Suddenly Doom & Gloom?

Despite months of decent economic news, more than half of CEOs believe conditions will decline early this year. Why? 

In its last two months, 2023 had more than its fair share of good economic news. Inflation continued to moderate. Companies kept hiring. Stocks hit new highs. Even holiday spending seemed strong.

But what a difference turning a single page of the calendar can make. In one survey, four in ten firms say they plan layoffs in the New Year; in another, 53% of CEOs say they expect economic conditions to worsen in the first half of 2024. This is in sharp contrast to the investors supporting them, 94% of whom expect things to improve in the near term (only 16% of leaders do).

Experts say it’s not surprising that many CEOs are out of step with investors and recent economic news. Two major wars are being waged in which the United States has major interests, and there are nagging worries that inflation hasn’t been completely tamed. Plus, there’s the upcoming US presidential election, whose outcome could change the outlook for nearly every industry. “All of that causes leaders to be cautious,” says Alan Guarino, vice chairman in Korn Ferry’s CEO and Board Services practice.

Such caution—and news of widespread layoffs—will likely catch many workers off guard, given the upbeat developments in the economy and stock market. But experts say many corporate leaders are fretting about their firms’ considerable expenditures over the last few years—and the dent those costs will have on future profitability. CEOs have been in a “reactive mode” for the last four years, says Doug Charles, Korn Ferry’s President of the Americas. Following the pandemic, many firms hired aggressively and made heavy capital investments to keep up with a consumer boom. Last year, after ChatGPT took off, many also rushed to spend heavily on AI and other technology-related infrastructure.

The question for many CEOs is whether their expenditures of the last four years are sustainable. Some believe they know the answer: They have already initiated hiring freezes, delayed expansion plans, and, in some cases, cut staff. Now, they wonder if even more severe steps are needed. “They’re on the cost side of the equation, trying to figure things out,” Charles says.

Investors, by contrast, aren’t living with these issues every day, says Peter Bogin, a senior client partner in Korn Ferry’s Global Energy and Infrastructure practice. They see the decent macroeconomic trends of the last few months and anticipate a decline in interest rates—which would generally improve the outlook for both stocks and merger activity. “If you’re an investor, you’re primarily looking at the good news, but if you’re in the driver’s seat running those companies, you might have a different perspective,” Bogin says.

These differing outlooks could make for some interesting conversations between CEOs and investors over the next couple of quarters. Leaders should be clear and transparent, says Peter McDermott, senior client partner in Korn Ferry’s Corporate Affairs Center of Expertise. “Communicate with them that the action you are taking, even if it’s cost cutting, is good for the investor,” he says.


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