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CEOs plan recession with staff, ESG cuts – it could backfire

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The vast majority of CEOs believe we are headed for a recession and are cutting staff, sustainability efforts and diversity budgets to prepare for a recession.

According to KPMG’s survey of 1,325 CEOs between July 12 and August 24, 2022, approximately 91% of US CEOs are “convinced” that a recession is on the way in the next 12 months. And the main ways to prepare for a setback are to pause or reconsider ESG or environmental, social and governance (59%) efforts and shrink the employee base (51%).

Paul Knopp, US president and CEO of professional services firm KPMG, says both strategies can pose problems for long-term success.

First, executives cannot respond to the recession they did in 2020 with mass layoffs and waiting for consumer demand to come under pressure. What’s more, cuts to ESG initiatives that customers and employees love – that prioritize sustainability, diversity and social progress – can backfire in the long run.

CEOs can’t respond to a recession like they did in 2020

Knopp said executives must be “very careful” about how they approach layoffs, adding that today’s volatile hiring market has exacerbated how leaders responded during the early pandemic decline.

In early 2021, he says, “the economy has rebounded incredibly quickly, and leaders who cut jobs probably have some degree of remorse.” As hiring has become more competitive, employers have had to raise wages, add benefits, and improve working conditions to get people through the door.

Knopp adds that other circumstances have led to worker shortages: Baby Boomers retiring, falling college enrollments, restricting immigration policies, and workers leaving the workforce for prolonged periods of Covid, childcare needs, and other reasons.

Knopp said CEOs need to be strategic in their cuts and be prepared for another rapid recovery by mid-2023. According to the survey, more than half of CEOs are considering downsizing in the next six months, while 92% expect the company’s headcount to increase over the next three years.

He expects leaders to continue to feel pressured to offer good pay, benefits and working conditions: 73% of CEOs say they are concerned about their ability to retain talent due to rising inflation and cost of living factors.

Cutting environmental, social and governance budgets could backfire

Budget cuts to ESG efforts can also cause employers to lose favor with financiers, customers and employees in the long run. In recent years, executives have acknowledged that running climate-friendly and socially progressive business can be profitable: 70% of US CEOs surveyed this year say ESG has improved financial performance, compared to 37% last year, according to KPMG.

If leaders deviate too much from their goals, financial stakeholders who want to see improved corporate ESG efforts risk losing access to capital, discrediting profit-boosting customers, and losing competitiveness. Hiring advantage over job seekers.

As a result, CEOs should consider “tapping the brakes” rather than putting it on the cutting board, reducing spending on these efforts, says Knopp.

“CEOs recognize that they need to talk about net-zero climate commitments and improvements to their social agendas around diversity, equality and inclusion,” says Knopp. “Customers make purchasing decisions around these commitments,” he adds, and employees “want to see us more diverse and inclusive.” “It’s all about measured reduction in the short term, but long-term commitments.”

Recession fears may worsen job burnout