CEOs Have High Hopes For The Year Ahead

Today’s disrupt-or-be-disrupted competitive environment looms large for many CEOs, says Proto Labs CEO Holt, whose company provides 3-D printing and other new-era services to help manufacturers compete. “What I find is that with CEOs—particularly CEOs of traditional companies that have been producing and behaving in certain ways for many years—it’s a huge education and change-management issue for them to move toward a more digital world.”

At the same time, businesses have been quick to embrace cloud technology, notes Workiva’s Rizai, who sees that trend continuing in 2018. “CEOs are empowering IT groups to do things with cloud tech even though the tech people themselves were relatively skeptical just two or three years ago. Acceptance of that means quicker decision-
making processes.”

Banking on Consumer Confidence
The mindset of American consumers remains a paramount factor in the stew that warms prospects for a strong 2018. Heading into the new year, “We see people seeking out consumer credit, and whetherthey’re approved or denied, things are looking solid,” says Tim Chen, CEO of NerdWallet, a provider of online financial information and advice.

“with CEOs—particularly CEOs of traditional companies—it’s a huge education and change-management issue for them to move toward a more digital world.”

“On the demand side, consumers are definitely hungry for credit, and issuers are seeing pretty good dynamics as well. They’re aggressively courting new customers, and as long as jobs are strong, the credit cycle can keep expanding. Plus default rates are still far below historical norms, and unemployment is still low.”

Yet, because household incomes haven’t been rising strongly enough to suit most Americans and inflation remains contained, the Fed has signaled a continued bias toward only very gradual increases in interest rates. Steinour, who is a member of the Cleveland Federal Reserve Board, believes raising interest rates will continue to be necessary, partly to restrain wage inflation that he believes is stronger than commonly perceived.

“My personal view is that interest rates, for the benefit of the economy, need to increase,” he says. “We need to have some gas in the tank for the next downturn, whenever that might happen.”

Bracing for Bumps
How do CEOs retain confidence, understanding that geopolitical events, political miscalculations and the occasional perfect storm of multiple negative events regularly create catastrophes such as the financial collapse and subsequent worldwide recession of 2008?

“We run the business expecting bad things to happen,” answers Schlifske of Northwestern Mutual. “I could have told you with 100 percent certainty that something like 2008 was going to happen. I just couldn’t tell you what year.

“I feel the same way now. There will be a recession and the market will go down 20 or 30 percent. I can’t tell you when. I just don’t think it will be next year. We’re not running the business with blind optimism. But we’ve fared well since 2008, so we can back up that optimism with a historical track record.”

For Sheldon Yellen, CEO of Birmingham, Michigan-based Belfor Restoration, being able to shake off worries about economic adversity is largely a matter of focusing on building his company’s book of business one day at a time. That got significantly easier for the $1.5 billion property-cleanup business leader in the wake of the fall hurricanes, which spiked demand for Belfor’s services.

“Our offices already were rocking every day,” recounts Yellen. “We always focus on ourselves and individual productivity, goals and achievements and [don’t] worry about the big world at large as it comes to what next year brings. I’ve tried to always look at things from the viewpoint of what I can do to make next year good for the effort I’m going to put forth, and I’ve tried to convey that to our people.

“So we just keep focusing on what we’re doing, not looking at the competition or geopolitical scenarios or the economy or even interest rates. We’re focused on doing what’s right for our business and our people.”

Labor Pains
Official wage and income statistics might not show it yet, but wage gains are grabbing hold across the economy and—along with accompanying competition for talent—causing many CEOs more anxiety than any other issue.

Jones, for instance, is finding it increasingly difficult to land and keep security guards at Allied Universal. The company has begun taking some drastic new steps.

“We never competed for employees with the fast-food industry before,” Jones said. “Now people can make $12 an hour by flipping burgers—and get a free lunch. Meanwhile, our employees have to be able to read and write and speak English, if they’re [emergency] first responders. They perform CPR in many cases. So they’ve always been a few dollars higher than minimum wage, and now all these other types of jobs are, too.”

To guarantee the requisite human capital in an increasingly competitive labor environment, Allied Universal recently quintupled its employee-referral bonus, to $1,000—and up to $2,000 if someone recommends a candidate who winds up being an armed security officer.

And the company has put more than 100 new recruiters on the streets of major cities across the country, combing places where Allied Universal provides security services – churches, senior centers, employment offices, community centers – for referrals.

Steinour of Huntington Bank said he’s seeing “wage inflation and skills gaps and needs” expressed by hundreds of the bank’s business clients these days.

“They talk about not being able to hire and retain qualified employees and say that they would grow faster if they could get more labor,” said the Cleveland Fed member. “’We’d even do the training,’” they say.”

Wages aren’t yet inflating as much as they typically do in such a period, Steinour said, because economic growth finally is pulling more non-participant into jobs than in many years. So while the labor participation rate is increasing, the typically low wages of the new workers are masking inflation elsewhere in the labor pool.

Political Effects
Without a doubt, freewheeling politics and change in Washington are having more direct and acute impact on CEO sentiment, the business environment, corporate performance and even consumer attitudes than ever before, chiefs insisted. Several pointed to notable positive and negative effects on their companies in 2017 and their outlooks for 2018.

Some of this sentiment consists of real but vague unease about a federal government that has gotten totally unpredictable. “The X factor is what’s happening in Washington,” said Steve Upshaw, CEO of Cross Country Home Services, a home-purchase warranty provider based in Ft. Lauderdale, Fla. “What’s going on between the White House and Capitol Hill has us all concerned.”

Moran-Goodrich said that growth for most of 2017 in her brands’ auto-aftermarket business was below the 5- and 6-percent rates of 2016, attributing it to consumer “caution” during a political “transition.”

And Skillett attributed a flatness in Citizens Parking’s business in 2017, compared with 2016, to “political noise” that made many of his CEO peers “hesitant to expand,” keeping a lid on their employees’ need for more parking spaces. “Most of the expansion has been in M&A, not the deep sort of investments. They seemed to be putting them off until 2018.”

Jennifer Cue has plunged deep into a battle that could pose an existential threat to the company she heads, Seattle-based Jones Soda Co.: a growing number of municipal taxes on sweet beverages. “The soda industry has been labeled – and ridiculously so – the culprit for all obesity,” she said. “It’s hard to say which way this is going to go outside a few progressive cities.”

On the other hand, the Trump administration’s rampage through the federal book of regulations has encouraged some CEOs who see the government noose loosening. “The government is more small-business friendly,” said Joe Magnacca, CEO of Massage Envy, a Scottsdale, Ariz.-based chain with $1.3 billion in top-line revenues. “That enhances our franchisees’ prospects.”