Time to Take the Big Plunge?

Is the economy so good that that corporate leaders should continue their spending binges? Or is a trade war, inflation, and a series of indicators blinking yellow (or red) enough to convince leaders to batten down the hatches?

US Federal Reserve Chairman Jerome Powell weighs in Tuesday and Wednesday during his semiannual testimony in front of Congress, but experts say CEOs are already worried about long-term economic growth. “Regulatory policy, political and trade uncertainty, and concerns over cybersecurity and technological change have CEOs more cautious about growth beyond 2020,” says Ron Malachuk, a principal in Korn Ferry’s Global Industrial Market practice.

Rarely has the decision to open corporate wallets ever been so hard. On the surface, the humming global economy has many leaders feeling it’s the perfect time to be bold. For instance, on the back of strong second-quarter profits, Bank of America on Monday announced that it would increase its quarterly dividend by 25% and would return $26 billion to shareholders over the next year via dividends and stock buybacks.

However, some widely followed indicators are giving other organizations pause. For instance, the yield curve—the difference in interest rates between a short-term government bond and a long-term one, is nearly flat, which is often a signal that a recession is near. Plus, more economists are forecasting downside risk to US GDP now than at any other time since the 2016 elections, a Wall Street Journal survey shows. The survey highlights a number of other data points of concern, among them lower consumer sentiment and car and home sales, increased competition, and unease about the impact of tariffs.

Another data point industrial leaders must watch closely is the rising cost of imported building materials. Higher expenses, coupled with the continuing costs of adapting business models and talent strategies to be digital-first, heighten the imperative on industrial company leaders to carefully manage risk, Malachuk says. Not unlike their counterparts in financial services, industrial leaders need to balance where and how to best deploy their resources to maximize long-term gain.

While it may be tempting to make a big acquisition or reward shareholders with a huge dividend payout, for instance, that can come at a price larger than the purchase amount—depriving an organization’s talent strategy of resources. Macro-economic conditions “place an even greater emphasis on reskilling workers and recruiting right-skilled workers so industrial manufacturing companies can meet the changes driven by digital transformation, artificial intelligence, blockchain, and other emerging disruptive technologies,” says Malachuk.

Put another way, before any bold move, the smart firm will need to ask whether it has the workforce to pull off the risky endeavor. And if it doesn’t, the next question is, would those resources be better applied toward long-term talent strategy instead?

Authors

  • Ron Malachuk

    Principal, Global Industrial Market

    Bio >