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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Government officials are often a target for business leaders who complain that the right incentives don’t exist to enable their companies to grow. But the corporate world’s top brass might also want to look closer to home when figuring out how to tackle stasis.
The confidence to make bold decisions even during tough times is critical to corporate growth. But taking risks in the face of uncertainty has been harder in recent years as executives struggle with seemingly never-ending upheaval, ranging from geopolitical tensions and workforce pressures to technological disruption.
Since the 2008 financial crisis, chief executives in general have become less charismatic, less strategic and more focused on execution, according to a working paper for the US National Bureau of Economic Research. Apart from the tech universe, we seem to be in the era of the cost-cutters, not the innovators.
“In times of crisis and epidemics, wildfires and global warming, and particularly since Covid, we can see that the population as a whole is moving towards a more risk-averse disposition,” says Geoff Trickey, a chartered psychologist who specialises in how risk instincts influence business decisions.
Growth is difficult to achieve, particularly over the long term. Only one in 10 S&P 500 companies in 2022 had reported growth above GDP for more than 30 years, according to research from McKinsey. Companies such as Airbnb, Microsoft and Burger King rose to prominence or reinvented themselves during periods of economic turbulence. But how many companies are unwittingly ushering in their Kodak or Blockbuster moment?
While recent global earnings have been strong in the US, a more recent survey of 500 CEOs and other senior leaders by McKinsey pointed to a current gap between their growth ambitions and their ability to hit these targets. Only 29 per cent of respondents said they focused more than a third of their time on long-term initiatives. Importantly, just 30 per cent said they funnelled more resources into new businesses and other growth drivers at times of volatility. And just 8 per cent were confident in their organisation’s recruitment pipeline.
In the UK, things seem particularly glum. A third of UK chief executives surveyed by PwC don’t even believe their own business will be economically viable in a decade’s time, let alone have confidence in their prospects for growth.
Business leaders have every right to blame the domestic backdrop for some of their failure to grow — from erratic politics to barriers to hiring and investment. High interest rates, geopolitical uncertainty and regulatory concerns have also led to a deal drought in the past few years.
While many now believe answers to a paucity of growth lie in the full embrace of artificial intelligence, that won’t resolve the mindset problem. Without confidence, leaders are less likely to make acquisitions, invest in new markets, embrace transformation, manage disruption or steer organisations towards growth.
With CEO tenure falling, there is a further impetus to focus on the shorter term over committing to investments for the future. It’s why so many leaders underinvest in research and development and fail to cultivate a culture that rewards creativity. Corporate failures in recent years have also been so painful, both financially and reputationally, that compliance, legal and public relations teams are far more influential than before.
This is where the board of directors should play a critical role in being effective long-term stewards for an organisation — helping to recognise and overcome barriers such as a poorly developed talent pipeline. Yet many are afraid of scrutiny themselves — from their peers, shareholders and the press — often leading them to hire their own legal counsel, separate from company executives. “Everyone is so worried about getting anything slightly wrong,” says one investigations lawyer in the UK.
Of course, pursuing a narrow version of growth at the expense of employees or wider society is also flawed. But there is merit in pushing for a type of expansion that mobilises an organisation, brings staff together behind a common purpose and elevates ambitions. This in turn can generate greater shareholder value, help companies hire star talent, innovate and create jobs. Business leaders pointing fingers at government inertia should take care not to fall into the same traps themselves.
