CEOs Leaning on Chief Talent Officers More Often as Talent Issues Dominate the Agenda

February 3, 2022 – Last January, chief executive officers described 2021 as the year of hope. One year later and looking back on their lived experience, many CEOs described 2021 as “challenging.” In the recently released Winter 2022 Fortune/Deloitte CEO Survey, nearly 60 percent of CEOs delivered one-word sentiments that put 2021 in a distinctly negative light: In addition to “challenging,” they found the year “chaotic,” “exhausting,” “long,” “unpredictable,” and “volatile.” But with the start of this new year, similar to the start of 2021, more than two thirds of CEOs appeared determined to see sunshine on the horizon, said the report. Asked to describe 2022 in one word, a significant number of CEOs were offering less “hope” (as they did last January), but “hopeful” – in addition to “opportunity,” “optimistic” and “recovery.” The number of CEOs who wrote “hopeful” was almost exactly counterbalanced by the number of CEOs who wrote “uncertain,” a decidedly less sunny sentiment. Both are likely to pervade the weeks and months ahead.

In the Fortune/Deloitte CEO Survey, fielded Jan. 4-12, 175 leading CEOs representing more than 15 industries shared a perspective on what is both hopeful and uncertain about 2022 – covering growth rates to inflation rates, supply chain challenges, and more.

A Top CEO Challenge: Talent

When CEOs were first asked last June about the biggest challenge they faced, a quarter of the responses pointed to talent-related issues. Asked the same question four months later, alignment was even stronger, with nearly half of all responses referring to talent. That emphasis continues today, with half of CEOs still referring to talent and workforce in their responses: for example, “fighting COVID fatigue with team members,” “finding/keeping the best people,” and “responding to new work paradigms.”

The Importance of the Leadership Team

As CEOs navigate the ongoing complexity and uncertainty in both their external and internal environments, how do they lean on their leadership team? Fortune/Deloitte asked CEOs to rank order a number of roles in order of importance to their personal success, as CEO. Two thirds of surveyed CEOs rank the chief financial officer as most important, and 55 percent rank business unit/regional leaders as most important, with the chief operations officer and the chief talent/HR officer not far behind. CEOs outside of the U.S. rank business unit/regional leaders above the chief financial officer.

Compared to their U.S.-based counterparts, non-U.S. CEOs also appear to rank the chief talent/HR officer, board directors, the chief strategy officer, and the chief legal counsel higher in importance, and the chief operations officer and the chief information/technology officer lower in importance.

Strong Growth Opportunities

“Notwithstanding the challenging societal circumstances at this moment presented by the Omicron surge, CEOs remain optimistic about the business environment and see strong growth opportunities over the next year,” said Joe Ucuzoglu, chief executive officer, Deloitte US. “A new normal appears to be setting in whereby business leaders simply expect new challenges to arise continuously and are confident they can manage through them to achieve positive business results while making a real difference in society.”

The timing of the most recent Fortune/Deloitte CEO Survey editions coincided with the rise of two COVID-19 variants: Delta last September, and now Omicron. Even with the Omicron variant top of mind, CEO expectations were unchanged from four months ago – lending credence to the observation in the fall 2021 survey that CEOs appeared confident that their organizations already adjusted and adapted to a “new normal” marked by the enduring uncertainty of COVID-19. One CEO cited in even described 2022 in the current survey as “déjà vu.”

Last June, when an end to the pandemic seemed within sight for some geographies, a slim majority of CEOs said pandemic business effects would largely be over by the end of 2021, and slightly less than half said they would not be over. With the Delta variant at the top of the news cycle in September, only 11 percent said by the end of 2021, 23 percent said by mid-2022, 35 percent said by the end of 2022, and nearly a third of surveyed CEOs did not see business effects ending in the “foreseeable future.”

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Even with the Omicron variant top of mind now, CEO expectations were not so different from five months ago. Similar to predictions they made in September, eight percent of CEOs said that the business effects of the pandemic are “already over” for their organization, and just under a third said they will not be over in the “foreseeable future,” said the report. About 20 percent said by mid-2022, and 40 percent said by the end of 2022.

The Global Economy

Expectations for growth were practically identical to previous survey results, with almost two-thirds of CEOs indicating they expected their organization’s growth to be “very strong” or “strong” over 2022 (same in September 2021). The remaining third indicated “modest” growth (same in September 2021), and a fractional two percent expected “weak” growth (same in September 2021). The only adjustment? A redistribution of about 10 percent of responses from “very strong” to “strong.”

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According to a new DHR Global report, we are in the middle of one of the most unique and challenging recruiting environments for candidates to navigate. According to Sara Garlick Lundberg, a partner in the non-profit practice at the search firm, Q1 is often a time to consider new professional directions, even though pandemic fatigue is at a peak and candidates are exhausted. “Some candidates are navigating a degree of long-term pandemic-induced trauma,” Ms. Lundberg said. “We see exhaustion, feelings of uncertainty, and a need to disconnect like we haven’t before. When you meet with a candidate, a simple acknowledgment of the last year and its challenges can be a great way to connect and show your prospective hire that you’re aware of our strained times.” Read more.

CEO responses reflected differences in their outlook on the global economy, generally, vs. their own industry or company performance over the months ahead. Nearly half of CEOs indicated they were “neutral” in their outlook when it came to the global economy, 40 percent said they were “optimistic,” and 12 percent said they were “pessimistic.” In contrast, nearly 80 percent indicated they were either “optimistic” or “very optimistic” about their industry performance, and more than 90 percent said the same about their company performance—with a third of CEOs saying they were “very optimistic” about their company performance.

CEOs’ responses appeared only slightly more reserved when it came to the outlook on their personal well-being. More than half of CEOs said they were “optimistic” about their personal well-being over the next 12 months, and nearly 20 percent were “very optimistic.”

What external issues do CEOs expect to influence or disrupt their business strategy within 2022? While the pandemic was still in the top three across all industries, the proportion of CEOs who named it one of their top three fell significantly from more than 70 percent in the fall of 2021 to 56 percent. Relatively unchanged was the even greater percentage of CEOs, 71 percent, who selected labor/skills shortage. In third place, supply chain disruption was noted as a top-three external issue for 46 percent.

Financial/Market Instability

Notably, if looking exclusively at responses from CEOs based outside of the U.S., the pandemic rose to first place (58 percent), supply chain rose to second place (54 percent), and labor/skills shortage fell to third place (50 percent).

In September, only 13 percent of all surveyed CEOs named financial/market instability in their top three issues. In the new study, that number nearly tripled to 36 percent – possibly due to the timely addition of “inflation” to that response option. In fact, it was the top-ranked issue for CEOs in financial services (62 percent) and within the top three for CEOs in professional services (50 percent).

Inflation remained stubbornly high, a result of surging demand and restricted supply. Prices in November rose at their fastest rate in almost 40 years and were 6.8 percent higher than one year earlier. In the U.S., inflation rose seven percent in 2021 to the highest rate since 1982. Asked specifically for a prediction about the inflation rate over the next 12 months, CEO predictions varied widely across both geography and industry; the strongest consensus tended to be in the four percent to five percent range. More than a third of US-based CEOs appeared to be placing their bet on four percent to five percent, with about a quarter saying between three percent and four percent and about a fifth saying five percent to six percent. Outside of the U.S., CEO expectations, as reported, were more evenly distributed between two percent and six percent.

When CEOs were first asked last June about the biggest challenge they faced, a quarter of the responses pointed to talent-related issues. Asked the same question four months later, alignment was even stronger, with nearly half of all responses referring to talent. That emphasis continued this year, with half of CEOs still referring to talent and workforce in their responses: for example, “fighting COVID fatigue with team members,” “finding/keeping the best people,” and “responding to new work paradigms.”

External Challenges

A notable cluster of CEOs also named challenges that relate to the ongoing uncertainty and unpredictability of the external environment. As one CEO put it, “The constant but ever-changing external challenges the business is confronted with.”

In the January 2021 survey, 33 percent of CEOs indicated that their supply chain needed to be redesigned as a result of the pandemic. Since then, supply chain has clearly risen in importance for CEOs. Virtually all surveyed CEOs indicated that they intend to take some set of supply chain-related actions in 2022, and some even named it as the biggest challenge they said they’re facing in their role today.

When asked what supply chain challenges their organization has experienced, more than three quarters of CEOs said they’ve experienced labor shortages, and more than half noted production and/or logistics delays. About 40 percent of CEOs said they’ve experienced input/raw materials shortages and reduced logistics capacity, and 20 percent have experienced reduced manufacturing capacity.

Only eight percent indicated that they have had issues with maintaining quality standards.

Supply Chain Disruptions

How have supply chain disruptions affected their organizations? CEOs seem aligned around their top three: nearly 80 percent of CEOs pointed to higher costs of doing business and margin impacts, 58 percent pointed to longer fulfillment cycles, and 45 percent said revenue losses/customer service issues. Not surprisingly, CEOs in the consumer products and retail industry indicated higher levels of disruption than some of their peers: 96 percent said their organizations have experienced higher costs of doing business and margin impacts, 88 percent said longer fulfillment cycles, and 71 percent said revenue losses/customer service issues.

Only eight percent of all surveyed CEOs said they’ve had any customer attrition, and four percent commented that they have had no supply chain disruptions at all.

When asked what supply chain-related actions they plan to take within the next 12 months, more than half of CEOs indicated that they plan to change their pricing/profit model (e.g., higher prices), likely in response to higher costs and margin impacts. A nearly equal proportion indicated they plan to expand their supply chain ecosystem with more partners. Only 47 percent of surveyed CEOs say they intended to expand sustainability and climate-change initiatives (e.g., green energy). About 37 percent said they planned to update/change their logistics network and modes, and 20 percent or less planned to change the product portfolio and road map, act on vertical integration/acquisitions, or update/re-shore production locations.

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Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media