As the likelihood of a recession continues to increase as we approach the new year, a recent Aon survey of 800 C-suite leaders and senior executives found a majority of organizational leaders are self-admittingly underprepared for a major economic downturn.
While the survey found nearly 79% of executives believed a recession was going to take place in 2023, 47% of respondents said they were only somewhat prepared. Nearly a fifth (18%) said they were not prepared at all.
Taking On Risk
“The best-prepared leaders are not willing to let a volatile present stop them from preparing for an undoubtedly more complex and risky future,” Aon’s president Eric Andersen told CFO. “Our research shows businesses need to strike a balance of taking action to address short-term conditions without sacrificing long-term planning.”
While both higher costs of goods and a looming financial crisis top the list of what executives are spending their time preparing for (43% and 42%, respectively), the data shows that concerns aren’t on equal footing with preparation for next year’s economy. Of the survey respondents that do consider themselves very prepared, 62% of them agreed their company’s appetite to address risk has increased in response to the expected economic fallout.
According to the data, 61% of those same very prepared leaders agreed that all risks are interconnected and that the most successful companies can handle risk regardless of its origin. Andersen stressed the importance of leadership that properly gauges and approaches risk in all economic conditions, but especially at the end of this year going into 2023.
“Leaders can both protect their organization and grow their business by understanding the interconnected nature of risk, addressing those risks, and managing them during periods of volatility,” he said. “Leaders who are making better, more-informed decisions about risks will be better prepared to navigate through and achieve growth during highly volatile times.”
Preserving Long-Term Investments
Prepared executives are also seeking to preserve their long-term investments in the event of a downturn. Rather than cut things that will pay dividends long-term, short-term cuts are being made in areas like marketing (68% of respondents making cuts) and R&D (48%). Sixty-six percent of prepared leaders have increased prices as a form of preparatory action, too. About half (51%) of respondents indicated they were delaying raising capital or taking on new debt, while slightly less than half (49%) say they have slowed or frozen hiring.
For the not very prepared, their immediate actions resemble those of executives who consider themselves prepared. About 60% reported both reducing their marketing budgets and increasing their prices. The unprepared had a slightly stronger appetite for new capital, however, with only 42% of respondents saying they have delayed raising capital or taking on new debt.
The most drastic difference was in actions concerning the workforce. According to the survey data, 45% of prepared executives have begun laying off employees as a strategy to prepare for a recession, but only 32% of the unprepared say they have done the same.
Prepared leaders have also begun to see value in tapping outside experts. According to the data, 62% of very prepared leaders agreed that a good external adviser or consultant can help improve their organization’s ability to address risk and make better decisions. In contrast, about half of not very prepared leaders felt the same way.
Reconsidering the Process of Decision-Making
Decision-making data showed that 47% of prepared leaders said they will turn to information technology to aid in decision-making moving forward, while 41% of the not very prepared said the same. A majority of the not very prepared group (55%) said they will lean on C-suite executives, while a third (33%) said they will lean on accounting or finance for a majority of their decision-making aid. The prepared group also saw value in tapping the C-suite and the finance department when making decisions, despite seeing the wisdom of leveraging IT and outside consultants.
When it comes to confidence in external advisories and consultants, a drastic difference in both groups was reported. While 62% of the prepared reported a good external adviser would improve their company’s decision-making and risk-mitigation abilities, only a third (33%) of the not very prepared reported the same.
The Pandemic Taught Business a Lesson
While the argument that hybrid work environments can keep morale and productivity high continues to be debated, these are two things that executives across the board are attempting to preserve as a recession lurks in the distance. According to Andersen, morale and productivity will be a major factor in how businesses not only operate in the future but approach how they will function from top to bottom.
“Our survey found that 39% of business leaders felt that hybrid work had a somewhat or extremely negative impact on their business,” said Andersen. “Work-styles in the wake of the COVID-19 pandemic have represented a reimagining of the way we work, not just a return to the working environment of the past, as we build a workforce for the future.”
Andersen dismissed the idea that pandemic-induced economic woes were a one-time thing. “Most business leaders don’t see COVID-19 as a one-time event, but rather something that exposed new risks and changed how they need to think,” he said. “The best-prepared leaders strongly believe that COVID-19 taught them how to respond quickly to emerging risks.”
Survey respondents represented companies with at least 500 employees in the U.S., the E.U., and the U.K. in September 2022.