In a global survey of 1,325 CEOs, including from Malaysia, there is a consensus among business leaders that a global recession is imminent, driven by prolonged geopolitical tensions and mounting inflationary pressures.
While 86 percent of CEOs globally anticipate a recession, a study of business leaders within the Asia Pacific (ASPAC) reveals a more optimistic view, with only 63 percent believing a recession will occur in the next 12 months with over half (55 percent) expecting it to be mild and brief.
The 2022 KPMG CEO Outlook survey also revealed preemptive strategies CEOs have put in place to weather the coming storm, such as:
- 43 percent plan to manage costs by increasing prices
- 40 percent would rather see their profit margins reduced
- 44 percent plan to diversify their supply chain over the next six months in response to geopolitical pressures
In addition to these measures, CEOs in Asia Pacific also reviewed their approaches in environmental, social and governance (ESG), technology and talent management as outlined below:
Increasing ESG expectations
As CEOs take steps to insulate their businesses from an upcoming recession, ESG efforts are coming under increasing financial pressure. KPMG’s survey found that 29 percent have paused or reconsidered their ESG efforts, while 47 percent plan to do so over the coming months.
In the same survey, 70 percent of CEOs have also reported significant demand from their stakeholders – investors, regulators, and customers – for increased reporting and transparency on ESG issues. As liquidity gets tighter and a recession becomes more certain, those industries that are already out of favor with banks due to their ESG priorities may find any form of new financing difficult, thereby triggering capital issues that will require careful planning.
In Malaysia, CEOs will also need to comply with the ever-changing blueprints and masterplans released by regulatory bodies (e.g., Financial Sector Blueprint 2022 – 2026, Capital Market Masterplan 3) so as to unlock more capital as responsible investment is gaining momentum among investors.
With the recently enhanced sustainability reporting requirements in the Main Market and the ACE Market by Bursa Malaysia, the demand for more meaningful and comparable sustainability disclosures as well as better sustainability practices – particularly in the climate change front – has never been higher.
Hence, CEOs must recognize the importance of ESG initiatives to their businesses, especially when it comes to improving financial performance and driving growth.
Evolving focus on technology risks
When asked about the top risks to business growth, CEOs in ASPAC identified emerging/disruptive technology as the top threat over the next three years. Not surprisingly, 61 percent of ASPAC CEOs revealed they are placing more capital investment in new technology to achieve their companies’ growth trajectory and transformation objectives.
A similar number (69 percent) is also aware of the need to be quicker in shifting investment to digital opportunities and divest in those areas where they face digital obsolescence. About two in three consider new partnerships will be critical to continuing their pace of digital transformation.
The Malaysian government also continues to push the digital agenda and address technology risks under the 12th Malaysia Plan – such as the provision of a soft loan for digitalization and technology adoption to support the transition of local companies to embrace advanced technology.
In uncertain times, it’s imperative that businesses focus their digital investments on impactful, and measurable, value creation opportunities most able to support their strategic goals.
Workforce resilience comes to the fore
The challenging landscape has resulted in CEOs changing how they support and attract talent, with a focus on building workforce resilience. CEOs consider employee value proposition to attract and retain the necessary talent as their top operational priority over a three-year horizon.
With a recession looming, there’s a significant short-term emphasis on hiring freezes and headcount reductions: 35 percent of CEOs in ASPAC have already implemented a hiring freeze, and 40 percent are considering downsizing their workforce over the next 6 months. But as CEOs take a broader view of the issue, 76 percent anticipate that the headcounts of their organization will expand within the next three years.
To strengthen workforce resilience, CEOs need a longer-term outlook of up-skilling and developing their people’s capabilities. The war on talent has never been greater, coupled with anticipated near-term wage increases. CEOs are required to dedicate time to enable purposeful interactions and workplace experiences for their people. Active listening, empathetic communications and a commitment to up-skill/re-skill their talent pool’s capabilities will be key.
With that being said, Malaysia has established a promising precedent in terms of bolstering its workforce resilience. Diversity, Equity and Inclusion (DEI) initiatives such as introducing board gender diversity (BGD) concept to the Malaysian Code of Corporate Governance (MCCG) 2021 is the right step towards a more diverse workforce, but more can be done to enhance the quality of BGD pool.
By Datuk Johan Idris, Managing Partner, KPMG in Malaysia
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