Following are excerpts from a CNBC interview with Bob Moritz, Global Chairman at PwC, and CNBC's Nancy Hungerford.
I: I'm pleased to say that I am now joined by our next guest here. We will be speaking to Bob Moritz, who is the Global Chairman of PwC. Bob, great to have you on the show-,
BM: Nice to be here this morning.
I: Thank you very much for braving the elements, and joining us here in the mountains. Let's talk about a survey that you put out, which is very interesting, highlighting what has been a record jump in pessimism among global CEOs. What is the big driver here?
BM: Well, the big driver is all the uncertainty that the CEOs are seeing. And if you look at least year, we had a record number of optimism and a record jump, we've had just the reverse this time. When we've had that increase in pessimism, both in terms of their perspectives on the global economy, but equally as important, and perhaps more so, their perspectives of am I able to raise revenues in the next 12 months? So the degree of difficulty with that uncertainty is really coming to the forefront for the CEOs.
I: And the question over revenues, is this coming over the fears about a changing global growth picture? Because we did get that tweak from the IMF yesterday, but many are saying some of those fears are based around risks that may not even come in to fruition.
BM: Well, there's a number of risks that the CEOs raise each and every year. Some of them are controllable, some are not, and the ones that are new this year are in fact the trade conflicts, that are outside of their control, per se, the policy issues, when you think about the EU and Brexit, the combination of climate change, and other aspects like that. But the reality is, what we see is a degree of pessimism, but it's actually got to be looked at from a company by company perspective.
I: Right.
BM: There's those that see great opportunity-,
I: Sure.
BM: And if they have strength in their balance sheets, strength in their leadership team, and the right skillsets and data to make better decisions, there's opportunity, even in this world of pessimism right now. We would agree with the IMF's trajectory, in terms of lower growth rate. Our CEO survey over the last 22 years has actually been correlated very well to a predictive nature of GDP.
I: It was interesting, in your survey, too, that the biggest drop, I believe, was among North American CEOs. Do you believe this is related to fears over the changing picture in the US, with fiscal stimulus fading?
BM: It's a combination of things. I think you ran in to a high last year, coming off of-,
I: Right.
BM: The combination of the stimulus coming out of tax reform, the combination of regulatory reform, and the like. And what you have now is actually not much more upside being seen, you see a little bit more downside, with the political agenda, trade conflicts, and no promise or hope for anything else like infrastructure, etc., so you add that to the combination of a really difficult economic environment from the geopolitical perspective-, or, sorry, from an Asia perspective, coupled with disruption from technology, which CEOs are struggling with, 'Do I have the right talent to deal with that challenge?' as well.
I: You talk about concerns that perhaps there won't be anything in the way of an infrastructure stimulus. Do you think the US government shutdown, the stalemate that has been just grabbing the headlines here, has really hit that home? People are saying, 'We're not going to get any cooperation in Washington'?
BM: So, look, I think the combination of the shutdown, in and of itself, which has a negative implication on GDP, and I think there was a prediction earlier-, late last week, rather, in terms of every week there's a 0.1 percentage point off of GDP. We've been at this four weeks already, you add that, coupled with the uncertainty for both sides to get something done, that's a big uncertainty that everybody's worried about, and the question is again, where are those hotspots that can take advantage of them?
I: And with President Trump not here in Davos, certainly many will be looking to a meeting coming up in Washington with Chinese leaders, as they do try to work on a trade deal here. Do you think, if in fact we get a deal out of those upcoming meetings, that that will go a long way in removing some of the pessimism out there?
BM: I think it will remove some of the pessimism, I'm not sure it's going to remove all of the pessimism. When you take a look at economic factors and trends, even those trade conflicts, it'll actually reduce the risk there, but necessarily not make it go away. When you look at the combination of the disruptive factors that are out there-,
I: Right.
BM: And the other things, again, let's take a look at Europe, we don't have a solution here-,
I: Sure.
BM: Nor is anything seen on the table to be possible. So I think it's the combination of many things. In fact, if you look at the risks, last year, we had a few that were really dominated by all CEOs-,
I: Mm.
BM: Now we've got a huge list-,
I: Yeah.
BM: So it's actually the amount of risks, and the different type of risks, that are really worrying the CEOs in terms of how they execute and achieve their strategy going forward.
I: Let's talk a bit more about that big risk in Europe, which is around Brexit, of course, I know there are other isolated risks-,
BM: Yes.
I: But Brexit continues to be the big one. How much of a concern is this to your business, specifically?
BM: Not much to our business, because we're in 150 countries around the world, we're about 260,000 people. The big issue is how do we continue to get access to talent, and remain relevant to what our clients need, be it audit services, or anything else relevant to attestations and/or the advisory services that we're providing, but doing it in a way that's consistent with our purpose. It's clear that our definition of success is more determined by the public, and what they perceive-,
I: Sure.
BM: Right now, so while we have to follow rules and regulations, we've actually gotta make sure we're doing a good job of serving all stakeholders-,
I: Mm.
BM: And Europe becomes a little bit more problematic when some of the concerns, like taxation, and other aspects like that, are top of mind for people there.
I: Is your bigger concern, perhaps, not the fate of Brexit, but if it gives rise to Jeremy Corbyn as Prime Minister, because his administer-, or his team, if you will, with John Macdonald, the Shadow Chancellor, has been quite outspoken about the Big Four-,
BM: Mm-hm.
I: Even looking, perhaps, to break them up?
BM: Yeah, when you step back and look at the-,t eh concept of quality, sufficient competition, conflicts of interest, as well as the question of the expectation gap of what we do, we've got to manage all those issues. Breaking up the big four don't solve those problems, it actually might even create more of them. So we're less worried about the potential there, and more worried about how do we actually deal with those four issues, in an appropriate, balanced way. And, looking forward, what we're trying to do, especially in the UK right now, where the issue is the most hottest, and its' actually isolated to the UK, it's not so much around the rest of Europe-,
I: Sure.
BM: Or the rest of the world, is how do we engage, not only with ourselves, the regulators, the politicians, but the broader financial reporting supply chain, the preparers, the boards, the committees, the regulators-,
I: Right.
BM: The academics, and the like, to make sure that we've got the right decisions to enhance quality, not necessarily reduce it.
I: There's a trust issue here though, too, isn't there, because if you look at the UK market, I mean, talking about what happened with Carillion-,
BM: Yes.
I: A lot of outrage around there, I mean, what did go wrong in these instances, and, I mean, what could be done to improve it?
BM: So, I think there's two fundamental issues. One is, are we doing enough to actually ensure quality of the requirements we have today?
I: Yeah.
BM: That's issue number one. Issue number two, though, is the world expects something different than the product we're delivering. They expect a little bit more, in terms of give us insights as to how viable and sustainable these companies are-,
I: Mm.
BM: And if there's problems coming, please give us an indication of that, and that, again, goes to the expectation gap. The rules and regulations don't fill that gap today, so I think the auditing profession, in and of itself, has got to step up, working with the business community, and the regulators, to say, 'What does that future world look like?' You've got another programme underway in the UK, to look at that exact issue, beside the Kingman report, and beside what the CMA is doing, so I think there's an opportunity to refresh what we do, and how actually that's fit for purpose.
I: Taking a step back, and going back to your survey, in terms of the CEO optimism out there, I did think it was interesting that India was highlighted, too, as somewhat of a rising star, on the list of those destinations which are most attractive for investment. Do you think they are benefitting, then, from this trade tussle with the US and China?
BM: I do, actually, if you look at the question of where would you invest in the top three countries, other than your home country-,
I: Right.
BM: Number one was always |US, in the last couple of years, and then China. Both of them have still remained one and two, but have come down significantly, opening the door for other countries. India is one of those countries. When you look at what Prime Minister Modi has done to that country-,
I: Mm.
BM: And the trajectory he's on, again, there's still challenges-,
I: Sure.
BM: Don't get me wrong, there's plenty of opportunity, as you look at the workforce that they have, the consumer base, and the need for infrastructure. So if they can continue to make some of the policy changes that he's made so far, and actually get it cascaded through the country, that's a big opportunity for people to want to invest.
I: Do you say 'if' because you worry that they could have a bit of back-pedaling, with the elections coming up?
BM: I think he's got to get through this election-,
I: Yeah.
BM: Clearly there's a focus on the domestic agenda, but how you actually take India in to-, that domestic focused country, in to a bigger global player, I think is his challenge, assuming he makes it through the next election, to take advantage of the opportunities.
I: Well, we certainly will be looking at that election very closely here on CNBC. Bob, it's been a pleasure having you on the show-,
BM: Great. Thank you very much.
I: Thank you so much for your time, that is Bob Moritz, there, the Global Chairman over at PwC.
ENDS