PwC’s Dennis Nally: Fascinating insights, global trends from latest CEO survey

Alec Hogg had a fascinating one-on-one interview with PwC’s Global Chief Executive, Dennis Nally about the latest CEO Survey published by PwC. Nally’s astute analysis of global trends in leadership and business are supported by the intricate variables that make for very cautious decision-makers who are dealing with the act of balancing risk and reward in a time where volatility and regulation are the standard of the day. Nally shares insights on the oil price plunge effect, new investment destinations and the most important thing for business leaders to focus on in the coming year. – LF

 

ALEC HOGG:   Well, one of the institutions of Davos is the PwC Annual Survey of Chief Executives. PwC’s Global Chief Executive, Dennis Nally (well known in South Africa) is with us, here. Dennis, what were the major outcomes of the survey this year?

DENNIS NALLY: Well, I think there are a couple of key points to focus on. One is that confidence levels from the CEO’s around the world are down this year, versus a year ago so that’s a reversal of a trend that we saw for the last couple of years. What’s interesting, is how the CEO’s are feeling about confidence levels of the global economy, so I think that’s an interesting perspective. I’d say the other couple of key points (at least, in my mind)… One deals with the degree of confidence levels that the CEO’s have from the developed economies – they’re up. When you look at the U.S., the U.K. or German for example, confidence levels in those CEO’s, continues to rise. The flipside of that is when you talk to CEO’s in the developing economies, their confidence levels are actually down year-to-year, with the exception of India.

ALEC HOGG:   So it’s a bit of a switch from where you were recently.

DENNIS NALLY: It is and that’s the interesting point about what’s really going on with the global economy, where there are issues and concerns, and it’s almost an exact switch as you say, in terms of what we’ve seen over the last several years. The other interesting point (to me) is historically, the BRICS always moved in a pretty, consistent way if you go back over the past four to five years. When you look at the performance today, it is all over the board. Brazil, the Middle East, Russia, and parts of Africa as you know, is so inconsistent and I think it really speaks to how those economies are continuing to evolve as they strike the next phase of their own development, so that was an interesting perspective. Finally, I would say that in terms of how CEO’s were thinking about investment for the upcoming 12 to 18 months; the number one destination point for investment – the United States.

That is a big change in terms of what we’ve seen historically, as you know. In the past…really, for the last 5/6/7 years, China has been the number one point for investment. That’s now number two, so it hasn’t fallen off the map, so to speak but nonetheless, that’s a big change and a big shift. I think it really points to maybe, that first point about confidence levels. Where there are issues and concerns, are CEO’s really looking for stability and predictability? When you look at the U.S. economy versus others, while it’s not at the pre-financial crisis level for GDP, it’s certainly trending in the right way and I think that’s how CEO’s are looking at them.

ALEC HOGG:   Well, a celebration of the flexibility of the economy. We met with the Prime Minister of Italy today, a young man who’s trying to get the labour laws adjusted so that he can become more flexible, like the United States. Another point that has already come up in Davos is the amount of money that companies are sitting on – $2trn in cash. Any hint in your discussions with the CEO’s that this might be unlocked?

DENNIS NALLY: Well, I think that what you’re seeing is this cautionary mindset. When you look around the world – the number of geopolitical issues that are out there – you look at some of the challenges and some of these economies. You look at what happened in Paris, just a couple of weeks ago or right here in Switzerland, with what happened to the currency. You just put all those factors together and you don’t see real aggressive thinking in terms of investment and job creation, etcetera. As a result, the amount of cash sitting on balance sheets (as you say) is at an all-time high.

ALEC HOGG:   What about your American colleagues? When they start investing, we might perhaps see a change, a sea-change in the global economy.

DENNIS NALLY: That goes to what’s on the minds of the CEO’s today. What are their top concerns? What’s really interesting (and we’ve now been tracking this for a number of years) is that regulation is right at the top of the list, by all CEO’s around the world. What they’re saying is that it’s just not noise around new rules or changes. What they’re really saying is that the amount of government involvement in the economy and as a result, in their businesses, is at an all-time high and so it’s rules, regulations, tax reforms, environmental issues, and employment laws – all of those things. What they’re really saying is the added complexity of dealing with all of this, particularly for companies that are operating on a cross-border basis, is very significant. I think it’s those types of issues that are contributing to this cautionary thought process.

If you don’t know what your tax bill’s going to be next year because of all the debate that’s going on for example, as a CEO you’re going to pause. You’re going to say ‘look, I want some clarity. I want some certainty before I make any significant commitments from an investment standpoint’. I think you see that pervading the thought process on a very big timeline.

ALEC HOGG:   Did the drop in the oil price, which was the big story of 2014, come too early or rather, too late for this survey?

DENNIS NALLY: No. Certainly, this was all done in the fourth quarter, so the trending of what was happening was there. Dependent upon where you sit and what part of the world you’re in, this is either a good news story or a bad news story. If you’re a consumer of energy, this is an economic dividend and you’re pretty positive about it. Many countries and companies are looking at, at least, a near-term windfall, from that standpoint. Now, flip it around. If you’re an exporter of energy (Russia, for example), if you look at confidence levels in Russia, it was the highest a year ago. CEO’s felt the best in terms of growth potential and the way things were moving. Today, they’re at the bottom of the list and it suggests exactly, the concerns that they have in terms of at least one element, which is energy. The other elements are obviously dealing with other issues that we’re all familiar with.

It’s a good news/bad news story and the big debate around Davos this week in my mind… A question I’m seeing and hearing, a lot, is ‘what do you think’s going to happen to the price of oil over the next 12 months’. Quite frankly, if I were in that business and I could predict it, I’d probably make a lot of money so I’m not going anywhere, there.

ALEC HOGG:   The other big story in Davos is geopolitics: the Risk Report where, in the past, it was all economics. Three of the five top risk identified, are geopolitics in those affected areas. You’ve already mentioned Russia, but the other affected areas… Is there a growing concern amongst CEO’s?

DENNIS NALLY: It is a concern and the issue is ‘how do you get your hands around it’, and I think most CEO’s are saying ‘yes, this is a risk. We need to understand it as best we can, but we can’t control it. We can’t influence it’ and so I think you’re seeing a mindset from the CEO’s to say ‘if we paralyse the organisation and not make decisions because we can’t accurately predict some of these geopolitical issues out there’, competition is going to move right by. I think there’s more of a mindset to say ‘focus on things you can control. Focus on things you can influence’ and make sure you create an organisation that has some agility and some adaptability when some of these other surprises that you can’t predict, actually occur. For example, how many people would have predicted (a year ago, this time in Davos) that we’d see $40.00/barrel oil? It’s an incredible development.

ALEC HOGG:   Or that we’d be paying 20 percent more for our Swiss fare?

DENNIS NALLY: I would have said that three weeks ago. I think there’s an acknowledgement that this world is very complex. Without question, it is interconnected, so focus on the things you can control. Focus on the things you can really influence and then make sure you create an organisation that has the ability to adapt to these changes, whether they’re identified today or whether they’re forthcoming, that we don’t know about – that will be the key to success for the longer term.

ALEC HOGG: Dennis, just to close off with, you’ve done the CEO Survey now for 18 years. Clearly, within PwC, it’s taken very seriously, but do you apply any of the learnings? If there are, what would you be applying in the year ahead?

DENNIS NALLY: Well, from a PwC standpoint, the one word that comes to me, very clearly, operating in 157 countries around the world, is one word and it’s ‘adaptability’. You have to be able to adapt to current environments. I talk about that a lot within PwC. I think anybody who sits here and says ‘I have a crystal ball and I can tell you exactly, what is going to happen over the next 12 to 18 months’ is kidding themselves. How do you create an organisation that has the mindset that says ‘you have to adapt to the environment and the forthcoming changes’. You have to be in a position to really, deal with that; recognising that you can’t understand all of this 100 percent and so to me, that’s a critical attribute, which is really important in today’s environment.

ALEC HOGG:   Dennis Nally is the Group CEO of PwC.

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