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Vision 2020



Declan Kelly, Chairman & CEO, Teneo

Recession or not is front of mind for every CEO with whom I speak. The data is mixed. And hard to read. And prediction is tricky, according to one Nobel prize-winning economist, “the stock market has predicted nine out of last five recessions.”

The U.S. is in its 11th consecutive year of growth. In that time, the U.S. stock market had the longest bull run in history. Employment remains strong, as does consumer confidence. By contrast, the inverted yield curve we saw in the summer has historically been a strong predictor of recession.

About three-quarters of U.S. economists expect a recession by 2021. Half of U.S. CFOs expect it by the second quarter of 2020. By contrast, another Nobel prize-winning economist sees a less than 50 percent chance in 2020. Central banks around the world remain cautious and the Fed itself has no clear consensus. Most CEOs in place today have never steered a company through a recession. So, the ones I speak to are thinking hard about their responses.

Ultimately, the U.S. economy depends on the confidence of the U.S. consumer, which remains high. Consumer spending is two-thirds of the economy. It’s easy to envisage that confidence coming under pressure in 2020. If the U.S.China trade conflict gets worse. If the U.S. opens a second trade front against Europe. A bitterly fought Presidential election. Middle East tensions produce an oil shock. The knock-on impact of a disorderly Brexit.

Against this uncertain backdrop, what can companies do to prepare? Research from previous recessions shows that around a fifth of public companies get hit badly, while a tenth prosper and outperform. Several recession-beating themes are evident from the literature, including reducing debt, balance-sheet optimization, and improving efficiency. The literature also shows that companies that prepare for recession tend to outperform their peers, maintaining or even improving margins, despite challenging market conditions.

Any recession will magnify the impact of technology, which is continuing to restructure most if not all industries. The speed of digital disruption is likely to increase in a downturn as consumers reward companies that make their lives easier, better or less costly.

Any downturn will also expose underperforming companies and management teams; we can expect activist investors to increase their scrutiny. Again, this year, Teneo advised companies worth more than a trillion dollars in activist situations. And in a downturn, passive investors will surely feel more pressure to pull the levers they have to improve performance, with more intense scrutiny of corporate governance.

We have also seen an increase in other types of activism. Employees are increasingly willing to question their employers’ decisions on who they do business with or on their approach to climate change, for example. And CEOs themselves are increasingly taking public positions on subjects that historically would have been left alone.

In this book, you will find in-depth and expert thinking across all these subjects.

If there is a common theme to be found, it is around the purpose of a corporation. We saw the Business Roundtable revise its principles of corporate governance, widening the commitment to stakeholders beyond shareholders. That stakeholders matter comes as no surprise to the CEOs I work with. On one level, they spend their day trying to simultaneously respond to stakeholder demands and add value for shareholders, while also managing the trade-offs between them.

I believe passionately in the power of business to make a difference. As one leading U.S. CEO put it, “the business of business is improving the state of the world.” The question is how best to do that; each company has to decide.

Part of the answer for Teneo is partnering with Global Citizen on Global Goal Live, to deliver meaningful change for the world’s poorest countries by securing the commitments needed to make the United Nations Sustainable Development Goals a reality. It is a privilege for Teneo to be leading the private sector response, working with some of the most respected companies in the world to end extreme poverty, tackle climate change, and reduce inequality.

Thank you to the CEOs who are making this a reality. And thank you to all the CEOs we work with every day. It is our great privilege.

Thanks also to Jim Hoge for his excellent work editing this book and thank you to the Teneo experts from around the world for sharing their insights. Also thanks to Steve Meahl, Ali Penaro, Solomon Chaison, Devin Mullin and Alexandra Rogan for making it all happen.

Declan Kelly
Chairman & CEO, Teneo

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The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.