A great majority of chief executive officers (CEOs) want their senior executives and management teams more engaged in managing risks. A recent survey of members of the American Institute of Certified Public Accountants pegs the number at 82% for CEOs of large organizations, and 76% for CEOs of publicly-traded companies.¹ These numbers imply that business leaders are anxious about a growing and worsening risk landscape. But just how worried are they, and what sources of risk are of greater concern to them? These are important questions to examine.

Sharp Drop in Business Confidence

The Conference Board monitors CEO business confidence using surveys. The surveys measure “perceptions of current and expected business and industry conditions.”² From the survey responses, a measure of confidence is developed ranging from 0 to 100. Measures above 50 indicate optimism, while measures below 50 indicate pessimism. The higher or lower the measure, the more there is optimism or pessimism about business and industry conditions. CEO confidence has proven to be a reliable leading indicator of recessions in the past.

During the second quarter of 2022, the measure of CEO business confidence in the United States dropped to 42, from an all-time high of 82 one year ago. The sharp decline of 40 points is the biggest drop over a 12 month period since 1976 (inception year of the measure). Confidence is even lower in Europe at 37, and in China at 34. A level of 40 indicates that a recession is forthcoming based on past experience (Figure 1). It will be intriguing to see how CEO business confidence continues to evolve. The lowest level of confidence ever recorded in the United States was during the 2008-09 financial crisis, when the level dropped to 24. The following chart is a simplified representation of confidence level trends since 1976.

Most Significant Areas of Concern

The Conference Board also surveys C-suite executives³ at the end of each year. These annual surveys provide an outlook of anticipated business conditions for the upcoming year. The outlook may be updated mid-year if business conditions change. The surveys and updates identify issues of significant concern from the perspective of CEOs and other senior executives. Evidently, these issues are among the most significant sources of risk affecting organizations. The Conference Board released its latest annual C-Suite Outlook Survey in January 2022, and published a mid-year update in May 2022. The mid-year update focuses on deteriorating business conditions following the war in Ukraine, the persistent rise of inflation, and the growing risk of recession. Significant areas of concern detailed in these documents can be summarized as follows:⁴

• Geopolitical conflicts – The war in Ukraine is causing a major realignment of business arrangements. Chief executives worry about the effects of sanctions, and the reshuffling of global alliances for trade. The reshuffling may result in competing economic blocks, and limitations for countries to trade outside of their block, leading to a fractured global economy. Approximately 43% of CEOs are highly concerned about a division in the global economy.

• Supply chain vulnerabilities – The pandemic and trade sanctions related to current geopolitical conflicts are wake-up calls for organizations to their rethink supply arrangements. Only 28% of CEOs believe that their organization is well prepared for supply chain disruptions. Making supply chains more resilient is an area of focus for 53% of CEOs. Major decisions and actions include redirecting procurement and manufacturing away from high risk countries.

• Cybersecurity threats – Close to 50% of C-suite executives expect that cybersecurity incidents will impact their business operations in the next 12 months, up from less than 20% in January 2022. Geopolitical conflicts caused by the war in Ukraine explain the sharp increase. Only 37% of CEOs believe that their organization is well prepared for a cybersecurity crisis.

• Volatile energy prices – Almost 60% of C-suite executives indicate that high and volatile energy prices have a major impact on business operations. Many executives believe that energy prices may never go back to prepandemic levels if there is a continued shift away from Russian oil and gas. On the positive side, approximately one third of C-suite executives see opportunities to accelerate progress toward clean and renewable energy sources.

• Labor shortages – Tight labor markets are a significant cause of concern, especially in the United States. Labor shortages are limiting the production and delivery of goods and services in many industries. In the United States, the unemployment rate is currently very low at 3.6%, back to prepandemic levels. However, the labor force participation rate is only 62%, down from 67% twenty years ago. The growth of the available workforce is not keeping pace with demand. According to the Department of Labor, there were 11.4 million job openings at the end of April 2022, while approximately 6 million unemployed individuals were looking for work.

• High inflation – The pandemic reduced the supply of goods and services. The war in Ukraine, and sanctions against Russia compound the problem. The results for businesses are higher input costs, lower profit margins, and reduced consumer demand (especially for non-essential goods and services). In May 2022, the annual rate of inflation was 8.6% in the United States, the highest level in 40 years. Current inflation rates in Europe also exceed 8%. Only 38% of CEOs believe that their organization is well prepared for an inflation-related crisis.

• Recession risk – Central banks around the world are tightening monetary policies to curb inflation. In Western countries, interest rates are expected to rise until inflation drops within a target range of 1 to 3%. It is unclear whether restrictive monetary policies will be as effective in a context where inflation is driven by insufficient supply as opposed to excessive demand. Central banks have limited experience with supply-driven inflation. More than 60% of CEOs anticipate a recession in their main region of business in the next 12 to 18 months. Only 41% of CEOs believe that their organization is well prepared for an economic downturn.

• Climate change exposures – Climate change continues to be perceived mostly as a long-term risk, despite the increasing frequency and severity of weather-related events around the world. Only 26% of CEOs think that their organization is well prepared for climate-related risks. Globally, more and more companies are disclosing their exposures to climate change in annual reports. Organizations are increasingly compelled to reduce carbon emissions.

Preparing for the future

The Conference Board notes that its January 2022 C-suite survey “finds a general admitted lack of preparedness for future shocks, which may raise questions among stakeholders, especially investors, about the resilience of some organizations.”⁵ The Conference Board also observes that many companies continue to focus their business continuity efforts on traditional elements related to information technology, while paying much less attention to other issues affecting business models. The Conference Board suggests that CEOs and boards can use the war in Ukraine as a catalyst to strengthen their risk management and crisis management plans and processes, and to have candid discussions about where the organization needs to improve in these areas.⁶

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¹ Mark Beasley, Bruce Branson and Bonnie Hancock, “The State of Risk Oversight: An Overview of Enterprise Risk Management Practices” 12th Edition (NC State University, Poole College of Management, ERM Initiative, April 2021), p.12.
² The Conference Board, “US CEO Confidence” (May 18, 2022, Article accessible at: https://www.conference-board.org/topics/ceo-confidence), Accessed June 30, 2022.
³ C-suite executives are chief executives such as the chief executive officer, chief operating officer, chief financial officer, etc.
⁴ The Conference Board, “C-Suite Outlook 2022: Reset and Reimagine” and “C-Suite Outlook Midyear: C-Suite View of
Volatility, War, Risks, and Growth for Global Business” (Documents available through: https://www.conference-board).
⁵ The Conference Board, “C-Suite Outlook 2022: Reset and Reimagine” p.26.
⁶ The Conference Board, “C-Suite Outlook Midyear: C-Suite View of Volatility, War, Risks, and Growth (…)” p.13.