KPMG Study: CEOs tackling risks to growth including geopolitics, cyber and structural changes such as tight labor market, new regulations

Knopp: “CEOs are applying a strategic lens to tackle both near-term risks to growth they see such as geopolitics and cyber, and structural changes like new regulations and tax policy, making adjustments to investments, supply chains and operations as needed – with many turning to GenAI to help do so.”

• U.S. CEOs are confident in the growth prospects of the U.S. economy (87%), global economy (78%) and their companies (78%) over the next year.
• 72% of CEOs expect their organization’s headcount to increase over the next year, with 32% of this group expecting a significant increase in hiring. Only 4% say they expect workforce reductions within their organization over the next year.
• 87% anticipate rising geopolitical tensions around the world this year will disrupt current positive U.S. economic trends such as inflation cooling.
• 67% are currently making significant strategic adjustments (supply chains, investment decisions, tax planning, etc.) in response to geopolitical uncertainty, wars, conflicts and major elections happening around the world (India, U.K., U.S., etc.).
• When asked to identify the risks posing the greatest threat to their organization’s growth over the next year, CEOs cited regulatory concerns, operational issues, cyber security and tax.
  • Just 32% say their organization was well prepared for the implementation of Pillar Two (the global minimum tax) at the beginning of 2024, while 71% say it will be a significant compliance burden and that the compliance effort will be costly (73%).
  • The majority (72%) say the expiration of numerous business tax provisions from the Tax Cuts and Jobs Act (TCJA) at the end of 2025 will be felt and have a moderate or significant impact to their overall organization.

Knopp: “CEOs see GenAI as central to overcoming challenges resulting from compound volatility and gaining a competitive advantage. CEOs are rapidly moving from pilots to industrialization, while focusing on initiatives that promote the responsible and ethical use of AI. Workforce adoption will ultimately drive success with GenAI, and CEOs recognize the imperative to address potential employee resistance or reluctance to use the technology.”

• 41% plan to increase their investment in GenAI next year, while 56% anticipate their overall investment in GenAI will stay flat.
• When considering their organization’s GenAI journey over the next 12-18 months, CEOs say they will be scaling their GenAI efforts, moving from pilots to industrialization across multiple functions or business units (39%); focusing on discrete use cases in specific functions or teams (29%); and broadening adoption of GenAI tools across their workforce with the training and skill building needed to do so (15%).
• When asked to identify the top challenges to deploying AI within their organization, CEOs cite ethical challenges (38%), security and compliance challenges (36%) and integration with existing systems and processes (33%).
  • Two-thirds (66%) are confident that their organization is adequately investing in the cybersecurity measures needed as they deploy GenAI across the enterprise.
• 61% of CEOs said they are prepared to address employee resistance or reluctance to use GenAI within their organizations. 27% said resistance from employees was a top challenge when deploying AI across the enterprise.
• CEOs report their organizations already have a number of initiatives in place to promote responsible use of AI, including ongoing education and training (95%), regular audits and monitoring (82%), human oversight (71%) and collaboration and regulatory adherence (67%).
• In 2024, CEOs plan to implement the use of watermarks or disclosures of AI use (81% vs. 19% today – the most significant jump), data privacy measures (63%), ethical frameworks (49%) and third-party reviews (47%).
  
• A majority (77%) of CEOs are confident that their organization’s leadership has a good foundational understanding of GenAI and how to use it to gain benefits today and plan for the future.
  • 70% believe their organization's leadership has the ability to navigate ethical concerns that may arise surrounding the use of GenAI.
  • 68% are confident that their organization has a data strategy that boosts confidence in the quality and integrity of data used by GenAI applications.

Knopp: “We continue to see strategic M&A moving forward. But most CEOs remain reticent to take their finger off the pause button on M&A, waiting for the opportune moment to pursue new deal making due to high interest rates and shifting business valuations. The 2024 U.S. presidential election also looms large, and many CEOs are delaying significant investment decisions including M&A until after the outcome is decided in November.”

• 48% of CEOs say their organization will wait until 2025 to seriously pursue new deal making. 34% say they are waiting until the second half of 2024.
• Among the market conditions impacting their current desire to buy and sell businesses, CEOs cite high interest rates, shifting business valuations, current geopolitical landscape, inflationary macroeconomic conditions and the 2024 U.S. presidential election.
• 62% of CEOs say their organization will not make significant investment decisions such as major capital expenditures and M&A activity until after the 2024 U.S. presidential election in November.

Knopp: “With demographic shifts only beginning to take hold, the impact of tight labor markets on strategy will increase exponentially in the years to come. CEOs are addressing this challenge today by upskilling employees, using GenAI to fill talent gaps and dropping college degree requirements for certain jobs.

“The mental well-being of their workforce and preventing burnout remains a priority for CEOs and many are encouraging employees to use GenAI as a tool to relieve stress. In the future of work debate, the pendulum is swinging back to hybrid work as CEO expectations for a full return to office are declining overall.”

• Considering the tight labor market, U.S. CEOs are prioritizing upskilling current employees (78%) and leveraging GenAI when it comes to filling any gaps in their organization’s talent base (69%).
• 70% of CEOs said their company will be dropping or have already dropped college degree requirements for certain jobs. 30% said they had no plans to drop these requirements.
• 34% of CEOs envision the working environment for corporate employees whose roles were traditionally based in-office to be back in the physical workplace in the next three years – a notable decrease from 2023 (62%). 46% envision these roles to be hybrid (34% in 2023) and only 3% envision them being fully remote (4% in 2023).
  
• In an effort to promote well-being and address potential burnout among employees, CEOs are:
  • Implementing more initiatives focused on mental well-being such as digital wellness solutions, mindfulness seminars, resilience workshops and coaching sessions (74%);
  • Encouraging employees to use GenAI to automate mundane tasks to better manage their workload and relieve stress (61%);
  • Facilitating opportunities for employees to strengthen personal relationships with co-workers, such as employee volunteering and in-person training and development (60%);
  • Implementing trainings for managers to more effectively address well-being concerns and burnout among their direct reports (56%); and
  • Exploring new organization-wide work schedule shifts such as a 4-day or 4.5-day workweek (30%).
• With more than five different generations currently in the workforce, CEOs see inter-generational dynamics impacting career pathing (58%), learning and development (57%) and interest in – and adoption of – tech capabilities and tools (53%) the most.
• 88% say their organization's financial success, including profitability and growth, depends on their company having a strong ethical culture.
• 76% say their company's focus on ethics, integrity and compliance programs can serve as a market differentiator and deliver financial value to their business.

Knopp: “Sustainability strategies must enhance financial value to be truly sustainable. CEOs are thinking beyond complying with climate disclosure rules and focused on creating long-term value for their companies, ensuring the integration of sustainability into core business practices and operations. They see their sustainability strategy and reporting being supercharged by effective data management and GenAI, which can help their organizations make real-time, data-informed adjustments.”

• To achieve their growth objectives over the next year, CEOs identified the execution of ESG initiatives as their top operational priority (17%) ahead of inflation proofing capital and input costs (14%), advancing digitization and connectivity across the business (11%), improving supply chain agility and resilience (11%) and improving the customer experience (11%).
  
• 55% of CEOs expect to see significant returns from their sustainability investments in the next three-to-five years with 25% predicting five-to-seven years and 19% predicting one-to-three years.
• Today, CEOs are focusing their sustainability efforts on operations (42%), products (24%) and governance models and transparency protocols such as best practice reporting (16%).