Inside the Minds of Investors and CEOs

By Patricia Van Arnum - DCAT Editorial Director

February 28, 2018

A recent study by PwC examines the thinking and strategic direction of CEOs and how their views compare with the perceptions and expectations of investment professionals. So what did the study show?

Investment professionals and CEOs both think global economic growth will improve over the next year. However, investors are more cautious about the longer term. Also, cyber attacks are now the biggest threat to business in the eyes of investors, mirroring growing global concern from business leaders. DCAT Value Chain Insights takes an inside look.

Expectations on growth

Overall, the PwC study found that both investors and CEOs are more confident about the global growth outlook than they were last year. Fifty-four percent of investors (+9%) believe global economic growth will improve and 57% of CEOs (+19%).

Closer to home, in both the short and long term, the PwC study found that investors are more pessimistic about their investments’ revenue growth outlook than business leaders are in their own prospects. Less than a quarter of investors (23% (2017: 23%)) are very confident about 12-month growth, compared with 42% of CEOs. Over the next three years, only one in five (20%) of investors are “very confident” about revenue growth, compared with 45% of business leaders.

Underlining their concerns about the outlook for growth, investors report higher expected levels of disruption from technology (85% vs 64%), customer behavior (81% vs 68%) and distribution channels (76% vs 60%) than business leaders do. Over a quarter of investors (26%) believe artificial intelligence will have a larger impact on planned headcount reduction than last year (up 13%).

“Investors expect disruption to have a bigger impact on business than CEOs, which might be affecting investor confidence in growth over the longer term,” said Hilary Eastman, head of global investor engagement at PwC, in commenting on the study. “Effective communication between businesses and investors is key to addressing caution. If businesses can clearly demonstrate the actions they’re taking to combat investors’ concerns, they’re more likely to be able to attract long term investment.”

The top five countries that investors and CEOs consider important for growth (US, China, Germany, UK and India) remain the same this year. The gap is closing, however, in investors’ eyes between the US and China, in contrast to the US reinforcing its lead for business leaders. In 2018, the US leads China by 13% (78% US vs 65% China) while in 2017, it led by 23%. By contrast, the gap between Germany and the UK has widened with Brexit uncertainty likely to be impacting investors’ outlook, says the report. Last year the UK and Germany were preferred by 32% of investors equally; this year Germany remains a favorite for 32% of investors, in comparison with 21% for the UK. Both Germany (number 3) and the UK (number 4) retain their positions in the top five countries for growth.

Business threats

The PwC report also points out that cyber attacks are now the biggest threat to business in the eyes of investors, mirroring growing global concern from business leaders, Forty-one percent of investors and analysts are “extremely concerned” about cyber threats, seeing it as the largest threat to business, rising to first from fifth place in 2017. A similar amount (40%) of business leaders see it as a top three threat, but business leaders rank over-regulation and terrorism higher in the global PwC study. To improve trust with consumers, investors believe businesses should prioritize investment in cybersecurity protection (64% investors; 47% CEOs), according to the study. In considering other business threats, investors rank geopolitical uncertainty (39% extremely concerned), speed of technological change (37%), populism (33%) and protectionism (32%) in the top five threats to growth.

“The top concerns of investors and CEOs emphasize the different internal and external perspectives on, and day-to-day experiences of, businesses,” said Eastman. “While on-the-ground challenges such as finding the right skills are high on business leaders’ agendas, investors are preoccupied with the impact that wider societal trends, such as geopolitical uncertainty, populism and protectionism, have on businesses generally.”

A significant gap has also emerged between investors’ level of concern about declining trust in business, and the scale of the challenge seen by business leaders themselves. Over a third (36%) of investors are concerned about declining levels of trust between customers and organizations vs 18% of business leaders. To build trust in the workforce, the majority of investors (60%) believe transparency on pay and benefits (60% investors; 51% CEOs) while the majority of CEOs feel the organization’s values are most important (73% CEOs; 56% investors).

“Taking the investor perspective into account can give CEOs valuable external insights into where they need to focus to build confidence in their business,” said PwC’s Eastman. “The survey findings suggest investors are more concerned about the risks associated with rapidly evolving technology than CEOs. Investing in cybersecurity, digital skills and training will be crucial for business leaders if they want investors to have confidence in their companies.”