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Confidence disrupted15th Annual GlobalCEO Survey 2012US Executive Summary
Contents1. US Executive Summary on PwC   15th Annual Global CEO Survey2. David Cote, Chairman and CEO,   Honeywell3. Domin...
President and CEO, DIRECTV8. Richard OBrien, President and   CEO, Newmont Mining   Corporation9. Roger W. Ferguson, Jr,   ...
Preface                                             US CEOs in our 15th Annual Global CEO Survey are slightly less optimis...
More than half of US CEOs were directly affected by the Eurozone crisis last yearW     eak growth in      Europe and the U...
Consumer spending power is driving growth in new marketsC  EO strategies target   growth outside the USand Europe         ...
US CEOs with operations outside North America and Western Europe are most bullish about growthB   usiness leaders must    ...
US CEOs are getting more responsive to changes in customer demand and competitive threatsC   ustomer demand is    driving ...
Deal making is encouraged by growth achieved outside the US market in the past decadeUS      CEOs step up        global tr...
More than 90% of business leaders with operations in these countries are looking for customersUS      CEOs are        expa...
Global CEOs’ ranking of important markets shows that new competitors are challenging US and European leadershipF  or globa...
Business leaders outline priorities for their governmentsUS      CEOs expect        more governmentsupport to boost nation...
Businesses are investing in talent to meet their own needsUS     CEOs lead in       making talentinvestments for future   ...
Global CEO views on their outlook for the US economy“We believe that the turnaround in the US will take         “In Europe...
Research methodologyOf the 1,258 interviews we conducted of CEOs in 60 countries between 22 September and 12 December 2011...
Interview with David Cote   Chairman and CEO of Honeywell                        PwC: Energy security and volatility      ...
pace, and I expect the same thing in         3 percent, it will take China 30 years   David Cote           India. The over...
PwC: Describe the importance of           our sales were outside the US. Today   David Cote           forging alliances an...
PwC: Are you seeing any new                   PwC: How does Honeywell   David Cote           challenges to getting the rig...
www.pwc.com/usceoagenda2012PwC firms provide industry-focused assurance, tax and advisory services to enhance value for th...
Interview with Dominic J. Frederico   President and CEO of Assured Guaranty Ltd.                        PwC: What is your ...
very well, maintaining reasonably high        Number three, again under Dodd Frank,   Dominic J. Frederico    ratings, in ...
bankruptcy and have debt service fall on      PwC: And does that same basic   Dominic J. Frederico    their bond insurance...
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
PwC 15th Annual Global CEO Survey - US Findings
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PwC 15th Annual Global CEO Survey - US Findings

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Heading into 2012, US CEOs show measured optimism as they face wide disparities in their operations around the world. To be sure, slow recovery at home and crisis in Europe are immediate concerns. But long-term fundamentals point to robust growth in Asia, Africa, and Latin America -- and CEO strategies are clearly targeting this opportunity.

We interviewed 160 US CEOs for the 15th Annual Global CEO Survey. The complete transcripts of 8 of the CEOs can be seen here.

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Transcript of "PwC 15th Annual Global CEO Survey - US Findings"

  1. 1. Confidence disrupted15th Annual GlobalCEO Survey 2012US Executive Summary
  2. 2. Contents1. US Executive Summary on PwC 15th Annual Global CEO Survey2. David Cote, Chairman and CEO, Honeywell3. Dominic J. Frederico, President and CEO, Assured Guaranty Ltd4. Douglas R. Oberhelman, Chairman and CEO, Caterpillar Inc.5. F William McNabb III, Chairman, President and CEO, The Vanguard Group, Inc6. Michael Thaman, Chairman of the Board and CEO, Owens Corning7. Michael White, Chairman,
  3. 3. President and CEO, DIRECTV8. Richard OBrien, President and CEO, Newmont Mining Corporation9. Roger W. Ferguson, Jr, President and CEO, TIAA-CREF10.Explore the data11. Daniel S. Glaser, Group President and COO of Marsh & McLennan Companies Inc.12.Brian Duperreault, President and CEO of Marsh & McLennan Companies Inc.
  4. 4. Preface US CEOs in our 15th Annual Global CEO Survey are slightly less optimistic than they were last year, but are still focused on growth. In fact, nearly 40 percent of US CEOs plan to complete a cross-border merger or acquisition this year. Two contrasting trends shaping the global economy—crisis in Europe and vibrant growth in Asia, Africa and other emerging markets—explain this sense of guarded optimism. Despite near-term uncertainties, CEOs feel global business fundamentals point to strong future growth, and their strategies are adapting to take advantage of unprecedented new opportunities in new markets. Customer demand is the primary driver of corporate strategy this year. Success involves understanding customer segmentation within various markets—such as rural-urban and high income-low income—and the dynamics driving it. That is why integral to CEOs’ global expansion strategies is the need to reconfigure operations at very local levels. That includes getting the product and service portfolio right across markets, nurturing talent in different locations, and encouraging free flow of ideas and innovations regardless of where they originate. I want to thank the more than 160 CEOs from the US who took the time to participate in this survey. This includes nine CEOs who sat down with us for in-depth discussions, adding valuable insights to our quantitative findings. We hope the following pages help to generate further discussions and ideas on significant business challenges and opportunities we all face. Bob Moritz US Chairman and senior partner15th Annual Global CEO Survey 2012—US Executive Summary 1
  5. 5. More than half of US CEOs were directly affected by the Eurozone crisis last yearW eak growth in Europe and the USis impacting businesses, Cumulative GDP growth by region, 2008–14, 2008=100) 135but US CEOs show Asia Pacificmeasured optimism 130 Africa 125 Middle East 56% Latin America of US CEOs & Caribbean 120 115 Financially affected by Europe’s 34 sovereign debt crisis Eastern Europe 110 US 105 Western Europe 100 95 90 2008 2009 2010 2011 2012 2013 2014 Source: PwC analysis based on data provided by Oxford Economics Source: PwC 15th Annual Global CEO SurveyUS CEO confidence has declined CEOs seem to be gradually letting changing their strategies, as a result. “We certainly see that the debt crisis inslightly as economic volatility, go of the “wait and watch” attitude Yet overall, CEOs remain optimistic Europe could get dramatically worsenatural disasters, and political of recent years. They are managing because rising wealth and a large and that that could affect our opera-upheavals shook the world in 2011. disruptive events while moving emerging middle class are fueling tions, not just in Europe, but it could have some spillover into the creditUncertain or volatile economic forward determinedly in pursuit of growth expectations in Asia and markets and therefore our operationsgrowth is a concern shared by 80% new opportunities. For example, other fast-growing markets. around the world.”of CEOs worldwide. Still, over half more than half of US CEOs say —Michael Thamanof US CEOs continue to be very their businesses have been affected Chairman of the Board and CEOconfident about revenue prospects financially by the ongoing sovereign Owens Corningover the next three years. debt crisis in Europe and a third are 2 PwC
  6. 6. Consumer spending power is driving growth in new marketsC EO strategies target growth outside the USand Europe Cumulative GDP growth by region, 2008–14, 2008=100) 2008 2009 2010 2011 2012 2013 2014 ................................................................................................................................................................ Asia Pacific 100 101 108 112 117 124 132 Africa 100 102 107 109 114 121 127 44% of US and Asia-Pacific Middle East 100 101 105 111 116 121 126 CEOs Latin America & Caribbean 100 100 106 110 114 119 124 Betting on increased spending in Asia for growth Eastern Europe 100 94 95 99 102 105 110 US 100 97 99 101 104 106 110 Western Europe 100 96 97 98 98 100 102 Source: PwC 2011 APEC CEO Survey Source: PwC analysis based on data provided by Oxford EconomicsDespite short-term disruptions, Global businesses are taking Africa, home to some of the world’s “The interesting thing about howAsia’s growth will sustain and advantage of deepening trade fastest-growing economies.2 we’re positioned in the global economyspread to new markets. China and investment ties among Asian today, particularly in the emergingand India, of course, are integral economies. They are setting up new Business leaders’ commitment world, goes back 10 years, when our company was largely positioned into companies’ Asian strategies, hubs as springboards for regional to doing more business globally country, working on multinationalbut this survey and related PwC growth and expansion, finding new is gradually increasing, despite business coming out of the US andresearch—PwC’s 2011 APEC CEO consumers, realizing supply chain economic, regulatory, and other Europe for the most part. Right nowSurvey—find business leaders also efficiencies, and taking advantage uncertainties. There is acknowl- the vast bulk of our global business isseeking greater scale and penetra- of Asia’s entrepreneurship and inno- edgement that the risk of missed indigenous, local business. We still dotion across the region through new vation.1 Some companies are also opportunity far outweighs any risks multinational servicing, but the largefootholds in countries like Indonesia implementing regional strategies in associated with expanding in fast- part of what we do country by countryand Vietnam. growing markets. is local.” —Brian Duperreault 1 10Minutes on expanding business in Asia President and CEO Pacific 2 10Minutes on investing in Africa Marsh & McLennan Companies Inc.15th Annual Global CEO Survey 2012—US Executive Summary 3
  7. 7. US CEOs with operations outside North America and Western Europe are most bullish about growthB usiness leaders must ask: are we positionedto seize opportunities Latin America Africain the right place at theright time? Asia Pacific Central & Eastern Europe/Central Asia Middle East North America Western Europe 0% 20 40 60 80 100% Do you expect your key operations in...to decline, grow, or stay the same? Base: US respondents with operations across different regions (17–158) Source: PwC 15th Annual Global CEO SurveyUS businesses with key operations expect their operations will grow to expand their footprint in these adding capacity in order to expand ourbeyond the mature markets of North in North America. But despite the markets and participate in their ability to manufacture and assembleAmerica and Europe are most opti- promise of high growth, US compa- accelerating progress and prosperity. products in those markets. I firmlymistic about growth. Of those with nies continue to have a limited believe that with seven billion people on the planet wanting to live as we dooperations in emerging markets, presence in emerging markets. Only “We have stepped up our global invest- in the US, they’re going to want infra-about three-quarters expect busi- about a third have key operations ment program over the last 18 months, structure. Caterpillar makes infra-nesses in those regions to expand in Asia or Latin America, and even particularly in emerging markets, structure, so we have to be there.”compared to only 42% of those fewer have a presence in Africa or including Thailand, China, India, —Douglas R. Oberhelmanwith operations in Western Europe. the Middle East. There is a tremen- Indonesia, and Brazil. We’re putting Chairman and CEOCloser to home, 65% of US CEOs dous opportunity for US companies in new brick-and-mortar facilities and Caterpillar Inc. 4 PwC
  8. 8. US CEOs are getting more responsive to changes in customer demand and competitive threatsC ustomer demand is driving US corpo-rate strategy change, as Increasing importance Customer demand 63% 77%concern about risk lessens Competitive threats 55% 73% Holding steady Economic growth or uncertainty 71% 76% Regulation 46% 47% Decreasing importance Industry dynamics/disruptions 48% 63% Changes in risk tolerance/Attitude towards risk 19% 39% Shareholder expectations 27% 34% Capital structure/deleveraging 23% 33% 0 10 20 30 40 50 60 70 80 Which of the following factors influence your anticipated need to change your strategy? 2011 2012 Base: Those US CEOs whose strategy will change in 2012 (99) and those whose strategy changed in 2011 (87) Source: PwC 14th and 15th Annual Global CEO SurveysCustomer demand in distant markets But any response to changing than in the recent past. With more “If China’s economy keeps growing atseems to be exerting its pull on US customer demand must also growth opportunities arising on 7 percent a year and the US’s grows atbusinesses. More than three-quarters take into account new global distant shores, American business 3 percent, it will take them 30 yearsof US CEOs (77%) are revising their consumption trends. For example, leaders seem to be acknowledging to become the biggest economy in the world. But they still won’t have thestrategies in response to changing Asia’s share of global middle-class that an overly conservative atti- same standard of living as in the US,customer demand, up from 63% a spending is projected to increase tude will put their companies at a meaning they can keep growing for ayear earlier. At home, this could be a from 23% to nearly 60% by 2030.3 competitive disadvantage. Only 19% long time.”response to changing demographic are revising their strategies because —David Cotetrends such as the retirement of baby CEO risk tolerance is influencing of changes in their tolerance and Chairman and CEOboomers and the tech lifestyle choices corporate strategies much less attitude toward risk, compared to Honeywellof the Millennial generation. 39% last year. 3 Organization for Economic Co-operation and Development, 2010.15th Annual Global CEO Survey 2012—US Executive Summary 5
  9. 9. Deal making is encouraged by growth achieved outside the US market in the past decadeUS CEOs step up global transactionsin pursuit of growth New strategic alliance or Cross-border merger or Next 12 months Previous 12 months joint venture acquisition 58% 39% 45% 25% Which, if any, of the following restructuring activities did you initiate in the past 12 months/do you plan to initiate in the next 12 months? (Respondents were able to choose all that applied) Base: US respondents (161) Source: PwC 15th Annual Global CEO SurveyCEOs seem to acknowledge that to make a cross-border merger or defensive moves, such as strength- example of that is our partnership intaking on greater risk is part of any acquisition in 2012. ening balance sheets and building Latin America with Banco Santander.future success. Consider plans for cash reserves. If the recent past This is a strategic move for the longcross-border M&A. Almost 40% of To be sure, cost reduction remains was about discipline and caution, term. We’re also expanding in Asia; we just closed a deal in which we boughtUS CEOs intend to complete a cross- important. But the emphasis in we now see a readiness to take Malaysian Assurance Alliance Berhad.border deal this year compared to corporate restructuring is shifting. risks in pursuit of growth, whether Balancing our strength in Europe and25% last year. In fact, US CEOs show For example, two-thirds of US CEOs through strategic alliances or cross- the US with our growing strength ina greater appetite for global deals plan cost cutting this year compared border deals. the emerging markets is an importantthan their peers in other countries: to 77% last year. Many companies strategic priority for us.”Worldwide, 28% of CEOs expect already have made significant “Our main strategic move has been —Martin Senn expansion into emerging markets. One CEO Zurich Financial Services Group 6 PwC
  10. 10. More than 90% of business leaders with operations in these countries are looking for customersUS CEOs are expanding inhigh-growth markets in China India Brazil Grow your customer base 90% 93% 95%pursuit of local customersand talent Access local talent base 82% 85% 97% Build internal service delivery capacity 69% 67% 64% Access raw materials or components 47% 48% 33% Build R&D/innovation capacity or acquire intellectual property 51% 56% 21% Build manufacturing capacity 30% 48% 21% Access local source of capital 18% 15% 13% Don’t know/Refused 6% 7% 0% For each of the countries that you named, which of the following objectives do you hope to achieve in the next 12 months? Base: Those who selected a country as “important for growth” Source: PwC 15th Annual Global CEO Survey (Respondents were able to choose a maximum of three countries) (27–77)To expand their business overseas, developing products and services and innovation from fast-growing to The product requirements of a smallsome US CEOs are paying particular specifically for the local market. mature markets. farmer versus a large farmer are veryattention to the specific needs of different, so we have to customize ourcustomers in individual markets. Almost all US CEOs are revising “In countries that have particular product development to meet the needs medical requirements, one must find of each. The lesson here is that in orderThey are focused on getting the their innovation strategies, with innovations that are customized for to bring products to market that meetportfolio of products and services 72% focusing on creating new prod- those countries. For example, in China the exacting needs of the consumer, oneright across various diverse and ucts and services within existing and India, you have, respectively, two must be very close to the consumer.”segmented markets. For example, business models. This emphasis hundred million and one hundred —Dr. Marijn Dekkers40% of US CEOs with India opera- on new products and services for million farmers cultivating small plots. Chairmantions are modifying their prod- local markets is also leading to the By way of contrast, in Brazil, farms, Bayer AGucts and services for these new phenomenon of “reverse innova- on average, are more than a thousandconsumers and another 32% are tion,” or flow of ideas, processes, times larger than those in China.15th Annual Global CEO Survey 2012—US Executive Summary 7
  11. 11. Global CEOs’ ranking of important markets shows that new competitors are challenging US and European leadershipF or global CEOs, China is the most importantopportunity, but the US UK 6% Germany 12% Russia 8%remains attractive USA 22% China 30% France 5% India 14% Brazil 15% Why companies are investing in the US 71% Grow your customer base 46% Access local talent base 30% Build internal service delivery capacity 26% Build R&D/innovation capacity or acquire intellectual property 23% Access local source of capital 19% Access raw materials or components 17% Build manufacturing capacity 9% Don’t know/Refused Which countries, excluding the one in which you are based, do you consider most important for your overall growth prospects? (Respondents were able to choose a maximum of three countries) Base: All respondents (1,278) Source: PwC 15th Annual Global CEO SurveyAmerica is confronting new chal- Even so, the US still has strong to talent, and 30% are building Asian economies are trading with eachlenges to its long-held leadership fundamentals and continues to internal service delivery capabilities. other much more than ever before. Thisposition in the world. China now be attractive to global investors. includes the changes taking place inoutranks the US in the list of coun- Companies from Asia and Latin “Around the globe we are all more China. Asia’s consumption-led demand financially interrelated than ever is still quite strong and so is infrastruc-tries that CEOs consider most vital America increasingly have the before. But I also think that emerging ture development. Those two elementsto their business growth prospects. wherewithal to invest, create jobs, Asia generally stands a little bit apart will fuel a growth in our part of theMeanwhile, Brazil and India have and fuel innovation in the US. world that you will probably not see from what is happening in Europe andpulled ahead of Western Europe’s Seventy-one percent of all CEOs the United States. Once upon a time we elsewhere.”major economies as important who want to enter or expand in the relied on the markets in Europe and —Jaime Augusto Zobel de Ayalamarkets for growth. US intend to increase their customer the US to a greater extent. If you look Chairman and CEO base, 46% are seeking access at the statistics over the last five years Ayala Corporation 8 PwC
  12. 12. Business leaders outline priorities for their governmentsUS CEOs expect more governmentsupport to boost national Ensuring financial stability US Global ................................................................................................................................................................competitiveness Creating and fostering a skilled workforce ................................................................................................................................................................ Improving the country’s infrastructure ................................................................................................................................................................ Reducing poverty and inequality ................................................................................................................................................................ 34 Securing natural resources that are critical to business ................................................................................................................................................................ Maintaining the health of the workforce ................................................................................................................................................................ 0% 20 40 60 80% Which three areas should be the Government’s priority today? Respondents were able to choose a maximum of three responses. Base: US (161), Global (1,258) Source: PwC 15th Annual Global CEO SurveyUS CEOs don’t hide their disappoint- competitiveness through such “Too many people rely on the US real those who don’t take 20 percent, lowerment in the federal government. measures as improving infrastruc- estate market as either their biggest their interest rate. If the governmentMore than three-quarters say it did ture and fostering a skilled work- savings account or their retirement. lets banks borrow at 25 basis points,not effectively deal with the implica- force. While policymakers and With no value being achieved in the why not just give it to the consumer, market, that’s going to create more where it’s going to have the mosttions of the global economic crisis, corporate leaders alike agree that pressure in the whole process. I have benefit?”and a similar proportion is also such measures are needed to boost not seen anything from the govern- —Dominic J. Fredericodissatisfied with its response to the US competitiveness, a contentious ment, either a policy or a proposal, to President and CEOUS budget deficit and debt burden. business-government relationship address that. We spend a ton of money Assured Guaranty Ltd could impede progress. Failure to on infrastructure at the Federal level,Still, American business leaders cooperate would be unfortunate, but that has done very little relative toexpect the government to particularly at a time when public- unemployment or the economy. Takestrengthen the nation’s global private collaborations are increasing those same dollars and forgive every- in other countries. body 20 percent of their mortgage. For15th Annual Global CEO Survey 2012—US Executive Summary 9
  13. 13. Businesses are investing in talent to meet their own needsUS CEOs lead in making talentinvestments for future US Global We invest primarily to ensure a future supply of potential employeesgrowth ................................................................................................................................................................ We are investing in formal education systems ................................................................................................................................................................ We are investing in adult/vocational training programs ................................................................................................................................................................ We are investing primarily to improve living and working conditions where we operate ................................................................................................................................................................ 34 We are investing primarily to enhance our reputation ................................................................................................................................................................ 0% 20 40 60 80% To what extent do you agree with the above statements? Base: Those who are increasing their investments in talent, US (136), Global (982) Source: PwC 15th Annual Global CEO SurveyFuture prospects for the US particularly difficult to recruit and investments in workforce develop- “Within the United States, certaineconomy are unlikely to improve retain. This is impacting corporate ment. But piecemeal measures regional markets tend to have strongerwithout a long-term solution to profitability. Almost a quarter won’t suffice. Cooperation between talent pools than others. For example,talent shortages that exist today. of US CEOs say they were unable businesses, government, and we get some great technologists here in the New York area, as well as in ourEven in a weak labor market, more to pursue a market opportunity academia, with a focus on solutions offices in Charlotte and Denver. Sothan 40% of US CEOs say their and another fifth were unable to rather than describing the problem we’ve put IT operations in each onetalent-related expenses rose more innovate effectively because of is what’s needed. Measures, such of those locations. We will absolutelythan expected, a reflection of the talent constraints. as retraining workers left behind by either shift people, or hire people, inacute skills mismatch problem they the changing economy and easing different locations based on our assess-face: talent shortages amid high The problem could worsen as baby restrictions on global workforce ment of the strength of the talent poolunemployment. For almost 60% of boomers retire, the global market- mobility, are best identified and there.”US CEOs planning to hire this year, place becomes more integrated, and implemented through collaboration —Roger W. Ferguson, Jr.it won’t be easy to find the right mix technology continues to change the among different stakeholders. President and CEOof people. High-potential middle nature of work. CEOs are taking TIAA-CREFmanagers and younger workers are action: 84% are making direct10 PwC
  14. 14. Global CEO views on their outlook for the US economy“We believe that the turnaround in the US will take “In Europe there is definitely some stress but I am “In the US, because it’s such a mature, highlylonger—but once it begins, it will have significant optimistic about the US.” competitive market, we’re working much more on TVstrength. We think things will not improve much —Ajay G. Piramal Everywhere, product differentiation, mobility, andin North America in the near term—the near term CEO other initiatives. Whereas in Latin America, havingbeing the next four to six quarters. But longer term, Piramal Group LTD a more affordable product is still a big innovationthe housing market will have to come back strongly India in and of itself. And we learn from each other. Forsimply as a consequence of the predictable rise in example, our Brazil business is much better than ourhousehold formation. Historically, the American “I think we are looking at flat to potentially declining US business on customer service and being customer-housing market represents 5 or 6 percent of US GDP. economic growth in Europe which could persist for centric as an organization, in the way they’veToday the American housing market is around two years. We would hope to avoid a double dip in the designed their products and run their business model.1 percent of US GDP. So the housing market has United States and I think the numbers I’ve been seeing The trick is to make sure that both organizations geta significant multiplier effect on the rest of the in our businesses suggest that things are slightly to see what the other is doing, take the best, and theneconomy.” more robust in the United States than we would have adapt it.” —Keith McLoughlin thought about two months ago. I think China will see —Michael White President and CEO plus 8 percent GDP growth next year.” President and CEO AB Electrolux DIRECTV —Tom Albanese Sweden US Chief Executive Rio Tinto“The lack of a credible, long-term fiscal plan in the US UK “The older white- and blue-collar workers thatis probably our chief concern. The fact that there is formed the backbone of our workforce are nownot actually contributes to the market volatility. Just retiring. And attracting young millenniums to “In the US what you see is the big, big influence oflook at August of this past year and the debate about a traditional industry and providing them with the baby-boomers transition—78 million people willthe US deficit, and the inability for both political engaging careers is not easy. It’s fascinating to see, be retiring over the next 20 years. That’s 10,000 aparties and the Obama administration to come that—for example, in our US subsidiary—it is very day for 20 years. Baby-boomers control $7.6 trilliontogether on the issue. We saw levels of volatility that difficult to attract good engineering talent to a basic of assets. Our average customer is 62. So it’s reallyare typically not seen.” industry like ours. Attracting talent in the developing people who have saved and want to retire and have —F William McNabb III countries is less of a problem.” a relatively safe retirement. That works. It’s been Chairman, President and CEO —Dimitrios Papalexopoulos very good for us and, again, it’s relatively insulated The Vanguard Group Inc. CEO from the macro-economic environment. It’s driven by US TITAN Cement SA demography and ageing. The macro context has an Greece impact but at the margins.” —Tidjane Thiam Group Chief Executive, Prudential PLC UK15th Annual Global CEO Survey 2012—US Executive Summary 11
  15. 15. Research methodologyOf the 1,258 interviews we conducted of CEOs in 60 countries between 22 September and 12 December 2011, 161 were with those headquartered in the US.Forty-four percent of US respondents reported revenues up to $500 million and 10 percent were those whose companies had revenues up to $999 million.A significant number of large companies also participated from the US. These included 39 percent whose companies reported revenues between $1–$10billion and 8 percent whose companies had $10 billion-plus revenues.To better appreciate what is underpinning the CEOs’ outlook for growth we also conducted in-depth interviews with 37 CEOs from five continents, including9 from the US. Their interviews are quoted in this report, and more extensive extracts can be found on our website at: www.pwc.com/usceoagenda2012ContactsBob Moritz Tom CrarenUS Chairman and Senior Partner Partner1 646 471 7293 US Thought Leadership and Brandrobert.moritz@us.pwc.com 1 646 471 6465 tom.craren@us.pwc.comEditorial teamCristina Ampil Deepali SussmanManaging Director Senior FellowUS Thought Leadership Institute US Thought Leadership Institute1 646 471 5003 1 646 471 1061cristina.ampil@us.pwc.com deepali.s.sussman@us.pwc.comDesign: US Studio Online Research and data analysisTatiana Pechenik Adiba Khan The research was coordinated by the PricewaterhouseCoopers InternationalIsabella Piestrzynska Survey Unit, located in Belfast, Northern Ireland.Laura TuAdam West12 PwC
  16. 16. Interview with David Cote Chairman and CEO of Honeywell PwC: Energy security and volatility going to buy a car that doesn’t go as and pricing supply are prompting fast as your old one did.” No matter companies to meet demand for what people say in a survey, that’s not efficiency. In serving customers in what they’re actually going to do. You the United States, but perhaps more have to find ways to make it easy for important, outside the US, where is people while not severely impacting that demand being driven from? Is their lifestyles. This is where you have to it lack of a national energy policy? get utility companies involved. Utilities Is it consumer-driven by residential are generally incentivised to sell more and industrial consumers? Where electricity, yet need to reduce their are you seeing the most heated overall energy intensity. They need to demand for energy-efficiency figure out how to deploy programmable products either geographically or thermostats in homes and businesses, by type of consumer? And what area how to encourage better insulation, how would you be most excited about in to ensure factories are installing energy terms of seeing it demonstrated? saving equipment. Such initiatives are too dispersed, so everybody needs DC: I’m intrigued by all areas of energy to pay more attention to them. efficiency, because it’s surprising how much possibility exists in that area. It’s PwC: In terms of sustainability something no one’s ever really focused and Honeywell’s product on. Everybody tends to be more focused portfolio, which parts of the on consuming energy than on energy world present the greatest efficiency. Whether it’s industrial, opportunities for environmental residential, commercial, or government, goods or clean-tech products? it doesn’t matter. We actually did an DC: I would say the newer economies. analysis showing that if the US and China in particular stands the greatest Europe aggressively used existing chance of becoming a very energy- Honeywell products and technologies, efficient society, just because they’re they could save 20 to 25 percent of their building so much new infrastructure, overall energy bill. Energy-efficiency which presents more opportunity products and technologies exist. It is and less difficulty than when you’re more a question of how to get people to retrofitting existing systems and facilities. use and invest in them. For example, if you’re buying a new plane or putting up PwC: Given the current a new building, how do you get all the economic turmoil in Europe energy-efficiency products included? and in the US, what is your view The behaviors and incentives aren’t of the outlook for the global correctly aligned. That’s where we economy in the next year? have to find a different way of doing DC: We’re planning on slow growth things, because you’re not going to get across the global economy. We should energy efficiency just by telling people, assume a slight recession in Europe, “You need to be colder in the winter, while the US should grow at a slow pace.15th Annual Global warmer in the summer,” or, “You’re China will grow slower but still at goodCEO Survey 2012US CEOInterview Transcripts 1
  17. 17. pace, and I expect the same thing in 3 percent, it will take China 30 years David Cote India. The overall debt question, both to become the biggest economy in the Chairman and CEO, in the US and in Europe, is creating this world. But they still won’t have the Honeywell big market overhang, and it’s going to same standard of living as in the US, have to work its way through. Europe’s meaning they can keep growing for a problems are the ones that we’re long time. We’re going to participate focusing on now, but right behind them in that growth and continue to support are those in the US. In the US, it’s like it. So the biggest thing that needs to be we took the uncertainty of demand, we done for Honeywell is to identify our put the uncertainty of regulation on Chinese competitors. We know who our top of that, and now we’re putting the competitors are in the developed world, uncertainty of government financing on but when you look at emerging regions top of that. So everybody just holds back. with high growth, that’s where you next PwC: What can governments competitor is likely to emerge. The only do specifically to help and way we’ll be able to compete is if we’re support Honeywell? there and doing everything locally. And that’s where our big push has been. DC: The biggest thing governments, both in Europe and in the US, can PwC: Does that type of geographical do is to address their debt problems. expansion and diversification And that seems to be the one thing change your talent needs? politicians don’t want to do. They’d DC: I’m fond of saying that you need rather talk about jobs, but the one big to have the best people organised and thing that they could do to address motivated the right way if you’re going job creation is to resolve the long term to be successful. We have about 140,000 financing issues in Europe and the US. people in the company, half of them PwC: Regarding your strategy outside the US, so our demand for talent going into 2012, compared to last is very big. We’re going to keep working year, how do you perceive emerging to develop and promote talent internally, markets, both as an area for because I like our people to feel they expansion or to grow acquisitively? have the ability to move upward and look at opportunities for themselves. DC: There won’t be any changes in our strategy, though I’m a big believer in PwC: Are you experiencing any thinking about emerging economies talent shortages, and if so, what and the need to participate in them. have you done to close those gaps? Of course, the two big ones are China DC: The best thing is having a successful and India, where 35 to 40 percent of company. If our company is successful the world’s people reside. The more and our people feel they’re making people engaged in the global economy, a difference when they work here, the better it is for everybody. If China’s that they are responsible and can see economy keeps growing at 7 percent progress, that’s probably one of the a year and the US economy grows at biggest attractors we can have.15th Annual GlobalCEO Survey 2012US CEOInterview Transcripts 2
  18. 18. PwC: Describe the importance of our sales were outside the US. Today David Cote forging alliances and partnerships it’s approximately 55 percent. We’ve Chairman and CEO, outside the United States, whether grown from a $22-billion company to Honeywell it be with a supply-chain partner a $37-billion company. You don’t do or a formal business partner. that by simply taking US products and selling them somewhere else. You have DC: We tend to go on our own to innovate, design, manufacture, and everywhere, unless we’re in a country, source locally to be successful anywhere. an industry, or a market where we can’t For instance, we talk about the need to do it ourselves. Then we’re happy to develop products in India and China, partner with whomever makes the most for sales both in those countries and sense, so that together we accomplish in other markets, including the US. something neither of us could do individually. In China, for example, PwC: Broadly speaking, how we’ve tended to go on our own, except has talent become a strategic in aerospace, where to participate in issue for Honeywell? the building of the new COMAC C919 DC: Talent has always been a strategic airliner, we did forge partnerships, issue for us, and I personally spend a because they wanted local partners. great deal of time on it. For example, PwC: Internally, how has I review the performance of our top Honeywell adopted energy-efficient 200 people three times a year. In fact, products or put environmental either myself or Mark James, our human initiatives in place? resources leader, personally interviews those individuals before they’re hired, DC: We laid out our own aggressive even if we already know them. That energy and sustainability goals several type of diligence to hiring top talent years ago, and we have reported the accomplishes three things. First, we ongoing progress on our website so get a chance to imprint, or establish the public knows how we’re doing. social attachments, with each of them. We actually budget energy usage and Second, the hiring process is quality greenhouse gas emissions as part of controlled, ensuring that we have the our annual operating plan, and track best person. And third, it impresses upon them monthly to see how we’re doing the person the significance of the job versus the year before. To date, we’re they’re taking. When they talk directly doing very well in those efforts. with the CEO and the HR leader about PwC: Are you seeing more what they’re going to do and why, it’s innovation coming out of amazing what a difference that makes your foreign operations? in terms of their outlook on being a DC: We’ve certainly seen much more change agent when they get in that job. innovation coming from outside the US. Ten years ago, less than 40 percent of15th Annual GlobalCEO Survey 2012US CEOInterview Transcripts 3
  19. 19. PwC: Are you seeing any new PwC: How does Honeywell David Cote challenges to getting the right talent coordinate with educational Chairman and CEO, in the right place at the right time? institutions and governments to Honeywell ensure your pipeline of talent? DC: Yes, especially in our fast-growing markets, such as China and India, DC: Most governments can at least make because they’re growing faster than the sure their students are taught basic skills. talent there would be able to support. In developed regions such as the US So we are constantly working to train and Europe, graduating more engineers those people to become leaders. is critical, otherwise we’re going to PwC: Once they’re trained get far outstripped in the number of for leadership positions, does engineers educated in other countries. retention become a problem The US could have a much more open as they use those skills to minded immigration policy that allows explore other opportunities? foreign engineers to come here, or for foreign students studying engineering DC: Yes, which is why we devote so here to stay in the US to work and much attention to having people feel seek their fortunes. We ought to be like they’re a part of something at encouraging that, not discouraging it. Honeywell. We could just keep paying them more and more, but that’s not PwC: Finally, in the last year, with what’s going to hold them. People need volatility across the globe, have you to feel a sense of self actualisation: “I’m allocated your time and efforts as making a difference here. I can see what CEO differently, and when do you I’m accomplishing. I go home at night think that might change and get feeling good about what I did. I can brag back to normal—if there is such to my spouse and my kids about what I’ve a thing as “normal” anymore? done.” I think that makes a difference. DC: One of the things I’ve always liked PwC: Are you moving people about my job is that there is no normal. to fill gaps in geographic areas Everything is different, day to day, where you’re finding shortages? not just year to year. One thing that has benefited me this year is that last DC: We’re always more than willing year I served on the Simpson Bowles to move people, but we tend to focus Commission. I spent a great deal of on in country hiring. For example, I time working with that bipartisan want our China businesses run by local commission in trying to develop better Chinese talent. We may not always have economic policies for the US. So this the talent to do that locally, in which year I will be able to devote more of case we will bring someone in from my time running the company, which, the outside. Promoting from within a of course, is what I like doing best. country, though, shows everyone in the organisation that they can continue to grow and aspire to top jobs. Honeywell’s operations are big enough in any of15th Annual Global our markets to allow our people toCEO Survey 2012 grow their careers for quite a while.US CEOInterview Transcripts 4
  20. 20. www.pwc.com/usceoagenda2012PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 163,000 people in 151countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice.See www.pwc.com for more information.This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You shouldnot act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (expressor implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law,PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting,or refraining to act, in reliance on the information contained in this publication or for any decision based on it.© 2012 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms ofPricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each memberfirm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCILis not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment orbind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise ofanother member firm’s professional judgment or bind another member firm or PwCIL in any way.This product has been awarded the NAPM 100% Recycled Mark.
  21. 21. Interview with Dominic J. Frederico President and CEO of Assured Guaranty Ltd. PwC: What is your current PwC: With the current mix of outlook for the global economy, volatile circumstances—economic as well as the different factors you uncertainty, natural disasters, or consider when you look at growth political upheavals over the past both in the US and overseas? year—what has been the volatility level for Assured Guaranty? DF: Our business is basically predicated on growth in both Europe and the DF: Volatility for us is predicated, first, United States. As we look at Europe, internally on the company, and then on the economic outlook is for flat to no our ratings in the business of insuring growth across the continent, which credit risk. The issuer, or the obligor, uses is where the majority of our non-U.S. our insurance to improve the market’s business is located. In the US, where perception of the creditworthiness of most of our business is municipal that instrument. So the first threat to based—in individual states and local the product, or to our opportunities, is governments that issue bonds—this our ratings. The rating agencies have was a very depressed year for issuance. been under attack because they made With interest rates staying low, we some rather serious mistakes back in expect issuance to pick up next year, 2007 and 2008 relative to how they and there are some forecasters calling rated certain instruments that were tied for a fairly strong bond issuance year. to US mortgages, and there’s been an I don’t see that, however, because overreaction on their part. The rating you still have a balance of payments, agencies have taken a very different look cash in versus cash out. Municipalities at how they rate our company and our remain stressed from a budgetary point industry, which has been detrimental to of view, therefore that’s going to limit us. Over the last two years we’ve been the amount of new construction and on either a rating Outlook Negative or other new projects which they could a rating Watch Negative at at least one consider. So we’re looking for reasonable rating agency, and that uncertainty growth in the U.S. for our business. in the market had the most impact on Assured Guaranty and our position In Europe we’re looking at very little relative to being able to write business. growth. We haven’t had much success in Europe in the last two years because The only benefit, if you can call it that, of the uncertainty in the bond insurance is that we were the only company that market. I think there will be growth for maintained any viable ratings in our us versus what the general European marketplace, so we were the best option economy will do, just because of at the time. We’ve continued to show the fact that there was no insurance profitability, further improvement in penetration in the last two years, and capital position, and further run off we expect that to pick up going into or improvement of our portfolio of 2012 now that S&P has assigned us insured risks. By and large, we have stable ratings in the AA category. weathered the global financial crisis15th Annual GlobalCEO Survey 2012US CEOInterview Transcripts 1
  22. 22. very well, maintaining reasonably high Number three, again under Dodd Frank, Dominic J. Frederico ratings, in the AA category, which today there is now a federal insurance office. President and CEO, in the financial markets are some of Whether it decides to regulate our Assured Guaranty Ltd. the highest ratings from the agencies. industry could dramatically change how We’re challenged, but in a position we do business, what business we’re where we believe the worst is behind allowed to do, and how much business us and we are looking for a pickup in we’re allowed to write. Stacking those business because of the stability of factors on top of each other, ratings our rating from S&P. It is really stable are our number one risk, but there are financial strength ratings that dictate other risks in the marketplace that we the acceptance of our product. are as concerned about going forward. PwC: Are those ratings then PwC: How much do the fiscal the number one risk to Assured policies of domestic and foreign Guaranty’s growth that you’re governments, especially at the most concerned about, or municipal level, worry you? are there other factors? DF: We’re very concerned, and I’ll take DF: For most companies, risk, first it into a more specific context. We write and foremost, relates to their specific insurance for state or municipality business, and in our case it’s our ratings. issued bonds. We do a full underwriting However, we are also susceptible to of the issuer—its availability of risk from other areas, particularly funds, sources of funds, diversity of either legislative or regulatory. On the funds, and ability to increase in down regulatory side, there’s been movement cycles the flow of funds, their access to restrict the use of derivatives. We to other unallocated or previously used to write about a third of our unencumbered funds to support the book of business by guaranteeing borrowing or the debt service. derivatives contracts. If, under the Today, many municipalities are looking new Dodd Frank Act, a company has to for the ability to abdicate some of post collateral to execute a derivative their responsibility. For example, say transaction, that will drive everybody a municipality issues a bond with our out of the derivative markets, because insurance and agrees to raise taxes if the industry theoretically could be necessary to support the debt service; risking hundreds of billions of dollars. then, all of a sudden, because of the Second, in the way we’re structured— downturn in the economy and how with a Bermuda holding company, US its revenue base was constructed, subsidiaries, and UK subsidiaries—to the that municipality is seeing a revenue extent that the US changes the tax view shortfall. It’s not politically popular of what a Bermuda domicile means, and to raise taxes today, and although our how they’re going to restrict a premium contract specifically calls for that, the ceded from a US company to an offshore municipality decides it’s not going to company, that could have an impact. do that, but instead wants to file for15th Annual GlobalCEO Survey 2012US CEOInterview Transcripts 2
  23. 23. bankruptcy and have debt service fall on PwC: And does that same basic Dominic J. Frederico their bond insurance. Part of the deal, situation exist throughout Assured President and CEO, however, is that they are supposed to Guaranty’s various global markets? Assured Guaranty Ltd. exhaust all means possible to provide DF: I think it does. What makes it adequate cash flow to service that debt. different around the globe is the When some local government wants economic outlook, the size of potential to access the insurance and abdicate sources versus the obligations. We think its responsibilities to either have we have a fairly high level of benefits, of balanced budgets or find additional social programs built into the structure sources of revenue, I have a big in the U.S. If you go around certain issue with that type of behaviour. countries in Europe—and I lived in PwC: What should governments Europe for a number of years—you’ll do to avoid that type of behavior? find that the social structures there are DF: Now we’re getting into politics, but even steeper. They have tax rates that government officials first and foremost accordingly reflect that, which is why have to remember that they govern certain countries are very attractive for all people. And if people need a to live in and others are not. In the solution, then it’s up to the government United States, municipalities could heads to craft that solution, which create for themselves a competitive sometimes requires compromises. So advantage or disadvantage, depending today if you look across all levels of on how governments spread their government, first there has to be a re obligations across all constituents. recognition of what is a reasonable tax PwC: Have there been some base against expenditures. Then, when actions governments or you look at the revenue, did we attach multilateral organizations have to the revenue in the proper way? taken to create a positive impact It’s the government’s recognition of its on economic conditions? responsibility. I have an engineering DF: In the US, keeping interest rates background, which involves knowing very low is both a positive and a negative about my inputs and my outputs. It’s a for the economy. If you don’t show real very simple business. Everything is a interest rates, there’s no reason for process that has an input and an output, individuals to invest. If I’m going to earn and knowing how to match the two. In 25 basis points on my savings, there’s not a state government, it’s exactly that. much incentive for me to save. Therefore, What am I paying on this end, what because many people’s ultimate goal is to can I collect on that end, and how do I build a retirement fund, if they have no make the two meet? This is not about real return in the market, that’s going to making money or losing money. It’s make it very difficult to achieve that goal. about providing service and making sure Look at Japan, which went through 20 there’s a reasonable basis for allocating years of virtually zero interest rates. I the cost of that service to the recipients. don’t think that did them much good.15th Annual GlobalCEO Survey 2012US CEOInterview Transcripts 3
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