plan.

Need help preparing your organisation for economic uncertainty? Develop a successful strategic plan with the help of AHRI’s short course on HR Strategy Planning.