To better understand the differences in opinions between investors and CEOs, PwC recently compared two investigations of the respective groups. The research found that CEOs and investors disagree about the direction of businesses, the way in which remuneration is tied to performance as well as concerns surrounding staffing. The groups are aligned however, when it comes to the issue of combating cyber threats.
In a recently released article, PwC juxtaposes the opinions of CEOs and investors with regard to a range of key business decisions, trends and strategies. To make the comparison, the consultancy firm interviewed over 400 investment professionals and enriched the data with findings from its 2016 CEO Survey – a study held among 1,400+ executives in 80+ countries. A key insight from the analysis is that considerable disagreement exists between CEOs and investors.
According to the research, the divergence in opinion between CEOs and investors is the result of a number of factors related to the information available to them, as well as how it is used by the various parties. PwC, for instance, argues that a reporting gap exists between companies and investors, and that there is general disagreement about what information is required from which to make accurate and actionable opinions. There also is an understanding gap, whereby a set of given facts results in different conclusions from stakeholders. Finally, there may even be a perception gap, whereby relevant facts are available, yet they are not judged to be equally relevant by stakeholders.
The analysis finds that CEOs and investors are poles apart from each other on some issues. The millennial generation is considerably more concerned about values rather than profit, 84% of CEOs recognise the change in expectation from key business stakeholders, with 74% of CEOs recognising that future business success will be defined by more than financial profit. When it comes to what investors believe the purpose of a business is, 73% said it centres on creating value for shareholders, compared to 16% of CEOs.
Another area of concern, highlighted by the report, relates to performance incentives. For investors the issue is by far the most prevalent, with 49% citing it as a major concern, relative to 17% of CEOs. When it comes to remuneration reporting, it is particularly equity investors that identify misaligned performance incentives as an issue, at 42% of respondents, compared to 28% of fixed income respondents. One reason for the heightened disparity is, according to PwC, that shareholders and equity capital providers are keen to have more say on strategic issues given that it is, in part, their money on the line.
"From our work with the investment community we know they tend to be sceptical of remuneration numbers. Companies clearly have more visibility into how management is remunerated than investors have from the outside,” says Hilary Eastman, Investor Engagement Director at PwC. “These businesses may have to do more to link their remuneration policies and key performance indicators to overall strategy and risk management, given the number of investors who think companies need to change the way they measure success and hold themselves accountable.”
The final area of disagreement between the stakeholders is related to whether the availability of key skillsets is a risk to business growth. CEOs are particularly concerned, 72% cite the lack of availability as a key threat, compared to less than half (48%) of investment professionals.
The research highlights that in a number of areas there is considerable alignment between investors and CEOs – both groups, for instance, agree that the two major growth markets for company growth in the current term are the US and China.
In addition, 53% of both CEOs and investors say that the purpose of a company is to provide value for customers. The impact of technology on the lives of investors and CEOs, may reflect the relative importance both groups place on certain related issues, such as cyber threats to business; 60% of CEOs and 65% of investors voice concern.
“The results show where the investment community and business leaders agree and where they see things differently. We therefore encourage both CEOs and investment professionals to commit to more open and ongoing engagement for their mutual benefit,” adds Richard Sexton, Vice Chairman of Global Assurance at PwC. “I am convinced these findings, and the conclusions we draw from them, can enhance companies’ engagement with the investment community, help them understand their investment goals and communicate more effectively with them.”