A majority of CEOs see a recession on the horizon, KPMG CEO says

KPMG U.S. Chair and CEO Paul Knopp joins Yahoo Finance Live to discuss a survey of top CEO concerns amid economic uncertainty, recessionary risks, growth strategies, and ESG.

Video Transcript

BRAD SMITH: Welcome back, everyone. Top business leaders are buying into looming global recession fears, according to a new survey from KPMG. That's out with a new report on global CEO outlook, which reveals that over 80% of global CEOs anticipate a recession to hit over the next year.

Joining us now with more, we've got KPMG US chair and CEO, Paul Knopp. Great to have you here with us on set today. 86% of CEOs surveyed believe that there will be a recession in the next 12 months. And interesting another part of this statistics here, 58% of them within the survey say that any anticipated recession would be mild and short. What's the reality of the decisions that these CEOs would need to be making over these next 12 months?

PAUL KNOPP: Yeah, Brad, the global survey revealed 58%, but in the US, only 34% thought the recession would be mild and short. And 91% in the US of the CEOs, the 400 CEOs we surveyed, believe there would be a recession in the next 12 months. You know, despite the fact that there's that kind of news coming from the survey, we also see some interesting things coming out of the survey in the respect of facing into continued risks that we've faced into for the last 2 and 1/2 years, including issues around the supply chain, issues around cyber.

But at the same time, CEOs are saying they are planning on doing transformational growth, significant M&A, continuing their digital journeys. And over 90% of the CEOs remain confident about the growth prospects over the next three years, as well as thinking about the resiliency of their own companies over the next six months. So there are some nuggets of really positive information in the report, too.

JULIE HYMAN: In short, though, are they wrong? In other words, it's your job to counsel them, right, on what to do in this environment. And I look at this figure that more than half of them, just over half, 57% say 6% to 10% of their earnings could be affected by a recession in the next 12 months. That maybe seems low. I don't know. What do you think?

PAUL KNOPP: Well, certainly, as business leaders, we've weathered a lot of storms over the last 2 and 1/2 years from the pandemic to other major issues. And I think that gives CEOs confidence that they can endure this current climate with respect to a potential recession and a downturn as they navigate all the uncertainties.

And the report showed pressing concerns around political uncertainty. Pandemic fatigue is another one. Emerging technologies, which we're all concerned about, to ensure that our business models aren't disrupted, and then the continuing issues around cyber and supply chain. I think CEOs have really done a really great job over the course of the last two years, navigating these difficult issues.

And I think that they are thinking that despite what might be some sustained weakness that comes from the Fed's policies to cool the corrosive effects of inflation, that they absolutely can weather this storm over the next several months.

BRIAN SOZZI: Do CEOs have to restructure their business, given these concerns that they're seeing in the US and overseas? Is now the time, if a business is not performing well, you're just going have to let people go?

PAUL KNOPP: Well, so two things on that, Brian. One is that when it comes to restructuring, I think more about optimizing their business models. So we've seen consistently over the last two years in these studies that CEOs have been focused on ensuring that their digital business model is fit for the new future. At the same time, that allows them to be more efficient. And certainly, they will look at employment base during any recession.

Now, having said that, what I think is fascinating is that as business leaders, we lived through an early recession in the pandemic. And we saw a quick rebound in the economy. And some of us learned lessons from maybe having some employees leave the organization that we regret leaving. And then we faced into the Great Resignation shortly thereafter. So I think CEOs have recognized that people are their greatest asset. And they're going to be, I think, generally cautious about any kind of workforce reductions.

BRAD SMITH: You also tackled within this ESG and how CEOs increasingly agree that these programs improve financial performance. Even in the face of an economic pullback, how are you advising CEOs? How are you kind of listening to where CEOs are going to be able to maintain some of these very important movements that they've made forward, especially following an entire upheaval of the way that they had approached diversity, equity, and inclusion in the past, and how that really dovetails even into their own financial results and performance?

PAUL KNOPP: Yes, I think ESG is here for the long-term. So while there may be some short-term headwinds, it's definitely the case that our customers and our employees want to see us walk the walk with-- walk the talk, excuse me, with respect to what we're trying to accomplish with respect to net zero, with respect to diversity, equity, and inclusion. We certainly know that investors and lenders feel that way.

But 70% of CEOs said that their financial performance is improved by ESG. That was almost a doubling of the number of the CEOs from the last survey that said that financial performance has improved. So I think CEOs are recognizing that the ESG agenda is very important for the long-term, sustainability around climate, and most certainly, diversity, equity, and inclusion. Those remain top of the agenda for CEOs.

BRIAN SOZZI: 76% of CEOs said they're concerned about worker burnout. What should CEOs be doing given that concern?

PAUL KNOPP: Yeah, well, certainly, over the course of the pandemic-- I'll just give an example of KPMG-- we have adopted something called flex with purpose. So instead of being prescriptive or mandating a certain number of days in the office, we have really talked to our employees about gathering with purpose during part of the week, and the rest of the week is at home or some other remote environment.

But it's also things like making sure that you don't schedule meetings back to back to back through the course of the day, giving employees a break so they feel that they can recover from what, for many employees, is often a very difficult day when you're doing so many video meetings, or sometimes going to the office and talking to people on video that are at home. So, you know, I think there's a wealth of ideas that are being put into play to make sure that employees don't feel that sense of burnout.

BRIAN SOZZI: Should folks be back in the office physically, at least a minimum amount?

PAUL KNOPP: So we, at KPMG, have not prescribed that. And I think that the future of the survey revealed that well over 40% of CEOs believe the future is hybrid. And I think the number was somewhere around 20 some odd percent believe it was remote. So 2/3 were hybrid remote, and only about 1/3, if I remember correctly, are thinking the future is fully back in the office. So we're not seeing real signs of that at this time, Brian, that we're still seeing companies trying to optimize their hybrid models.

JULIE HYMAN: Well, we're glad that you're here in person to talk to us today.

BRIAN SOZZI: Yes, thank you for coming.

JULIE HYMAN: Certainly, we--

PAUL KNOPP: It was great to be here.

JULIE HYMAN: --enjoy talking to people in person. Thanks so much, Paul, for coming in.