20100818091107713

Rethink
Volatility
Reshape
Strategy
Result
Smarter
growth
13th Annual Global CEO Survey
Setting a smarter course for growth
Main report
pwc.com/ceosurvey
Foreword
In the 13th Annual Global CEO Survey we hear how businesses leaders
responded to the challenges brought about by the recession, the concerns
they are facing today and, reflecting on often difficult ‘lessons learned’,
their strategies for positioning their companies for the long-term.
The effects of the downturn were far-reaching. Many business leaders contend they should
have anticipated the impact and prepared sooner – allowing them more time to consider
various strategic options. As we see in the survey, CEOs continue to work to strengthen
their organisations while seeking opportunities emerging from structural shifts in their
industries, economies and regulatory environments. They recognise that the decisions they
make today, dealing with issues like cash management and cost pressures, will have a
lasting impact on their companies’ competitive position. The ability to understand and
respond to the structural shifts underway, and to improve risk management capabilities,
will be fundamental considerations as CEOs plan their course for growth.
I want to thank the 1,198 company leaders and government officials from over 50 countries
who shared their thinking on these difficult issues. The demands on their time are many
and we are certainly grateful for their involvement. I am particularly appreciative of the 27
CEOs and 5 senior government representatives who sat down with us for more extensive
conversations and provided additional context to our findings.
The tremendous success of the PwC Global CEO Survey – now in its 13th year –
is directly attributable to the enthusiastic participation of leaders around the world.
We at PricewaterhouseCoopers are very proud of that ongoing commitment.
Dennis M. Nally
Chairman
PricewaterhouseCoopers International Limited
January 2010
Contents
Introduction: Heading towards a growth agenda 2
Section 1 Rethink: From crisis to cautious optimism 7

Employment turning the corner 12
The thorny problem of global policy coordination 14
Section 2 Reshape: The post-crisis environment 17

The regulation paradox: Seeds of a more effective engagement 24
Government ownership: A strategic game-changer 26
Section 3 Result: Adapting to compete 29

Access to capital is a looming problem 38
Post-crisis models emerge 40
Final thoughts: Lessons learned and applied to 2010 43
Research methodology and key contacts 45

Further reading 46
Acknowledgements 48
Supplements
In-depth CEO story Visual story
PricewaterhouseCoopers 1
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Introduction: Heading towards a growth agenda

The past 18 months could serve as the defining period for many CEOs. The recession in developed
nations was the worst many had ever experienced, marked not only by the loss of liquidity and the
contraction in demand but equally, by the speed with which conditions changed. The resulting rupture
to business planning and operations came through clearly in our survey of 1,198 business leaders from
around the world for the PricewaterhouseCoopers 13th Annual Global CEO Survey.
With uncertainty on future revenue, business leaders had no ‘The big learning point we are all looking for is one that has
option but to act on what they could control. Close to 90% to do with organisational agility’, said Dr. Paul Reynolds,
of companies cut costs over the past 12 months. Cash CEO of Telecom Corporation of New Zealand Limited.
preservation was paramount as assets were divested and ‘In response to the economic crisis, most businesses took
jobs cut. The effects of these measures are now being felt action appropriate to a more difficult trading environment.
in high unemployment in developed nations and in volatile But the real trick is how to get the balance right between
currency and capital market conditions in developed and hunkering down through tough times and investing in a way
emerging economies alike. that will prepare you to make the most of opportunities that
begin to materialise, post-recession. That’s the big lesson –
Most CEOs recognise the situation could have been worse. getting the balance right and being sufficiently agile to take
While business thinking is slowly getting back onto an advantage of chances for growth and expansion.’
even keel, there are lasting impacts that may colour future
actions. Business leaders are emerging with a healthy The wreckage of 2009 makes clear the implications of
respect for risk, volatility and flexibility and a different view getting the short-term and long-term balance right.
of the growth imperative. We believe measures over the past year to adjust costs,
realign capital structures and reinvigorate risk practices
throughout organisations as the basis for growth herald
a new management agenda.
How did we look at this situation? First we were afraid,
scared in many ways, since we were all exposed to
a situation we did not fully understand and could not
gauge; pessimism went from 0 to 10. It made us think I have emphasised repeatedly that Air China benefited
about our businesses, our boards, our teams – this was from the rapid growth and quantum leaps in development
an emergency situation and we were forced to make of the past five years. Since 2008, I have changed
some important decisions. As I see it now, I’m neither my tune somewhat; prudent operation and sustainable
more optimistic nor more pessimistic than before, my development are the most important factors for
perception has remained the same since the beginning of the development of an excellent enterprise. This is a
the year. We have to handle things carefully, delicately… shift from our previous view on accelerating the pace
and we have to visualise a recovery soon. of development.
Carlos Fernandez Gonzalez Kong Dong

Chairman and CEO, Grupo Modelo, Mexico Chairman, Air China Ltd, China
2 13th Annual Global CEO Survey – Main report

Key Findings Global growth contagion, starting in
emerging markets
Organisations are limbering up
This year, 31% of CEOs are ‘very confident’ in achieving
A sizeable majority of CEOs are planning to take out more
revenue growth over the next 12 months, a significant
costs. Companies in the US, Europe and the UK led in
increase from last year (see figure 0.1). Their outlooks partly
cost-cutting over the past 12 months, and they remain more
reflect unfolding macro-economic conditions yet they are
focused on cost cuts in the short-term. Now the momentum
also more confident in their companies’ ability to generate
is shifting to companies based in Asia: 93% of CEOs in China
revenue than they are in recoveries in either their industries
and India and 90% in Korea plan cost efficiencies over the
or their economies.
next three years compared with the global average of 78%.
CEOs based in Latin America and Asia are 11
CEOs are striving to keep debt low and liquidity ample,
percentage points more likely to be confident about
in part because of uncertainty over the capacity of banks
their near-term revenue growth than those in North
to lend when the time for growth comes. Thus, 83% of
America and 20 percentage points more confident than
CEOs expect internally generated cash flow to finance
their Western European peers. ‘Companies in India may
growth, seven percentage points higher than last year.
not be as strong today as they were two years ago, but they
A majority plan to change capital structures as a result of
have emerged out of this downturn in a far better position
the crisis. ‘We did a lot of work on our balance sheet for
than companies in the developed world. In terms of resources
the first six months [of 2009]’, said Dean A. Scarborough,
both human and financial, we are better off vis-à-vis our
President and CEO of US office supplies maker Avery
brethren in the developed world’, said Sunil Duggal, CEO of
Dennison Corporation. ‘We’re focusing on de-leveraging.
consumer goods group Dabur India Limited.
We converted some convertible debt to equity earlier this
year, and we cut our dividend in July. We’re well-positioned
0.1
to survive even another downturn. I wouldn’t say we have a
CEO confidence is on the mend
fortress balance sheet, but the walls are higher and thicker
than they were a year ago.’
60
There has been a dramatic cull in headcount over the past 50

3-year prospects
12 months. However, while 25% of CEOs are planning 12-month revenue

growth prospects
% Stating very confident
more job cuts this year, 39% plan to increase 40
headcount. One area where resources continue to flow

30
is leadership and talent development. Business leaders are
aware they will need the right skills in the right places when
20
recovery sets in. ‘What you do in this environment is add to
your talent base and reposition your talent to be more suited 10
for the challenges that are ahead,’ Michael I. Roth, Chairman
and CEO of US-based advertiser Interpublic Group, told us. 0
‘Even though we’ve had a nine to 10 percent reduction in 2003 2004 2005 2006 2007 2008 2009 2010
terms of staffing, we’ve also had increases to invest in those

Q: How would you assess your level of confidence in prospects for the revenue growth
markets and resources that are necessary to be competitive.’ of your company over the next 12 months?
of your company over the next 3 years?
Base: All respondents (2010=1,198; 2009=1,124; 2008=1,150; 2007=1,084, 2005=1,324,
2004=1,386, 2003=989)
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010
Note: 2006 confidence question was not asked.
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There is a strong indication the recession and subsequent The concerns are present across industries and borders.
recovery may have accelerated trends favouring growth in ‘For the first time in history, we’ve experienced a financial
some emerging markets, particularly as growth returns to pandemic and need to determine what sorts of firewalls are
emerging markets earlier. ‘Production but also the consumption required,’ Alfredo Sáenz, Second Vicechairman and CEO,
of products is shifting to Asia and South America. It would have Banco Santander told us. ‘But even minor firewalls will
taken longer without this event, but now it will happen more necessarily restrict the way financial institutions deploy their
quickly’, said Mikael Mäkinen, President and CEO of Finnish resources globally. The point is that protections against systemic
transport services group Cargotec. risk will also restrict the globalisation of financial flows.’
Our survey this year looks at how CEOs responded to the

Wary of aftershocks crisis and what they are doing to position their companies
It is natural after a crisis for a heightened state of wariness to for recoveries. It also reveals where CEOs best believe
set in, at least temporarily: CEOs are more concerned on a regulation can become more effective and what they
broad range of threats to growth this year. They are actively consider the lasting legacies of the global recession.
addressing risk assessment and management as a result.
Responses this year signal that risk is becoming a This crisis brought up another insight about business.
permanent element of the strategic planning process. It drove us away from the fact that when we do business
More CEOs intend to change their risk management with other individuals or companies, the existence of
process than any other element of their strategy, tension, negotiation and conflict is natural. But when
organisation or business model. And more boards you live in a world in which secured Swiss derivatives
are increasing their engagement with assessing strategic are swapped, and a safe return is sought in paper, then
risk than any other item on the boardroom agenda. there is no tension but there is also no care for the other
individual. That is why, if you look at this financial collapse
Regulation and its discontents in a certain way, it is also a blessing, in particular because
it breaks up the world of reckless revenue-seeking to
Unprecedented global measures to stabilise the financial
leave behind only that which is basic and essential.
system are drawing qualified praise from business leaders.
It is obviously so much easier to build up a structure
A majority now think businesses and governments can
of investment papers and derivatives, and it takes less
successfully collaborate to mitigate systemic risk.
time. However, in that scheme the human being is not
considered. The basic principle behind money is that it
But government rescue is one thing; regulatory reform is
has to do with doing something with another to mutual
quite another. Thus, while a protracted global recession
benefit. Dealing with another is always difficult but
remains the biggest worry of CEOs, it is closely followed
it is a natural process.
by over-regulation. More CEOs are ‘extremely concerned’
about over-regulation than any other threat to growth. Eduardo Elsztain
Concerns over protectionist tendencies are also up ten President, IRSA Group, Argentina
percentage points on last year’s survey (see figure 0.2).

0.2
CEOs’ concerns have broadened beyond the economic crisis
Protracted global recession* 6 29 42 23 Decline in concern

19 3 12 43 42 from 2009 – 2010
Over regulation 12 27 33 27
13 31 37 18
Lack of stability in capital markets* 9 32 43 16 Decline in concern

7 20 42 30 from 2009 – 2010
Low-cost competition 14 31 31 23
15 37 31 17
Energy costs 17 29 35 19
19 30 33 17
Availability of key skills 15 34 35 16

16 37 33 13
Protectionist tendencies of national governments 20 30 32 17

27 33 30 9
Inflation 21 38 29 11 Decline in concern

from 2009 – 2010
13 39 37 12
Climate change 30 32 25 12
40 34 19 7
Scarcity of natural resources (e.g. raw materials, water, energy) 31 32 23 12

38 31 21 9
Pandemics and other health crises 26 38 26 9

50 31 12 6
Security of the supply chain 24 40 25 10

26 40 26 7
Inadequacy of basic infrastructure (e.g. electricity, water, transport) 31 35 22 11

39 36 18 7
Terrorism 33 35 21 10
47 32 14 7
0%
2010
* ‘Protracted global recession’ and ‘Lack of stability in capital
markets’ were previously ‘Downturn in major economies’ and Not concerned at all Not very concerned Somewhat concerned Extremely concerned
‘disruption of capital markets’, respectively.
2009
Not concerned at all Not very concerned Somewhat concerned Extremely concerned
Q: How concerned are you about the following potential threats to your business growth prospects?
Base: All respondents (2010=1,198; 2009=1,124)
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Rethink
Section 1
Rethink: From crisis to cautious optimism

CEOs are still addressing cost-cutting while they set their companies for take-off in recovery.
Confident in companies, tentative on recoveries ‘We know there’s a lot of pent-up demand for our products
from the SME [small- and medium-size enterprise] base and,
CEOs are emerging from deeper cost-cutting than they
indeed new customers,’ said Paul Walker, Chief Executive
expected last year. In last year’s survey, conducted as the
of UK business software maker The Sage Group plc.
financial crisis unfolded late in 2008, 26% of CEOs told us
‘When confidence returns to the SME community, when
they expected headcount reductions over the next 12 months.
the economies pick up, we’ll see software growth come
A year later, close to half of respondents reported they cut
back into the sector. So, we remain very confident.’
jobs and at least 80% of CEOs in each region initiated cost
reductions. In North America and Western Europe, close
The consistently higher confidence suggests CEOs
to a quarter of companies divested a business or exited a
believe companies are strategically positioned to capture
significant market. It is clear that few considered simply riding
competitive gains in their markets ahead of a broad-based
out the recession a viable response. ‘The crisis took us to a
improvement in demand. This may be a different future
new place. It was a reset for our business’, said Angela F. Braly,
than they expected only two years ago, but their growth
President and CEO of US health insurer WellPoint Inc.
strategies appear to bear this out: A clear majority of CEOs
are focused on their existing markets and fewer believe
They are now guardedly confident about generating
new geographical markets or new product development
revenue growth in the near term and they are decidedly
offer better potential for business growth.
more confident over a three-year time horizon. Indeed,
over that time period, CEOs are about as confident of their
revenue prospects as they have ever been in our survey.
There’s been a lot of talk about the new normal. But I think
Of course, this may partly be a reflection of the depths to
you have to ask the question ‘What was normal before?’
which demand had sunk.
I subscribe to the theory that the economic activity we
saw in 2007 and 2008 was overly buoyant – and that
Higher confidence on growth holds true regardless of where
drove overly buoyant consumption. The pendulum has
CEOs are based, although geography is strongly correlated
now swung in the opposite direction. From a debt-pricing
with the relative strength of confidence levels. CEOs based in
and risk-pricing perspective, I don’t think we will or should
countries where the crisis had the least impact on GDP and
go back to where we were in 2007 and 2008. At the same
where recoveries were already underway by the third quarter
time, I suspect that to some extent, the pendulum has
of 2009 are naturally the most confident. Nonetheless,
overcorrected. But I don’t think we’re going to go back
confidence increased markedly among CEOs in North
to the conditions that we saw in 2007 and 2008.
America and in Latin America, two regions where most CEOs
(except those in Brazil) are expecting a later recovery. Ken MacKenzie
Managing Director and CEO, Amcor, Australia
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This may further signal a period of heightened competition 1.1

as companies aim to increase sales at a time of uneven or CEOs are confident, despite expectations that recovery will not begin until at
moderate economic growth. For example, in North America least the second half of 2010
80% of CEOs are somewhat or very confident of growth over
the next 12 months, despite only 67% believing the economy ‘Very’ or ‘somewhat confident’ in 12-month revenue growth prospects
will have recovered by the end of 2010. The same pattern 100
emerges for CEOs in Western Europe, the most pessimistic 29 15

in our survey (see figure 1.1). The trend is most striking 18
% Economic recovery expected

80 31
29
among CEOs in Latin America, the most confident in our 37 38
24
survey: 91% have some measure of confidence on revenue 60
30
growth in the near term, but only 66% anticipate national 33
29
28
economic recoveries during that time frame. 40 26
36 35
21 30 22
20 21
We will definitely become a more focused organisation 18 18 27
18 16
as a result of the crisis. Our service operations have 0 5 3
13 13
gotten sharper, for example. And the crisis also prompted

Western CEE North Asia Middle Africa Latin
us to sell off some peripheral parts of our business, and Europe America Pacific East America
that has made us a leaner organisation. So I do think In 2011

we’re stronger as a result of facing these challenges and In the second half of 2010
preparing ourselves for whatever might happen in the In the first half of 2010
economy. Our people figured out how to achieve higher Already recovered
productivity as a result of some of the challenges they
faced and they’re not going to go back to their prior Q: When do you expect recovery to set in for your nation’s economy?
behaviour. They’re going to take advantage of what Q: How would you assess your level of confidence in prospects for the revenue growth
of your company over the next 12 months?
they’ve learned and carry it forward. So the crisis took Base: 28-442
us to a new place – it was a reset for our business. Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010
Angela F. Braly
President and CEO, WellPoint Inc., US
For us, the key to wise foreign investment is good risk
management practices. Risk management is now the
primary task of state-owned enterprises.
Shen Heting
Executive Director, President, Metallurgical Corporation
of China Ltd, China

When it comes to confidence, size matters 1.2
The highest levels of confidence emerge from CEOs of the CEOs from G8 nations are less confident and expect a later recovery
largest firms, which we define as revenues of over $10 billion
a year. Over the longer term, nearly all large-company CEOs 100
are somewhat or very confident in revenue prospects. They 14
are more likely to be very confident as a group than all

80 28
32
CEOs, by 13 percentage points. 24
60
CEOs from the largest companies also acted more 31

29
dramatically during the crisis and they appear to be more 40 32
actively positioning their portfolios for growth. More ‘Very confident’ of

12-month revenue
20
undertook cost-cutting measures than CEOs from smaller 20
20
growth prospects
30
companies; slightly more are expecting further cost cuts in
16
the near term. They were far more likely to have completed an 0 7
acquisition or entered a strategic alliance over the past year Non-G20 Non-G8 members G8
of G20
and to be planning deals and alliances in the coming year.
In 2011
In the second half of 2010

In emerging economies, optimism comes with unease In the first half of 2010
A distinctive split emerged between CEOs based in the Already recovered or before the end of 2009
G8 developed economies and those based in the other
members of the G20, including faster growing China and Q: How would you assess your level of confidence in prospects for the revenue growth
India. CEOs in the developed economies were far more of your company over the next 12 months?
cautious on near-term revenue prospects, with 23% ‘very Q: When do you expect recovery to set in for your nation’s economy?
Base: All respondents (249-453) N.B. Recovery is defined as stable and steady
confident’ versus 42% of CEOs in newer member G20 economic growth. Don’t known/refused not included.
nations (see figure 1.2). Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010
Research efforts and new product development will Scaling back our capacity expansion programme, scaling
increasingly be focused on emerging countries. We have back working capital from inventories, managing the
made the ability to develop products on the ground central demands for increased credit from distressed distributors
to our marketing organisation. Why restrict innovation to – it’s all been pretty demanding. In the event, however,
just 20% of the market (i.e. developed countries)? we’ve been able to take some costs out of our system.
All in all, we’ve come through pretty well. The real
Bruno Lafont
question is: Where is the economy headed? Is it bouncing
Chairman and Chief Executive Director,
LAFARGE Group, France back? I don’t really see that it is.
Graham Mackay
Chief Executive, SABMiller plc, UK
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CEOs also believe recovery for G8 nations is likely to occur 1.3

much later than in the new G20 countries and non-G20 CEOs from Western Europe show the lowest level of concern in the
countries. This reflects economic reality: In China’s case, ‘Anxiety Index’
for one, output accelerated over the course of 2009; the
country is likely to exceed the government’s target of 8% 60
for 2009, the IMF estimates. To compare, the output of 52.39

50
developed economies is forecast to decline 3.4% in 2009.1 44.73
46.44
Global index:
40 36.90 38.89
Yet, CEOs from the newer member G20 economies are also
Anxiety Index
33.47 34.38 34.12
the most aware of threats to business growth prospects. 30

They are more concerned about over-regulation, low-cost
competition, currency volatility and energy costs. 20
10
We examined just how broadly and deeply different CEOs
considered the risks present in the business environment 0
by constructing an ‘Anxiety Index’, which measures their North Western Asia Latin CEE Middle Africa
America Europe Pacific America East
relative levels of concern over 20 potential threats to
business growth prospects.2 Chief executives in Western
Q: How concerned are you about the following potential threats to your business growth
Europe scored the lowest on our Anxiety Index, at 33.47 (out prospects related to or emerging from the current economic crisis and other threats?
of a theoretical range of 0 to 100), against a global average Base: All respondents (1,198)
of 38.89 (see figure 1.3). CEOs in Japan are a very notable
Note: We analysed concerns by creating an index score out of 100 based on responses
exception among the G8. They have the highest Anxiety to 20 potential threats to growth: ‘Extremely concerned’ received a score of 100;
‘Somewhat concerned’ received a score of 50; ‘Not very concerned’ received a score
Index score of CEOs in all major countries at 57.54. Younger of 25; and ‘Not concerned at all’ received a score of 0.
companies – those that have been in business fewer than five
years – also tended to have a higher Anxiety Index scores.
Basically, our response to the crisis has focused on the

When we look at the developing world, such as the upgrade of procedures.
Middle East and Southeast Asian economies, for us it is Pablo Isla
not China or India but countries like Indonesia, Pakistan, Deputy Chairman and CEO, Inditex, Spain
Thailand, Vietnam and the Philippines that have grown
and are continuing to grow. Even through the crisis they
have grown at 5% or 6%.
Phil Cox
CEO, International Power plc, UK
1 International Monetary Fund, World Economic Outlook (October 2009).

2 The Anxiety Index scores CEO concern levels on 20 threats to business growth prospects, thus allowing us to compare different groupings. We analysed concerns by creating an
index score out of 100: “Extremely concerned” received a score of 100; “Somewhat concerned” received a score of 50; “Not very concerned” received a score of 25; and “Not
concerned at all” received a score of 0. This resulted in a global anxiety index of 38.89 which suggests that overall respondents are “somewhat concerned” about potential threats.

These responses suggest CEOs based in developed Emerging economies also bore the brunt of the drop-off
economies are more comfortable with their current in global capital flows in 2009, triggering currency swings
positioning. For example, compared with CEOs in other and higher financing costs in some regions. Export-oriented
regions, fewer CEOs in Western Europe and in North emerging markets faced a sharp decline in overseas
America are planning new cost-cutting initiatives or making demand. World trade was projected by the IMF to fall
changes to their long-term leadership development 11.9% in 2009.3
programmes and capital investment plans. The greater level
of both confidence and concern for CEOs of companies Thus CEOs in Latin America, Central and Eastern Europe,
based in developing nations suggests that they have more and Asia are more likely to be concerned about threats
room to climb and perhaps at the same time, fewer centred on globalisation, including exchange rate volatility,
safeguards to check a fall. protectionism and macro-economic imbalances. The higher
anxiety levels outside North America and Europe may
One explanation for the relatively higher levels of concern also reflect not only different phases of the business cycle,
in emerging economies in Asia Pacific, Latin America and but also differing levels in economic development.
Africa is that some of these CEOs are encountering stresses
that may engulf more companies as they shift from a focus
on cost-driven restructuring measures to a focus on growth.
The global economy is now starting a process of recovery, The flow of foreign investment has been substantial and
but the greatest challenge will be the way in which this has been targeted at Brazil as one of the best world
mega-issuance of money and debt will be absorbed, and market options. It can’t be denied that our universe has
it is here where I see a very bright warning light, because I become very jittery. These funds have not necessarily
look at the situation with Argentine eyes, and we are very come to stay. Investors are very agile at seeking the best
well aware of the cost of resolving a crisis by means of the markets at any specific time, so there could be a migration
printing of money. of these funds as the markets recover. For now, though,
the financial world is still in a crisis recovery mode.
Eduardo Elsztain
Although things have become much better, that doesn’t
President, IRSA Group, Argentina
mean it is over.
Claudio Eugênio Stiller Galeazzi

CEO, Pão de Açúcar Group, Brazil
3 International Monetary Fund, World Economic Outlook (October 2009).
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Employment turning the corner
As a sustainable, credible economic recovery is unlikely without Tigran Nersisyan, President of Russian food and beverage
a reversal in unemployment rates, headcount expansion plans maker Borodino Group, said he spends a significant amount
in the private sector are a key indicator. Our survey shows that of his time on ‘HR issues’ locally and abroad. ‘We did our
while many companies are still downsizing, more will be adding best to retain our specialists, who are always in demand.
to their workforces (39%) than will be cutting (25%) over the To be honest, just as before the crisis, we still face a shortage
next 12 months (see figure 1.4). of highly trained workers, such as IT specialists, software
developers, and experienced marketing staff. Specialists of
Certainly one of the more difficult actions in the past year was
all kinds are in great demand. In manufacturing the situation
cutting jobs. Close to half of companies in the survey decreased
is worse still because we are implementing new generation
the size of their workforces. Companies based in North America
technologies that require highly qualified employees’, he said.
and in Western Europe led, with 69% of US companies and 63%
‘We still face major HR issues. I spend about 40 percent of
of UK companies decreasing headcount. Utilities proved the
my time on HR policy issues both locally and overseas. It’s
most stable, with 21% of companies reporting cuts. Cuts were
impossible to reduce costs or material consumption without
most prevalent in industrial manufacturing (68%) and auto (80%)
new technologies and these new technologies require highly
companies and in the media/entertainment sector (71%).
qualified employees who are hard to come by.’
The latter two sectors are among the least likely to be adding
jobs in the coming year (see figures 1.5 and 1.6). 1.5
Where are jobs being added?
Highly skilled still globally in demand

Brazil 27 7 27
Specialists remain in demand, and many parts of the world
are still struggling to attract and keep talent. Over the long India 23 13 23
term, businesses may live to regret the drastic headcount China & Hong Kong 23 17 13
reduction they have made during the downturn.
Korea 30 17 3
1.4 Canada 18 15 15
More CEOs will be adding jobs than cutting them in the coming year Australia 30 7 10
UK 14 9 19
48
Decrease
25 (77% of those who expect to US 25 7 7
decrease headcount in next
12 months had already made cuts)
22 Global 20 10 9
Stay the same
34
Russia 17 13 7
Increase by 13 Japan 29 8
less then 5% 20
Mexico 23 10 3
7
Increase by 5-8%
10 Netherlands 20 7 7
Increase by more 9 France 14 5 11

than 8% 9
Italy 18 11
0%
Germany 14 3 10
Past 12 months Next 12 months
Spain 6 3
Q: What happened to headcount in your organisation globally over the past 12 months?
0%
Q: What do you expect to happen to headcount in your organisation globally over the
next 12 months? Increase by less than 5% Increase by 5-8% Increase by more than 8%
Base: All respondents (1,198)
next 12 months?
Base: All respondents (30-1,198)

With many companies cutting their graduate and trainee of available talent. In the last two years, we have managed
intakes and CEOs becoming increasingly critical of to attract very significant talent from both Europe and
government’s ability to provide a skilled workforce, there North America. These are highly experienced people who
is emerging evidence of a growing ‘talent gap’ in a number bring with them enormous knowledge. And since many of
of regions – where demand for key skills over the coming them experienced the banking crisis firsthand, they also
decade will exceed the available supply. The spectre of understand how to mitigate such events. That has been
demographic shifts and ageing populations may have a major benefit to Equity’, said Dr. James Mwangi, Managing
temporarily slipped from some CEOs’ minds, but it could Director and CEO of Equity Bank in Kenya.
return to haunt them in future.
African CEOs are the most concerned, but they’ve taken Time for an overhaul of HR
steps to respond. ‘One aspect in which the financial crisis A majority of CEOs (79%) intend to increase their focus
has worked in our favour is that it has created a wider pool and investment on how they manage people through
change, which includes redefining employees’ roles in the
1.6 organisation. They feel they need to change their strategies
Who is adding jobs? for managing talent. The scale of these intended changes
suggests that, for whatever reason, existing practices did
not support the business when the crisis hit. We believe
Banking & capital markets 20 16 12
there are three major human capital failures that were
Business & professional
services 14 10 21 brought to the surface as a result of the downturn:
Technology 15 10 17
Existing reward models are broken. Whether as a result
Engineering & construction 23 15 4
of regulatory or public pressures, they are not seen as fit
Industrial manufacturing 19 9 13 for purpose in many parts of the world. This is not just
Insurance 21 4 15
confined to financial services; we are seeing criticism of
reward models across sectors.
Retail & distributive wholesale 21 14 5
Global 20 10 9 CEOs were unable to move talent around quickly when

Chemicals 24 15
the crisis hit. This led to large-scale layoffs to save cash
at one extreme, but also left crucial talent gaps at the other.
Consumer goods 23 7 8
Organisations will have to find more agile ways of deploying
Transportation & logistics 21 10 7 and reallocating talent to where it is most needed. Those
Pharmaceuticals/life science 25 10 3 organisations that underwent drastic headcount reduction
now face the costly exercise of rehiring and retraining as
Energy 15 15 6
demand improves and we head into the upturn.
Utilities 21 5 7
Automotive 22 4 4
Employees lack the key skills needed to operate and
compete in the new emerging environment. Notable skill
Entertainment & media 23 3 3
gaps include greater risk awareness, market adaptability,
Metals 12 3 12 change management capability and responding to new
0%
customer demands. CEOs in many parts of the world
Increase by less than 5% Increase by 5-8% Increase by more than 8%
also believe that governments have largely failed to supply
a workforce with the right skills. This is likely why
next 12 months? 41% of CEOs expect to increase their focus on training
and development.
pwc.com/ceosurvey
The thorny problem of global policy coordination
CEOs have long sought more cooperation among Yet the G20 forum poses challenges for global policy
governments to harmonise tax and address other overlapping coordination. In recent years, global negotiations have
regulatory burdens that stem from running an international become more difficult as more parties, often with differing
business operation. In this survey – conducted before global perspectives and constituencies, come to the table, as
climate talks in Copenhagen concluded without a binding witnessed by the Copenhagen climate negotiations and
agreement on emissions reductions – expectations were earlier by the WTO’s Doha trade talk stalemate. Ian
high that regulatory coordination would successfully mitigate Bremmer, President of the US-based Eurasia Group
systemic risks and harmonise new regulations. consultancy, anticipates less policy coordination as the
G20 replaces the G8: ‘The G20 is not just a bigger
CEOs were less certain that the path to smarter regulation coordination problem; it’s not just herding more cats,
involves governments working more closely or in though that would be more difficult. The G20 is herding
empowering multilateral organisations to act as global cats along with animals that don’t like cats.’
regulators (see figure 1.7). It begs the question: Where will
effective supranational cooperation on economic and Among government officials, we also found support for
financial policies take place? It is of increasing importance greater convergence as well as an acknowledgement of
to business leaders. Sixty-five percent said they fear the challenges to get there. ‘It’s probably not realistic to
governments will become more protectionist. These think that regulatory frameworks are going to be identical
concerns are rising even as trade conditions were little across countries. It’s probably not productive to even try
affected over the past year. The World Trade Organisation to achieve that’, said Robert Bhatia, Deputy Minister of
(WTO) in its annual report released in November 2009, Alberta Seniors and Community Supports in Canada.
while noting slippage on trade policy in most G20 countries, ‘But convergence – meaning moving closer together while
said ‘the world economy is about as open for trade today allowing for somewhat differing approaches – yes, I think
as it was before the crisis started.’ that is a positive. That has to help in terms of facilitating
international transactions and trade.’
Most CEOs expect that the G20 group, representing 85% of
the global economy, will become the dominant political and
economic power. The G20 succeeded the G7 or G8 as the It’s a bit too many Gs [G8, G20]. There is some inflation
forum for international economic coordination in response of such institutions here. Their function is not absolutely
to the financial crisis and in recognition of the growing clear, whether or not they for example should be a
relevance of emerging markets in the world’s economy. substitute for international institutions that don’t work. It is
definitely necessary to include economically strong states
into these organisations, even when they do not have a
status of market economies, such as China, for example,
and non-members of OECD.
Martin TIapa
Deputy Minister, Ministry of Trade & Industry,
Czech Republic

Of course, global forums such as the WTO and the G20 are Regional trade agreements are largely thought to impede
not the only outlet for national cooperation on economic global trade in the long-term. And some issues cannot truly
policy. Even as the WTO’s talks have broken down, for be addressed with regional solutions; problems such as
example, regional trade agreements have risen sharply, climate change or financial system stability would leak over
accompanying a broader trend of rising intra-regional trade borders and undercut the desired outcomes of the
and capital flows before the financial crisis. CEOs expect the regulatory cooperation. Yet regional agreements could
trend to continue despite the downturn. ‘Right now I see a represent stepping stones towards global coordination and
lot more trade agreements happening between countries that begin the process of harmonisation among neighbouring
don’t include the United States’, said Dean A. Scarborough nations that are likely to have some interests in common.
of Avery Dennison Corporation.
1.7
Global risks will be contained – but not by multi-laterals
The G20 will be the new dominant economic and 78 19 The G8 nations will remain the dominant
political power in the world economic, and political powers in the world
Within nations, the gap between rich and poor Within nations, the gap between rich and
people will increase 68 28 poor people will decrease
The world will be more open to free

Governments will become more protectionist 65 32 international trade
The pressure on natural resources will Efficiency of resource usage will improve
continue to increase 60 38
Regulatory insight will remain primarily the Multi-lateral organisations will increasingly provide
remit of each nation’s own regulators despite 55 42 oversight on regulatory issues such as in financial
increased co-operation services
Government and business efforts will be unable Government and business efforts will mitigate key
to mitigate key global risks like climate change, 39 57 global risks like climate change, terrorism and
terrorism and financial crises financial crises
0%
Q: Which of the following scenarios do you feel is more likely to occur in the future (more than 3 years)?
Base: All respondents (1,198) Respondents chose a scenario from each pair, or the option ‘Don’t know/Refused’.
pwc.com/ceosurvey
Reshape
Section 2
Reshape: The post-crisis environment

As the process of economic stabilisation unfolded in 2009, we sought to discover what CEOs consider
the lasting legacies of the downturn.
Worst fears fail to materialise on regulations… yet 2.1

Regulation is a perennial concern for CEOs. This year, Only 15% of CEOs worldwide believe their government has reduced the
regulatory burden
how business leaders view regulatory issues has to be
understood through the lens of ‘what might have been’
at the start of 2009, when the uncertainty which hung over Japan 37
the financial system and by extension, the global economy, Korea 30

was so great. At that time, drastic measures to contain the
China & Hong Kong 27
crisis and preserve national economies were a realistic
prospect. Massive bailouts ensued and with them, Italy 16
expectations of radical regulation to prevent another crisis. Global 15
Spain 15
The alarmist scenarios of trade barriers and regulatory
rewrites largely failed to materialise. Yet there remains a Germany 13
sense that more regulatory change is inevitable. CEOs see India 13

little encouraging news on compliance costs. Regulatory
Canada 13
burdens on corporations were not addressed during the
Russia 13
downturn. In fact, in this year’s survey, more CEOs cited
a lack of progress on cutting red tape than a year ago, Mexico 13
67% to 57%. Only 2% of CEOs based in the US said the France 11

government has reduced regulations (see figure 2.1).
Netherlands 7
Some governments are listening, at least when it comes
to taxes. Our annual measure of the comparative ease of Australia 7
paying taxes in 183 countries found that 45 economies UK 3

had reduced the tax burden on SMEs, or made it easier
US 2
for them to pay taxes, in the year through 1 June 2009.4
Brazil 0
Yet, few CEOs believe that trend will continue.
0%
Q: Thinking about the role of Government in the country in which you operate,
how much do you agree or disagree with the following statements? % who ‘agree’ or
‘strongly agree’ with the statement, ‘The government has reduced the regulatory
burden on corporations’.
Note: Respondents who ‘agree’ or ‘strongly agree’.
4 ‘Paying Taxes 2010: The Global Picture’, PricewaterhouseCoopers and the World Bank (2009).
pwc.com/ceosurvey
We believe CEOs also worry that regulatory approaches 2.2

designed to deal with perceived problems in the financial Technology, entertainment, retail and consumer goods companies are likely
sector will wend their way through the entire economy. to be concerned about permanent shifts in consumer behaviour...
‘There’s a tendency by government to tar every company
with the same brush’, said Graham Mackay, Chief Executive Technology 66
of UK brewer SABMiller plc. ‘Certain regulatory reforms
Retail & distributive wholesale 64
useful and necessary for financial companies – new
Entertainment & media 60
approaches to risk, remuneration, or corporate governance
– would clearly be intrusive if applied indiscriminately to Consumer goods 55
business as a whole.’ Other CEOs shared similar concerns Transportation & logistics 54
about the unintended consequences of regulatory reforms.
Chemicals 52
Industrial manufacturing 49
Getting closer to consumers
Global 48
Some of the strategic rethinking we uncovered – aside
Automotive 48
from consideration of varying regional growth rates –
is connected with what is happening to consumers. Insurance 46
Business leaders appear as split as economists on the Energy 44

lasting impact of the crisis on the consumer but they are Metals 42
changing company strategies to adapt.
Business & professional services 40
Not surprisingly, consumer goods, retailers and wholesalers, Pharmaceutical/life sciences 38
media/entertainment and technology companies are the Banking & capital markets 37
most concerned that a permanent shift is underway (see
Engineering & construction 37
figure 2.2). Nearly half of CEOs cite a permanent shift in
Utilities 26
consumer spending and behaviour as a threat to their
0%
business growth prospects. The concern is highest among
CEOs based in North America, Asia-Pacific and Africa. Q: How concerned are you about the following potential threats to your business growth
prospects related to or emerging from the current economic crisis? % ‘extremely
concerned’ or ‘somewhat concerned’ about ‘permanent shifts in consumer behaviour’.
Eighty-one percent of CEOs expect to adjust their strategies Base: All respondents (33-1,198)
in response to changing consumer behaviours. Technology Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010
and media/entertainment companies are deeply involved in

reorienting their businesses to those changing purchasing
habits: 46% of media/entertainment companies predict a
‘major change’ in strategy as do 44% of technology We certainly don’t need more regulation in the media
companies. Even less cyclical industries such as energy industry overall. In general, markets have to be free.
companies and utilities are making those types of changes But we’ve also seen, in other industries, what can happen
(see figure 2.3). when freedoms are abused or when there is too little
regulation. There have to be rules, and these rules must
be binding for all players in the market.
Hartmut Ostrowski
Chairman and CEO, Bertelsmann AG, Germany

2.3 ‘What we do see is more down-trading to discount economy
… and they are likely to be changing their strategies in response
brands,’ said Graham Mackay of SABMiller plc. ‘But it’s
really an extension of a more fundamental dynamic.
As markets mature, mainstream, standard-price beers
94 Entertainment & media
eventually come under threat from premium brands at the
91 Retail & distributive wholesale top and discounters at the bottom. The middle gets eroded.’
90 Insurance
89 Consumer goods
On the other hand, household earnings are expected to rise
in emerging economies, fuelling an expansion of middle
85 Technology
classes. A slow but steady shift towards more consumption
83 Banking & capital markets in emerging markets is an opportunity that CEOs are
83 Chemicals pursuing across segments.
81 Global
80 Automotive Sensing opportunity in new consumer habits

79 Metals Consumers are seeking more value, but ‘value’ manifests
itself in a variety of ways in consumers’ eyes. The survey
78 Pharmaceuticals/life sciences
shows that 64% of CEOs are sensing a shift in consumers’
76 Engineering & construction
preferences to associate with environmentally and socially
75 Transportation & logistics responsible businesses – consumers perceive value in a
74 Industrial manufacturing company’s reputation. And 60% of CEOs expect consumers
will play a more active role in product development in their
71 Utilities
companies, another dimension of value perceived by
71 Energy
consumers and a trend represented by open source
69 Business & professional services computing and social networks. ‘After the crisis, consumers
0% will demand a very high level of quality’, said Pablo Isla,
Deputy Chairman and CEO of Spanish fashion retailer
Q: In the wake of the economic crisis, to what extent do you anticipate changes to any of Inditex. ‘There are also new communications technologies to
the following areas of your company’s strategy, organisation or operating model?
Base: All respondents (33-1,198) keep in touch with consumers, such as blogs, Facebook and
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 so on. Inditex has two million Zara users fans on Facebook,
Note: R
espondents who stated ‘some change’ or ‘a major change’ to their strategy, organisation
or operating model in response to changing consumer purchasing behaviours.
a completely new and powerful communications tool.’
Benetton’s positioning in what we like to call ‘democratic

fashion’ is helpful in facing the crisis, however; the
consumer on average is spending less and more shrewdly.
Spending a lot is less trendy than it has been in the past
and consumers prefer to buy greater quantities of products
at the same price rather than a single ‘designer’ product.
Gerolamo Caccia Dominioni

CEO, Benetton Group SPA, Italy
pwc.com/ceosurvey
2.4
Public trust is down in financial services and automotive, but much less elsewhere
Banking & capital markets 35 26 13 4
Insurance 4 42 19 4
Automotive 4 34 10 6
Business & professional services 17 17 10 2
Industrial manufacturing 3 23 12 3
Global 8 18 15 4
Entertainment & media 6 20 11 3
Engineering & construction 4 19 19 4
Transportation & logistics 6 16 21 4
Energy 3 18 9 3
Metals 3 18 15 6
Retail & distributive wholesale 9 9 9 3
Pharmaceuticals/life sciences 18 18
Technology 3 15 12 2
Consumer goods 4 11 18 3
Utilities 2 7 14 7
Chemicals 4 20 15
0%
Significant fall in public trust Slight fall in public trust Slight rise in public trust Significant rise in public trust
Q: To what extent do you believe the public’s trust in your industry has changed as a result of the economic crisis?
Note: Responses of ‘Public trust stayed the same’, ‘Don’t know/Refused’ excluded.

The interest in drawing in consumers at the product Yet most CEOs outside of financial services believe the
development stage is not limited to companies in the economic crisis has not changed public perceptions of
technology and consumer goods sector, which have long their industries, despite the broad-based job cuts and
been in the forefront in collaborative product development other cost-driven measures in 2009. Most business leaders
initiatives. Financial services CEOs are more likely than believe that problems of trust are restricted to the banks
their peers to involve consumers in development, perhaps and countries that experienced the worst banking crises.
as a result of regulatory initiatives on consumer financial ‘I agree with the view that the recent behaviour and actions
protection in addition to the growing sophistication of of certain company managements has disillusioned the
online financial products. public’, said Pawan Munjal, MD and CEO of Hero Honda
Motors Limited in India. ‘But just as a few rotten apples
cannot ruin an entire harvest of apples, a few unethical
Public trust: A concern for the financial and acts cannot, and should not, tarnish the reputation of an
auto sectors entire industry.’
Perceptions of a change in public trust in business as a
result of the recession are driven by sectoral and regional It would be surprising for CEOs to report a steep drop
differences. Globally, only 8% of CEOs believed their in public trust if they were based in countries where the
industries experienced a ‘significant fall’ in trust. The figure downturn was muted. Accordingly, few CEOs based in China
rises to over one-third of banking and capital markets CEOs and Hong Kong feel there has been a significant decline in
(see figure 2.4). trust in their industry – and no CEOs in Canada or Brazil do.
‘In less developed countries, the private sector – and the
The perspectives may come as a surprise to some in multinational corporation, specifically – is viewed as a
Western Europe and North America, where a wave of bastion of wealth, power, and influence. Consequently,
populist outrage prompted authorities to discourage we are very conscious of public opinion and go to great
bonuses in the financial sector, the recipient of significant lengths to protect our reputation and build the trust of
public funds. An FT/Harris poll of adults in six Western the local community’, said Graham Mackay of SABMiller plc.
countries shows the recession negatively influenced views ‘Quite frankly, if there’s any clear erosion of trust, I think
of business leaders. On average, 67% said they held a it’s directed towards the political establishment.’
worse opinion of leaders as a result of the downturn.5
5 FT/Harris Interactive Poll (April 2009).
pwc.com/ceosurvey
Executive compensation is a persistent and prominent discussions on compensation for all companies, according
focus of public distrust. Yet, the furore over soaring to a 2009 poll of 1,007 directors. In the same poll, 60% of
executive pay did not register widely. The view that directors conceded boards are having trouble controlling
companies can rebuild trust through new remuneration CEO compensation levels.6
models appears to be held by a minority of CEOs from
virtually every country. Overall, less than a third of CEOs In general, compensation and workforce practices are areas
who recognised a decline in public trust said they were where CEOs would least like to see any change in regulation.
changing compensation practices in response. Banks They are concerned that more regulation in this area will limit
and capital markets companies are, not surprisingly, their ability to attract and keep good people and, in turn,
the most likely to be changing compensation practices. hamper their ability to recover from the effects of the downturn.
In the US, 44% of CEOs who experienced a decline in As for improving public trust in their industry, far more favour
trust said they were changing pay practices. They appear to participating in industry initiatives or engaging in dialogue
stand somewhat apart from their boards on the contentious with regulators (see figure 2.5). Overall, the financial services
subject. A majority of US directors expect the heightened companies are the most active in adopting a variety of
government focus on pay will impact board-level strategies to help rebuild trust.
Globally, yes, the public’s trust in the private sector has One of the biggest lessons we have learnt is about risk
certainly been shaken. But not so in India. Not a single management. In the past, we believed that it is the things
bank in India went bankrupt and not a single investment that we ourselves do – or fail to do – that would hurt
house defaulted. So there is a big difference. us most. But now we understand that the environment
can also affect us significantly. So we now want to be
Sunil Duggal
in a position to shape and influence the wider banking
CEO, Dabur India Limited, India
industry. Most of the organisations that failed were
brought down not because of toxic assets but because
public trust was lost. So we have learnt a valuable lesson
about managing the external environment, about thinking
macro and acting micro. That’s made Equity Bank a
stronger organisation. We are more aware now of the
possible repercussions of events out of our control.
Dr. James Mwangi

MD and CEO, Equity Bank, Kenya
6 ‘What Directors Think’, PwC/Corporate Board Member Magazine (November 2009).

2.5
CEOs who are addressing issues of trust are split on their approaches
Participation in industry initiatives to

64
improve the sector's reputation
Proactive dialogue with policy-makers and regulators 63
A systematic approach to measuring

51
and managing reputation
Expansion of your corporate responsibility programme 50
Media relations programme and advertising 49
Revisions to reporting and engagement

37
with investor community
Engagement with NGOs to improve 31

practices that affect your reputation
Changing executive compensation practices 30
0%
Q: Which, if any, of the following activities have you initiated or are you planning to initiate in your own company as a result of the decline in trust?
Base: Respondents who stated there has been a slight or significant fall in public trust in their industry (304)
pwc.com/ceosurvey
The regulation paradox: Seeds of a more effective engagement
A year into the crisis, businesses are at a critical juncture in approach to regulation. We also extended the research
their relationship with government. The broad effects of through interviews with senior decision-makers in
coordinated monetary and fiscal measures to stimulate governmental organisations across the world.7
growth – and the measured approach to date on regulatory
reform and trade policy – have set a foundation for a closer CEOs are more willing than in the past to step up to
engagement with the public sector. the challenge. ‘I think there is much that can be done in
partnership between business and government’, said
At the same time, there is an increase in the negative Angela F. Braly of WellPoint Inc. They are not waiting for new
perceptions of CEOs on the success of government regulation but increasing involvement to help shape it.
intervention regarding the environment, access to natural Over two-thirds are prioritising cooperation with regulators.
resources, availability of skills and the regulatory burden. Nearly 60% believe smarter regulation will stem from
working more closely together (see figure 2.6).
This reflects the ‘regulation paradox’ we encounter each
year in the survey: CEOs express the desire for more
Businesses and regulators cannot expect to agree on
government leadership and action in certain areas (e.g. everything, yet we did find areas where CEOs acknowledge
climate change and tax harmonisation) while also believing common goals with more activist regulators:
government action is only positive when it helps their business.
CEOs favour better enforcement over new regulation for
In an effort to highlight the gaps – and find where there is financial sector stability, and for social and environmental
promise of a more effective public and private sector sustainability. They believe regulators have the leeway
engagement – we asked CEOs for their views on a smarter to make use of powers they already have and thus that
Some countries may impose protectionist barriers but The public’s disillusionment has moved beyond the banks
I don’t think they’ll be very significant. In addition, in to the private sector in general, so that governments
Brazil’s case, the appreciation of its currency (the real) are now talking about more regulation to stop a similar
may offset possible protectionist barriers. crisis from ever happening again. But hasty regulation
will be bad regulation and my concern is that creativity,
innovation, and enterprise will be stifled at a time when
CEO, Pão de Açúcar Group, Brazil
they should be encouraged
Paul S. Walsh
Chief Executive, Diageo plc, UK
7 For more from the government perspective, see ‘Government and the global CEO: Setting a smarter course for growth’, PwC Public Sector Research Centre (January 2010).

heightened enforcement would be more effective than
systemic change. Only 8% and 12% called for less It is incumbent on us to engage as much as we possibly
regulation for financial sector stability and for social and can with government and with the civil service. The
environmental sustainability, respectively. power sector does not speak with one voice, since it is a
collection of individuals, all of whom have got a slightly
Antipathy to regulation strengthens where regulation different agenda. I have some sympathy for government
could harm job creation. Business leaders are more
and opposition when they say, ‘What does the industry
clearly opposed to new regulations in innovation, foreign
want me to do here?’ and they get seven different replies.
investment and access to capital.
Phil Cox
Most oppose new or more regulation on workforce CEO, International Power plc, UK
practices, including compensation. Opposition is led
by Brazil, where 63% seek less workforce regulation,
followed by 52% in the US and 46% in Germany.
2.6
CEOs want regulatory clarity and stability, and to be included in the policy-making process
Work more closely with the private sector to maintain competitiveness 59
Ensure regulations are clear and stable 57
Work more closely with other nations to harmonise regulations 45
Place more emphasis on fairly enforcing existing regulations 39
Focus regulation on outcomes, not process 32
Make the representation of emerging 21

economies in global bodies more equitable
Empower multi-lateral organisations to act as global regulators 15
0%
Q: In which of the following ways do you believe government could best improve the policy-setting process with regard to smarter business regulation?
Base: All respondents (1,198) N.B. Respondents chose up to three of the seven possible options
Note: R
esponses of ‘Don’t know/refused’ excluded.
pwc.com/ceosurvey
Government ownership: A strategic game-changer
Rising government influence over the global business The relative acceptance of public ownership ends when a crisis
environment in 2009 was marked by the increase in state fades away. More than two-thirds of CEOs have significant
ownership and control in a whole range of companies. concerns about long-term state involvement in business with
Our survey reflects the change: 14% of companies have important implications for government policies on competition
government ownership or backing, up from 10% in the last and fair markets. Even those that are experiencing government
year. Nearly a third of all companies said the government ownership have negative perceptions over long-term state
owns a stake in a major player in their industry. ownership, although slightly less so.
Government’s new reach in 2009 – largely a result of the While CEOs may desire a pull-back from government
unprecedented measures to stabilise the financial system – ownership, popular support appears to be holding in some
is changing the debate on government ownership in the polls. A GlobeScan/University of Maryland poll in 2009 of
private sector. Nearly half of CEOs were positive towards
government taking an ownership role in times of crisis,
We’ve learned which conditions apply to China and
including those in North America, whose dissatisfaction with
which do not. With regard to this crisis, China is in a
most issues involving government measures to improve
relatively advantageous position and I attribute that to
business conditions is evident elsewhere in the survey (see
China’s monetary policy. But there are also conditions in
figure 2.7). CEOs from two sectors that received considerable
China that we must pay attention to. China’s economic
support from governments around the world during the crisis
development relies on exports and all over the world
– automakers and banks – are among the most appreciative
we’re regarded as a manufacturing country. However,
of government ownership to stabilise a crisis.
the raw material we use is mostly supplied domestically,
and the products we produce are sold relatively cheaply.
I am unable to say with any certainty how a regime for In fact, the products we sell seldom reflect a high
controlling systemic risk will come about. I do know, technical content or value-added. So in my opinion,
however, that this issue has many unanswered questions. China should reduce its volume of exports, but begin to
In the case of a cross-border institution, when a failure manufacture products of higher quality and higher value-
occurs as a result of systemic risk, who pays the bill? added. That would contribute substantially to China’s
The treasury of one country or the other? economic development. The core issue is how much
innovation is contained in your products.
Alfredo Sáenz
Second Vicechairman and CEO, Shen Heting
Banco Santander, Spain Executive Director, President, Metallurgical Corporation
of China Ltd, China

adults in 27 countries found that a majority called for less 2.7
active government ownership or control in just four of the Not all CEOs agree that government ownership is helpful in times of crisis
countries.8 Indeed, given the range of experiences with
public ownership in countries where the crisis was more
50
muted – from East Asia to the Middle East and Latin America
51
– state ownership is likely to endure for some time in one 61
Government ownership helps
form or anther, be it state-owned enterprises, sovereign to stabilise an industry 34
in times of crisis 41
wealth funds or national oil companies.
54
40
And CEOs recognise this. They are shifting strategies to
respond to other influences of the government over the
88
economy. ‘Government spending as a percentage of GDP 75
in almost every economy is going up. We’ll adapt to that Government ownership will 63
lead to political interference 78
environment. In fact, we need to look at government as more in the marketplace 56
of a customer’, said Dean A. Scarborough of Avery Dennison 54
Corporation. ‘Our strategy in the past was ’let’s just stay 65
under the radar’, and that’s not doable anymore. We need 83

to be an influence, certainly, so we’re going to step up our 69
Government ownership 69
involvement in the public sector to influence the outcome inherently creates a 78
conflict of interest with
in a good way.’ its regulatory function 76
54
78
83
We should work to refine our model of regulation whereby 72
a merits-based review becomes part of the regulatory Government ownership
62
process and acts, if you like, as a self-managing check distorts competition
in an industry
74
69
over the scale and scope of regulation and whether or not 61
it’s achieving its intended outcomes. 70
Dr. Paul Reynolds 0%
CEO, Telecom Corporation North America Western Europe Asia Pacific Latin America
of New Zealand Limited, New Zealand CEE Middle East Africa Global average
Q: How much do you agree or disagree with the following statements about
Government ownership?
Base: All respondents (28-442)
Note: Respondents who stated ‘agree’ or ‘strongly agree’. Please note small base for Middle East.
8 ‘Wide Dissatisfaction with Capitalism — Twenty Years after Fall of Berlin Wall’, BBC World Service, GlobeScan, University of Maryland Program on International Policy Attitudes (PIPA) (November 2009).
pwc.com/ceosurvey
Result
Section 3
Result: Adapting to compete

Last year’s survey found CEOs taking action to survive swift drops in demand without cutting deeply into
investments vital to long-term competitiveness. Conditions are improved but the cost pressure remains.
Short-term cost focus Business leaders are also bracing for continued volatility.
Despite widespread restructurings last year, many ‘Under the current situation, demand changes every day,
businesses remain committed to further cost-cutting. In an and enterprises need to adapt rapidly. In fact, wide
indication of the cost pressure they continue to face, 69% of fluctuations in market conditions have become very normal
CEOs we surveyed plan cost-reduction initiatives in the next and we must be ready to respond to a whole range of
12 months, compared with the 88% who made cuts over the possible conditions: low market prices, strong demand, or
past year (see figure 3.1). no demand’, Huang Tianwen, President of China-based
Sinosteel Corporation, told us.
3.1
Price fluctuations are impacting recovery scenarios for
Cost-cutting remains agenda item no. 1
some. ‘What makes this recovery atypical is the degree of
volatility in commodity pricing. We are seeing demand come
Implemented a 88 back. But demand might not fully recover because of the
cost-reduction initiative 69 degree of volatility that still exists’, said Andrew Ferrier, CEO
35
of New Zealand dairy exporter Fonterra Co-operative Group.
Outsourced a business
process or function 34
In this environment, CEOs are less likely to explore new
Entered into a new strategic 35
alliance or joint venture 46
markets. And an unrelenting focus on cash flow is likely to
force CEOs to make hard decisions about where they
‘Insourced’ a previously
outsourced business
23 allocate resources for the long-term and how they account
for risks – including climate change – along the way.
Divested or spun-off majority 20
interest in a business or
exited a significant market 17
Completed a cross-border 20 We decided, going into this recession, that while we didn’t
merger or acquisition 30 have a huge amount of debt compared to many people
in the UK, we had to be very focused on cash generation
Ended an existing strategic 18
alliance or joint venture 14 and reducing our debt. We’ve done that over the last
0% 15-18 months, and opted not to pursue an acquisition
Have initiated in past 12 months Plan to initiate in coming 12 months strategy during this difficult time, given the risk it would
bring to the business.
Q: Which, if any, of the following restructuring activities have you initiated in the Paul Walker
past 12 months?
Chief Executive, The Sage Group plc, UK
Q: Which, if any, of the following restructuring activities do you plan to initiate in the
coming 12 months?
Note: R
esponses of ‘Don’t know/Refused’ and ‘None of the above’ excluded.
pwc.com/ceosurvey
Organic growth for now An existing-markets focus is overwhelmingly favoured by

The largest proportion of CEOs (38%) is positioning the largest companies; they are also the most likely to have
companies for better penetration of their existing markets. operations in different geographies already. CEOs in Asia-Pacific
Such an approach is expected when capital and resources and Africa are also more likely to take this view than those in
are scarce and business managers have fewer margins for Western countries. An organic growth outlook for businesses
error (see figure 3.2). However, the focus on organic growth in developing nations is not surprising; their home markets are
captured in the survey this year fits a trend that predates the growing more quickly and many were less impacted by the
economic crisis. The concentration on existing markets has downturn. In fact, if anything, it appears to have accelerated
risen steadily since 23% of CEOs in 2007 cited it as the main longer-term growth strategies for some. ‘The recession in the
vehicle for growth. It naturally follows that in each year since Western economies has prompted Indian IT companies to
2007, consistently fewer CEOs see more potential for growth re-examine their global delivery model and address weaknesses.
in new geographic markets. And as a result, a number of these companies have moved
up the value chain’, said Pawan Munjal of Hero Honda.
3.2
Existing markets remain the focus for growth Cash is still king
Companies are relying heavily on internally generated cash
Better penetration of existing markets 38
flow to finance growth. This is little changed from a year ago.
With new customers proving difficult to acquire, businesses
New product development 20 can be expected to increasingly focus on cash flows from
New geographic markets 15
the existing customer base. Nevertheless, the heightened
focus on costs and cash preservation likely signals continued
Mergers and acquisitions 14 pricing pressure on suppliers and vendors in the near term.
New joint ventures and/or 11 ‘People are thinking more about cash flow. If it lasts for
strategic alliances
0%
10 years, I have to take equipment for 10 years. This means
that I do not spend 100% of my capital needs now; it means
Q: Which one of the following potential opportunities for business growth do you see as that I spend 50% now and 50% in 10 years’ time. This is
the main opportunity to grow your business in the next 12 months?
Base: All respondents (1,198) affecting the strategy on all of our products’, said Mikael
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 Mäkinen of Cargotec.
Note: Responses of ‘Don’t know/Refused’ excluded.
I am concerned about the significant rally in the valuation

I am more worried about the growing public borrowing of several businesses and corporations when this whole
and its serious consequences. With all its seriousness, situation has not been completely absorbed or eliminated;
the crisis has shown us some positive lessons which this could be generating another kind of economic
we should take advantage of. The situation was worse bubble. Such high valuations do not match the reality
in 2007, when there was heavy borrowing and a bubble of some countries’ markets and economies. I think we
with no clear end. This crisis should teach us to be more might be seeing what we want to see – a kind of illusion.
demanding of ourselves. Moreover, the bad credit or toxic investments that have
caused so much damage in the financial systems haven’t
Pablo Isla been assimilated or eliminated yet. So there is no real
Deputy Chairman and CEO, Inditex, Spain alignment between what we see and what we feel. One
of the main things that will emerge is how our people,
clients, consumers and the families of our co-workers
feel. Because they are living the reality.’
Carlos Fernandez Gonzalez

Chairman and CEO, Grupo Modelo, Mexico

Slightly fewer expect to tap the bond markets, with 24% has accelerated in recent years. ‘Business development is
planning to issue debt v. 28% last year. It may suggest that often funded not out of profits but through investments using
the record-pace of issuance in 2009 in part served to satisfy debt or equity finance. And while it may take 10–12 years to
immediate financing needs over longer term growth-related pay back long-term investments, technology often becomes
plans. It is also apparent that business leaders are reluctant obsolete after three years. So investment in new technology
to ‘over-finance’ in the near term. This is perhaps as much a may actually hinder profitability. So a question arises: How
measure of lessons learned as it is conservatism in the face can companies shift away from development financed by
of a period of slack demand. investment to development financed by profit generation?’
noted Tigran Nersisyan of Borodino Group.
CEOs are striving to keep debt low and liquidity cushions
ample: 61% are expecting to change capital structures as
a result of the crisis. ‘To the extent that changes in the Positioning for the long-term
capital markets dictate a more conservative approach to In a sign of the times, when CEOs were asked about their
one’s balance sheets, I would say that every business in investment plans over the next three years – ‘initiatives to
the world has been affected’, Andrew Ferrier of Fonterra realise cost efficiencies’, cited by 78% of CEOs, was the
Co-operative Group told us. ‘We plan to run our gearing at a most frequently identified target for a moderate or significant
significantly lower level than we have traditionally. That is not increase in investment. Investments that are commonly
to say that we ran a high-risk strategy previously. But we are considered vital for long-term growth, such as R&D and new
feeling as a result of market uncertainties that it is better to product development, and advertising and brand-building,
be more conservative going forward.’ lagged far behind. And capital investments were last on the
list, with just 40% of CEOs planning to increase cap-ex
Sourcing investments from cash generated by operations spending (see figure 3.3). This is true even in capital-
is certainly not a new approach, but a renewed emphasis intensive industries, such as industrial manufacturing and
could have profound implications for some suppliers as it automotive, which may reflect overcapacity relative to
impacts the purchasing and capital investing cycle, which demand forecasts that have been revised downwards.
3.3
R&D and advertising are lower on the list of investment priorities
No change
Initiatives to realise cost efficiencies 13 41 37 17
Leadership and talent development 3 47 21 27
Organic growth programmes 1 6 46 18 28
Strategic technology infrastructure or applications 1 6 43 16 32
R&D and new product innovation 2 6 41 16 32
Advertising and brand-building 3 12 35 7 42
Capital investments 3 16 32 8 39
0%
Significant decrease in investment Moderate decrease Moderate increase Significant increase in investment
Q: How do you plan to change your long-term investment decisions in the following areas over the next 3 years as a result of the economic crisis?
Note: R
esponses of ‘Don’t know/Refused’ excluded.
pwc.com/ceosurvey
Different strategies for growth emerge at the industry level. margin pressures for years, as their downstream customers
Banks and capital markets businesses, for example, say shopped for cheaper suppliers and as raw materials prices
they are more likely than others to focus on organic growth; fluctuated. Cost efficiencies are a fact of life. Rather, these
they are also among the least likely to consider new CEOs are now more likely than most of their peers to be
geographic markets as the best opportunity for growth, increasing investments in R&D.
which partly reflects the regulatory barriers they face when
they enter new geographies. This perhaps explains why
banks are most likely to be investing in advertising and
Risk and strategy go hand in hand
brand-building, in order to rebuild reputation and strengthen Business leaders are making changes ahead of what
the franchises they already have. many expect may become a more restrictive regulatory
environment once recovery sets in. Clearly, CEOs are more
On the other hand, industrial manufacturers are now among risk aware: 41% anticipate a ‘major change’ to their risk
the least likely to be investing in initiatives to realise cost management approach (see figure 3.4).
efficiencies. Many of them have been living under intense
3.4
More CEOs are planning a ‘a major change’ to risk management than other elements of their strategy, organisation or operating model
Approach to managing risk 15 43 41
Investment decisions 18 48 33
Responding to changing consumer purchasing behaviours 17 55 26
Strategies for managing talent 21 50 29
Organisational structure (including M&A) 23 49 27
Focus on corporate reputation and rebuilding trust 33 43 23
Capital structure 37 44 17
Engagement with your board of directors 42 41 16
0%
No change Some change A major change
Q: In the wake of the economic crisis, to what extent do you anticipate changes to any of the following areas of your company’s strategy, organisation or operating model?
The bank has a social purpose which is that of financing When the market changes, you cannot simply follow
the system’s growth. Ultimately, that became irrelevant. normal procedures or maintain outmoded strategies,
What became relevant was what mechanisms one could management structures, or market positioning.
put in place to try to earn more. New conditions dictate a quick response.
Gerolamo Caccia Dominioni Huang Tianwen

CEO, Benetton Group SPA, Italy President, Sinosteel Corporation, China

Risk is not only moving up the corporate agenda in response using a simple form of protection. Therefore, we are paying
to the crisis, but is seen as something that needs to be more attention to our internal controls and management
embraced by the organisation as a whole. That one in five mechanisms’, said Kong Dong, Chairman of Air China Ltd.
say their board of directors is ‘significantly more engaged’ in
assessing strategic risk indicates that for many, approaches The higher level of involvement by directors is not merely
to risk are moving beyond controls-based risk management taking place in the financial sector, where risk standards are
to corporate strategy and financial management. actively changing, but across all sectors. Directors are more
focused on internal as well as external concerns, raising
‘We did not realise that the damage was going to be so their engagement on long-term key performance indicators
great. What inspires me most is that an enterprise like ours and succession planning as well as compliance and
cannot go through such difficulties by its own efforts or by strategic risk (see figure 3.5).
3.5
Board agendas are getting busier – with assessing strategic risks at the top
No change
Assessing strategic risks 1 3 51 20 25
Overseeing financial health 12 43 23 30
Constructively engaging the management team on strategy 1 3 44 17 34
Focusing on the long-term key performance indicators 1 4 45 15 34
Ensuring regulatory compliance 1 5 32 19 41
Enforcing high ethical standards 1 4 33 17 44
Assessing the leadership pipeline for succession planning 2 6 37 13 40
Aligning executive compensation with long-term performance 2 5 35 12 43

0%
Significantly less engaged Less engaged More engaged Significantly more engaged
Q: With respect to your board, to what extent is your board of directors modifying their behaviour as a result of the economic crisis?
Note: R
Currently, the M&A market is very sluggish and there are I believe that we will emerge stronger and with more
few opportunities around. However, given the current influence. We have capital and a well-established business.
climate, transactions that can represent the first step So I believe that there will be clear opportunities for us.
towards strong future development are not out of the
Alfredo Sáenz
question. Crucially, we have a clear strategy and know
Second Vicechairman and CEO, Banco Santander, Spain
how to draw out and develop added value.
Bruno Lafont
LAFARGE Group, France
pwc.com/ceosurvey
Risk management is a process for all Companies in sectors generally more reliant on the global
Of those CEOs who said they plan some change or trading system are raising their engagement to address
significant change to their approach to managing risk – risks in the supply chain and exposure to systemic or low-
and 89% are – slightly more said they plan to integrate risk probability, high-impact events. Auto industry businesses
management capabilities into business units than change are nearly unanimous in responding to potential supply chain
other processes related to risk. They are assigning risk issues, and planning further collaboration with partners to
functions to business heads, a process that aligns risk with collectively manage risks. They are also the most concerned
strategic business planning. ‘We learned that we must over financially stressed suppliers, at 76%, compared with a
further strengthen our internal controls and risk management global average of 47%.
capabilities. The financial crisis has made it clear that all
enterprises must be better prepared against future risks’, Setting the pace on climate change
said Huang Tianwen of Sinosteel Corporation.
The recession restricted corporate investment in many areas
– but climate change wasn’t one of them. Indeed, climate
No clear consensus emerges on what CEOs consider the
change raised its position on the CEO agenda despite the
first steps to take as they reinvigorate and reinforce risk
severity of the recession. More CEOs said they were
management in their organisations. Their focus ranges
concerned about climate change this year than last. And
from changing reward structures to improving risk-related
among the slim majority of CEOs who had climate change
information analysis. They are also collectively managing
strategies in place before the crisis, more CEOs maintained
risks with supply chain partners and working with other
or even increased investment in their climate strategies than
partners – regulators, customers, NGOs and even
reined in spending (see figure 3.6).
competitors – to prevent and prepare systemic risks.9
3.6
More companies raised their investment in climate change during the crisis than reduced
Did your company have a climate If yes, how did the crisis impact
change strategy one year ago? your climate-change strategy?
Don’t know
No Raised investment in climate change strategy 17

3%
Had no effect on investment 61
Yes Delayed investment in climate change strategy 13

45% 52%
Reduced investment in climate change strategy 7
Don’t know/refused 2
0%
Q: Thinking back one year ago, did your company have a strategy to respond to the challenges posed by climate change?
Q: To what extent has the recession affected your company’s investment in its climate change strategy?
Base: Respondents who had climate change strategy in place one year ago (623)
9 ‘Exploring Emerging Risks’, PricewaterhouseCoopers (January 2009).

Corporate responses to climate change are linked to 3.7
government policy and regulatory requirements: 61% of Three out of five CEOs are preparing for the impacts of climate-change
CEOs were preparing for the impacts of climate-change initiatives such as emissions trading
initiatives such as emissions trading or carbon taxes (see
figure 3.7). This despite significant uncertainties over the Don’t know/refused
direction and speed of climate policy. Only 25% of CEOs 4%
agree in the survey – conducted prior to the Copenhagen

climate change summit in December – that the government
has clear and consistent long-term environmental policies. No 35%
In this regard, then, the failure to produce a binding global 61%

Yes
agreement on climate change at Copenhagen was a
setback for CEOs.
Q: Is your company preparing for the impacts of climate-change initiatives in the

Yet Copenhagen may not have affected CEOs’ plans that coming 12 months?
dramatically. Many leaders are moving ahead despite both Base: All respondents (1,198)
financial pressures and the regulatory uncertainty. ‘I think
Note: Climate-change initiatives defined to include cap-and-trade or other carbon pricing
that in 2009 sustainability has been less front-of-mind. But policies, energy efficiency standards, industry or capital markets reporting requirements,
climate-change adaptation strategies, and other efforts to move towards a low-carbon economy.
I have no doubt that as we move through the current global
economic crisis and we start to get back to the ’new normal’,
sustainability issues will become front-of-mind again for the
consumer’, said Ken MacKenzie, Managing Director and
CEO of Australian packaging group Amcor.
It also makes good business sense to find innovative CEOs have to recognise that a lot of their long-term
solutions to this issue [sustainability] and to create ‘green planning will need to be tossed out of the window. There
growth’ long-term. We see a growing public interest in has to be a lot more volatility built into your modelling;
‘green topics’ and sustainability, which is catered for your ability to do your three- and five-year planning in
by our books, magazines, TV programmes and also in that kind of an environment is diminished. You have to be
our printing business. Overall we will further explore the much more tactical.
market for green products and services.
Ian Bremmer
Hartmut Ostrowski President, Eurasia Group, US
Chairman and CEO, Bertelsmann AG, Germany
pwc.com/ceosurvey
In a separate survey of executives with responsibility over 3.8

sustainability practices, two-thirds of large companies Reputational advantage is the leading driver of responses to
believe their efforts, including publishing reports on climate-change initiatives
environmental performance, go beyond legal requirements.10
So many leaders are beginning to craft a business case 51
64
for sustainability. The output from the World Economic Our response to climate-change
64
initiatives will provide a reputational
Forum’s Task Force on Low Carbon Prosperity, a global advantage for my company among 66
key stakeholders, including 43
multi-stakeholder group, set the tone for proactive business employees
57
leaders to begin that process independently and in 70
collaboration with the public sector.11 ‘We have always
42
been interested in moving in this direction. But even for us, 55
even in this, it is important to get ourselves up to date and Climate-change initiatives will lead to 45
therefore perhaps to become less, I would say, provocative/ significant new product and service
opportunities for my company
52
30
challenging and a little more specific’, Gerolamo Caccia 39
Dominioni, CEO of Italian fashion retailer Benetton Group 25
SPA, told us. 33
29
My company will benefit from
Several business drivers underpin the business benefits government funds or financial
39
incentives for ‘green’ 23
of a climate-change strategy. More CEOs expect climate investments 15
change will lead to new products and services for their 25
companies than those who worry that climate change entails 23
a significant expense. And CEOs are attuned to the shift 26

in public perceptions of climate change and corporate 38
37
responsibility: Nearly two-thirds of CEOs in Western Europe, My company will need to reduce its
emissions significantly 40
Asia-Pacific and Latin America expect a reputational 22
advantage from their climate strategies (see figure 3.8). 29
43
‘As a consumer marketing company, our biggest concern is
that consumers will choose not to buy our brands because 32
we have not done the right thing,’ said Paul S. Walsh of 34
37
UK-based beverage company Diageo plc. ‘But having done Compliance with climate-change
initiatives will be a significant 38
the right thing, it’s invigorating to see how that can ignite the expense for my company 24
imagination of our employees and the communities in which 36
30
we operate. It also affords us the opportunity to get out
ahead of regulation.’ 30
20
19
Climate-change initiatives will 41
slow growth in my industry
11
21
13
0%
North America Western Europe Asia Pacific Latin America
CEE Middle East Africa Global average
Q: How much you agree or disagree with the following statements about the potential
impacts of climate-change initiatives?
Note: Respondents who stated ‘agree’ or ‘strongly agree’.
10 ‘Appetite for change: Global business perspectives on tax and regulation for a low carbon economy’, PricewaterhouseCoopers (January 2010).
11 For more information on the Task Force on Low Carbon Prosperity, for which PricewaterhouseCoopers served as project advisor, visit: www.weforum.org/en/initiatives/ghg/index.htm

One driver that fails to register broadly – that is, outside At 53% and 55%, respectively, they are also more
China – is government financial incentives and other concerned about the cost of climate-related regulation than
measures to ‘go green’. China has been the major the global average of 34%, and acknowledge the potential
beneficiary of the UN’s Clean Development Mechanism for slower industry growth as a result. Equally, however, they
carbon offset programme and investments in low-carbon are more convinced that climate-related initiatives will lead
technology over the past decade have accelerated as to substantial new products and services (62% and 67%,
part of the government’s stimulus spending directed at respectively) than the global average (47%).
infrastructure. These investments are seeding what one
report estimates could develop into a US$500 billion to Interestingly, of all business leaders, those in energy and
US$1 trillion greentech market by 2013.12 utilities are among the most likely to believe that efficiencies
will improve natural resource usage over the next three years.
Energy companies and utilities are more likely to have The sentiment is not shared by some of their greatest
climate strategies in place and lead all sectors in preparing customers: CEOs in automotive and transportation and
for climate initiatives in the near term. The two industries logistics are among the most likely to believe the opposite.
are already heavily regulated on emissions in many nations.
I would like to see greater focus by CEOs on long-term We do take full legal, economic, and social responsibility
environmental issues. We must not be slaves of the to protect the environment, which – as a by-product –
immediate. Otherwise, we will destroy the future. also benefits our public reputation. Compared to the
US, Europe, Japan and other industrialised countries,
Dr. James Mwangi
China still has a long way to go in terms of environmental
MD and CEO, Equity Bank, Kenya
protection. Only through relevant laws and regulations
established by government, and voluntary implementation
by enterprises of those laws and regulations, will the goal
of environmental protection be achieved.
Shen Heting
Executive Director, President, Metallurgical Corporation
of China Ltd, China
12 ‘The China Greentech Report 2009’, PricewaterhouseCoopers (September 2009).
pwc.com/ceosurvey
Access to capital is a looming problem
In the middle of a financial crisis and billion-dollar bank cash flow to help finance growth plans. Moreover, many
bailouts, it may come as a surprise that an inability to finance companies have completed a round of cost cuts and moved
growth does not score among the top-ten concerns for to refinance at low interest rates.
CEOs globally. The relatively low concern on financing, at
least in the short term, is consistent with surveys from central
banks in the US, the Eurozone and Japan, which revealed
Post-crisis bank lending capacity is untested
persistently weak demand for commercial loans through Look ahead, however, and it is clear that financing will become
the first nine months of 2009. Chinese banks were a notable a more pressing issue. If liquidity was ‘last year’s problem’, the
exception among the G20 economies. Bank lending surged survey responses suggest that access to capital is a strong
as the Chinese government pushed stimulus measures contender for ‘next year’s problem’ – meaning it will rise in
largely through the banking sector. importance as growth spreads in 2010 and beyond, and
companies seek more funds to invest. Over half of CEOs
Fund-raising pressures typically lag a recovery and capital expect access to bank financing and credit will become more
spending remains subdued in most economies. Many difficult after the recovery sets in. Forty-five percent anticipate
companies also rely on their own resources: 83% of more difficult access to capital through the debt markets,
business leaders in the survey expect internally generated despite the healthy rebound in the bond market in 2009 (see
3.9
Access to capital is expected to become more difficult
Same as before the crisis

Compliance and reporting to meet
capital markets requirements 2 10 39 15 28
Access to bank financing and credit 5 16 41 10 26
Access to capital through debt markets 4 17 38 7 29
Access to capital through equity markets 4 19 32 5 35
Access to capital from alternative investors 3 20 30 7 32

(e.g. private equity or sovereign wealth funds)
0%
Significantly easier Moderately easier Moderately more difficult Significantly more difficult
Q: For each of the following, how do you expect conditions to change after economic recovery sets in, compared with before the economic crisis?

figure 3.9). ‘Which ever way you look at it, the cost of capital purchases of securities, dropped over 80% in 2008, leading
has definitely gone up’, said Paul S. Walsh of Diageo plc. to volatility in exchange rates and higher costs of capital
‘So we continue to try to level out our investment profile.’ in some emerging economies last year.13 Capital markets
stability remains a highly ranked concern for CEOs,
Expectations that access to capital will become more although not at the level seen last year.
difficult stretch across industries and company sizes. Yet
it is expected to weigh more heavily on smaller companies. In developed economies, weak demand for lending
‘First of all, for our SME customers, there are not many throughout much of 2009 has left the post-crisis capacity of
options around finance. The old days of long-term leases, banking sectors to fuel and support growth largely untested.
HP on assets, is something either they’re in or have done Banks are expected to remain risk-averse as regulations
or would find more difficult, so a lot of them are restricted evolve and as they repair their balance sheets and the weak
to the more traditional markets of banking’, said Paul Walker securitisation market continues to limit their own sources for
of The Sage Group plc. ‘Even some of the venture capital loan funds.
availability for SMEs has probably disappeared, so I don’t
think they have the same options as the larger corporates ‘There is a lot of concentration on lower risk, higher strength
when looking for finance.’ organisations. Unfortunately, what happens in that
environment is that the people who don’t need the money
Smaller companies in the survey are showing higher levels of are the ones who have the money easily available to them’,
concern over financially stressed suppliers than their peers. said Michael I. Roth of Interpublic Group.
Unlike the largest companies, they are more reliant on banks
for financing. The challenge will come when businesses start to grow and
need more people and more capital. The implications for
companies with weaker market positions or those that are
Challenge comes when businesses start to grow more reliant on banks for credit are clear. Banks will seek to
Several factors point to tighter capital conditions. Chief lend to customers they regard as a long-term and valuable
among these is the prospect for higher interest rates as partner. ‘As far as our customers are concerned, capital is
inflation rises. As always with interest rate cycles, it is a available, but not to everybody. That’s a huge difference
question of when. CEOs anticipating a 2011 recovery in their now’, said Mikael Mäkinen of Cargotec. ‘Most of our ‘key
industries are the most concerned over an inability to finance risk’ customers do get capital. However, a few years back,
growth at an acceptable cost of capital. you could see all kinds of companies popping up like
mushrooms and starting up businesses – that capital is not
Other concerns surrounding capital costs are likely related available today. That should mean it is a better foundation.
to global market conditions. Cross-border capital flows, The sources of capital that our customers go to are being
including foreign direct investment, lending, and sales and much more selective than before. That is a huge change.’
13 ‘Global capital markets: Entering a new era’, McKinsey Quarterly (September 2009).
pwc.com/ceosurvey
Post-crisis models emerge
When we analysed responses related to threats to growth, Roughly one-sixth of business leaders fall into this category.
engagement with boards and regulation, we found that two Adaptors come from all regions although 63% are based in
sets of CEOs emerged from the others. Each represents emerging markets in Asia-Pacific and Latin America. They
different attitudes towards achieving success in the post- are a mix of both small and large businesses. They are far
crisis environment, spanning geography, industry and size. more concerned over a range of threats to growth: they are
Both engaged in similar levels of restructuring activities last twice as concerned as Consolidators on their ability to
year, and both also share similar outlooks on revenue growth finance growth, exchange-rate volatility and energy costs.
prospects. Yet, the two clusters indicate that despite They are nearly three times as concerned as Consolidators
universal relief that the worst of the crisis appears over, not over supply chain security. These concerns are leading them
everyone is approaching recovery in the same way. Here’s a to take decisive actions to adapt to the new environment and
look at where they differ on key points in our survey. mitigate risks to their business. Adaptors are aggressively
changing operating models and investment strategies and
they are not done with restructuring. More are planning
Consolidators: Drawing on existing networks cost-cuts in the near-term than Consolidators.
The first cluster, representing roughly a third of business
leaders in our survey, we call ‘Consolidators’ for their Adaptors are reorienting strategies. (See figure 3.11.)
conservatism: they are making few changes to their More are planning investments in technology, R&D and
strategies and operations. Consolidators come from all capital investments. They are investing in people, including
regions of the world, although two-thirds are based in North in training and leadership programmes.
America and Europe. The majority are established
businesses with a long tenure. They are far less concerned 3.10
about threats to business growth than the Adaptors, but they
Adapters are more aggressively investing in a range of areas
exhibit greater antipathy to regulation in general, particularly
regulation surrounding foreign investment and innovation.
Initiatives to realize cost 72
Consolidators are focused on strengthening their existing efficiencies 84
market position. They are also more likely to be planning to strike
Leadership and talent 61
strategic alliances and to close acquisitions than other CEOs. development 80
Consolidators investment plans are restrained. Most Organic growth programmes

60
76
Consolidators will rely on internally-generated cash flow to
finance growth. And fewer plan to raise or change spending Strategic technology 52
infrastructure or applications
on technology, R&D or capital investments. (See figure 3.10.) 76
R&D and new product 49

Consolidators expect fewer organisational changes. More innovation 74
Consolidators cut workforces during the recession. While the
37
two groups were equally likely to have implemented cost-cuts Advertising and
brand-building 54
in the past year, Consolidators are less likely to be planning
cuts going forward. Consolidators are less likely to outsource Capital investments
35
55
and far less likely to collaborate with external specialists
0%
suggesting a more traditional internal organisational approach.
Consolidators Adaptors
Adaptors: Concerns prompt radical changes to Q: How do you plan to change your long-term investment decisions in the following
areas over the next 3 years as result of the economic crisis?
the business model Base: All respondents (361, 215)
The other set of CEOs, whom we call the ‘Adaptors’, is taking
Note: Respondents who stated ‘moderate’ or ‘significant increase in investment’.
bold steps in many directions, to adjust to a new environment.

Adaptors are highly risk-aware – and are pro-actively change drastically. For this set, too much change may be a
addressing many of their concerns. They are more likely distraction from the market or departure from their business
to be pushing risk management practices out into all business model. Or, they may have the luxury to be more conservative
operations. And they are taking steps to prepare for as they wait for their competition to thin out. They will
systemic risks. concentrate on finding ways to keep existing customers in a
challenging environment and alliances and joint ventures
3.11 could be a smart way to offer customers more.
Adaptors are more likely to be changing their strategy, organisation or
operating model However, there is a risk that new players, with innovative
products, emerge and that Consolidators may not have the
agility to adjust their operating model. They are cutting fewer
76
Approach to managing risk
92
costs and investing relatively less in R&D, talent and organic
growth programmes than Adaptors.
Responding to changing 75
consumer purchasing
92
behaviours Regulatory simplicity and fairness are also a cornerstone
74 priority for Consolidators. They are aware that regulation
Investment decisions
89 shapes growth strategies – regulations impacting innovation
and foreign investment are particularly anathema. But are
69
Organisational structure
(including M&A) 87
they equally attuned to potential change to regulatory
frameworks as recoveries set in? They are less likely than
Strategies for managing talent
66 Adaptors to believe government can improve policy by more
85
engagement with business.
Focus on corporate reputation 57
and rebuilding trust 75 Adaptors are undergoing significant change to create a new
basis for sustainable growth over the long-term. This may
53
Capital structure
68
signify a belief that as the market shakes out, this is the time
to come forward and seize opportunity. For Adaptors, this
Engagement with your 44 includes being more innovative about climate change, more
board of directors 69
collaborative about regulation, and more agile. They want to
0% be ready to compete in the emerging environment, and
Consolidators Adaptors potentially steal the lead over other organisations that might
be taking a ‘business as usual’ approach. These businesses
Q: In the wake of the economic crisis, to what extent do you anticipate changes to any of will be more resilient to change over the long-term and are
the following areas of your company’s strategy, organisation or operating model?
Base: All respondents (361, 215) creating a talent pipeline for the long-term, despite having
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 had to make some short-term headcount reductions.
Note: Respondents who stated ‘some change’ or ‘a major change’.
Yet there is no real comfort zone for Adaptors. Some are
Our view acting from a position of strength; some may be under
duress. Each may be as likely to boom as to bust. While
It is too early to tell whether one strategy will be more successful most expect to finance growth from internal sources, their
than the other. In fact, in our view, Consolidators and Adaptors wider ranging investment strategies may require additional,
represent archetypal strategies that could both lead to lasting alternative sources of finance in a lending environment that
success, building on particular organisational strengths and most CEOs expect is about to become more difficult. They
environmental factors. Yet, clearly risks remain for both. recognise that capital is likely to be in short supply in the
coming months and they may find it difficult to execute their
Consolidators feel they are now on the right track for strategy for that reason. There might also be a danger that
recovery, that the recession helped them ‘cut the fat’ and do they are changing too rapidly, before it is really clear what
what they do better, but otherwise, they are not looking to the new environment will look like.
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Final thoughts
Lessons learned and applied to 2010
Throughout this report, we have described how business leaders responded to the challenges brought
by the recession and how they are positioning their companies for the future. We also asked CEOs to
describe, anonymously and in their own words, what lessons they are taking away from the crisis.
One of the more consistent regrets was not acting fast Long-term planning is critical – but be prepared
enough when conditions turned. ‘If I was to do it all over to change at a moment’s notice
again, I would be more pessimistic. All the stuff I had to do,
The importance of strategy, clearly understood by
for example in cost savings, I would do at the beginning.
customers, employees and business partners, cannot be
Be more radical’, reads one fairly typical comment.
underestimated in a crisis. Yet the speed with which market
The idea that some businesses or entire industries can be
conditions change today can render planning models moot.
immune from or little changed by conditions appears to
The key is embedding agility throughout an organisation to
have taken some time to defeat. It is not easy to appreciate
enable rapid reaction to changing trends while maintaining
how a bankruptcy on Wall Street can so swiftly sap liquidity
a strategic positioning. ‘Flexibility is the most important
throughout the banking system.
weapon’, said a CEO in Portugal. ‘Flexibility is the key to
smoothing the effects of the crisis and is needed in
Judging by the number of times certain words or phrases
production, costs and commercial actions.’
were used, if there had been signposts warning of the
turmoil on the road ahead and how to prepare, they would
have read, in order: ‘Evaluate risk’, ‘Cost is king’, ‘Cash is
king’, ‘Be transparent’, ‘Greed can be hazardous’, ‘Don’t Lessons learned from the financial crisis
Trust anymore’, ‘Be flexible’ and helpfully, from a CEO in revolve chiefly around gaining more control
Uruguay, ‘Always have a Plan B’.
over these newly appreciated vulnerabilities,
CEOs are attempting to strengthen the resilience of their internal and external.
organisations and yet remain attuned to the opportunities
emerging. It is a difficult balancing act, as attested by the
apparent contradictions they conveyed. Lessons learned
Stay disciplined on costs, but incur them to innovate
from the financial crisis revolve chiefly around gaining more
control over these newly appreciated vulnerabilities, internal The vigorous cost-cutting measures adopted over the past
and external. year exposed inefficiencies throughout organisations, and
CEOs remain highly focused on costs. Yet this inward
concentration needs to be balanced with a long-term focus
on what it will take to remain competitive. ‘I’ve discovered
that you can’t actually reduce your costs dramatically and
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still remain profitable’, said a UK-based CEO. With so much Manage risk in good times and bad
of the world’s growth expectations placed on demand from The importance of good risk management practices was by
emerging markets, more heated competition is likely, with far the most frequently cited ‘lesson learned’. CEOs fault
domestic competitors buoyed by relative financial strength their own approaches to risk as much as risk practices in
to compete with Western multinationals. Innovation and the financial sector. ‘The regulations are fine, but it’s the
ew product development are cornerstones for future companies that should evaluate the risks better’, concluded
positioning. One CEO said the crisis taught his company not a CEO in financial services. ‘We thought the party of 2008
to outsource on innovation. ‘Don’t wait on another crisis for would continue forever. We need to take our risk
change’, said a CEO in industrial manufacturing. ‘It’s with management seriously’, said a Czech CEO. Effective risk
innovation than we can be strong.’ management cannot be done on the fly. The time to manage
risks and address complacency is when conditions are
Encourage banks to lend – but assume they won’t improving. ‘Risk management should be a long term
systematic strategy. Not just implemented at the time of
Companies are paying far closer attention to their own cash
crisis’, commented a CEO in China. The alternative has
management and leverage, and have learned not to rely on a
proven daunting. ‘Managing risk in a changed environment
single source for financing. ‘It had never been a big factor
is a big challenge’, noted a Belgian CEO.
before, but borrowing levels have over-extended companies
financially, leaving them vulnerable to the whim of the banks’,
said a UK CEO. The reality is that this is the time to deepen
the relationship with the bank. While a majority of CEOs
We thought the party of 2008 would continue
expect to finance growth from internal cash, 40% also
expect to turn to banks. Financing costs are rising as banks forever. We need to take our risk management
become more selective; they will favour companies whose seriously.
strategy and long-term outlook give them confidence.
CEOs were very candid about the lessons they learned during this crisis. We could not possibly
include all of the helpful lessons in this document, so we put many on our website.
We welcome you to visit www.pwc.com/ceosurvey to read CEOs’ views, in their own words, on
how they intend to avoid another crisis, on the tough choices they are making to enforce cost
discipline while preserving long-term investments, on the lasting legacies of the crisis on regulation
and public trust, and how they are reshaping their strategies to compete in a post-crisis environment.

Research methodology and key contacts
This is the 13th Annual PricewaterhouseCoopers’ Global CEO Survey and we have followed the same
methodology as we used the previous years to ensure we are fairly representing the emerging
economies of the world. We have conducted interviews in 52 countries worldwide, and varied the
number of interviews in line with their GDP, measured at market exchange rates, in 2006.
In total, we conducted 1,198 interviews with CEOs in 2009. Their insights cover a wide range of topics, from
52 countries between 24th August and 16th November prospects for recovery to new dynamics of post-crisis
2009. By region, 442 interviews were conducted in Western environment, balancing growth with risk management
Europe, 289 in Asia Pacific, 167 in Latin America, 139 in and lessons learnt. Their interviews are quoted in this
North America (39 in Canada), 93 in Eastern Europe and report, and more extensive extracts can be found in the
68 in the Middle East & Africa. CEO Story supplement. The full interviews and a selection
of video bites are available on the dedicated website
The interviews were spread across a significant range www.pwc.com/gx/en/ceo-survey/perspectives.html.
of industries. Further details, by region and industry,
are available on request. The interviews were mainly PricewaterhouseCoopers’ extensive network of experts
conducted by telephone, with the exception of Japan, and specialists has provided its input into the analysis of the
where a postal survey was administered and Africa, where survey. Our experts span many countries and industries.
most of the interviews were conducted face to face. All
the interviews were conducted in confidence and on an Note: Not all figures add up to 100% due to rounding of
unattributable basis. The lower threshold for inclusion in percentages and to the exclusion of ‘neither/nor’ and ‘don’t
the top 30 countries was companies with more than 100 know’ responses.
employees or revenues of more than $10 million. This is
raised to 500 employees or revenues of more than $50 For further information on the survey content, please contact:
million in the top 10 countries. Sophie Lambin, Director of Global Thought Leadership
+44 20 7213 3160
37% of the companies had revenues in excess of $1 billion, sophie.lambin@uk.pwc.com
and a further 38% had revenues of $100 million to $1 billion.
For media enquiries, please contact:
The remaining 21% had revenues of less than $100 million.
Mike Davies, Director of Global Communications
Company ownership is recorded as private for 50% of all
+44 20 7804 2378
the companies, with the remaining 47% listed on at least
mike.davies@uk.pwc.com
one stock exchange.
For enquiries about the research methodology, please contact:
To better appreciate what is underpinning the CEOs’ outlook Claire Styles, Thought Leadership Research Manager
for growth we also conducted in-depth interviews with +44 20 7804 0115
27 CEOs from five continents over the fourth quarter of claire.e.styles@uk.pwc.com
pwc.com/ceosurvey
Further reading
These publications can all be found on www.pwc.com/researchandinsights
Re-thinking and Re-shaping the business Low carbon economy index (December 2009)
environment: Government and the Global CEO This publication examines climate
(January 2010) change issues and the challenges
Low facing the world economy as it
This publication assesses the changing relationship between Carbon
government and business as the world emerges from crisis works to reduce carbon emissions.
Economy
and sets out on the road to recovery. The research carried Index The index looks at the period from
out for the PricewatehouseCoopers‘ 13th Annual Global December 2009
2000 to 2050, and an intermediate
CEO Survey is extended and deepened by including a timeframe to 2020.
selection of interviews with senior decision-makers in
governmental organisations across the world to understand pwc
better the implications for government policy of the views of

CEOs as we emerge from troubled times.
Appetite for change: Global business perspectives The India competitiveness review 2009
on tax and regulation for a low carbon economy (November 2009)
(January 2010) This paper shares advance findings
A global study which explores the views of the business of PwC’s 13th Annual Global CEO
The
community on environmental issues and perceptions of India Competitiveness

Review 2009
Survey for the Indian chief executives.
the current environmental tax and regulation regimes. The analysis suggests that the Indian
The survey comprises almost 700 interviews worldwide, CEOs remain optimistic despite the
covering 15 countries. The paper is intended to help inform global economic crisis. Underlying
the dialogue between national governments and
Thierry Geiger, World Economic Forum
Sushant Palakurthi Rao, World Economic Forum this confidence is their belief that the
international institutions on tax policy in this arena and to In collaboration with
country’s economy is well on its way to
Confederation of Indian Industry
recovery, with nearly two-thirds expecting

PricewaterhouseCoopers
ensure that the perspective of business is well represented

and understood. recovery by the middle of 2010.
Biodiversity and business risk: (January 2010) Rebuilding the global economy:
Recently, the broad systemic Rebalance, Connectedness, Sustainability
implications of biodiversity loss and (November 2009)
Biodiversity and business risk ecosystem degradation linking to This survey of business leaders in the
Rebuilding the Global Economy
resource management, climate change
A Global Risks Network briefing
World Economic Forum
APEC region explores the impact of the

January 2010 Rebalance l Connectedness l Sustainability
and population growth have been more financial crisis and the role of APEC in
explicitly articulated. This briefing paper rebuilding the global economy going
A briefing paper for participants engaged in biodiversity related discussions at the
explores both specific and broader forward, with particular emphasis on the
systemic effects and the associated
World Economic Forum Davos-Klosters Annual Meeting
themes of rebalancing, connectedness,

Prepared by PricewaterhouseCoopers for the World Economic Forum
business risks. and sustainability.

Managing tomorrow’s people: How the downturn
will change the future of work (September 2009)
Pay and promotion freezes,
changes to pension
schemes, cuts in recruitment
and slashed training budgets
have eroded the trust
between some employers
and their employees. This
paper uses scenario planning to map how the global
economic crisis will impact the widely accepted shortage of
talent predicted for tomorrow’s world.
Exploring emerging risks: (January 2009)

Extending Enterprise Risk
Management (ERM) to address
emerging risks
Extending Enterprise Risk Management
(ERM) to address emerging risks:
This paper looks at how organisations
Managing
known
risks
identify, assess, and manage risks,
Exploring what techniques they are using as
emerging the basis for determining response
risks strategies that align with their strategy
and risk appetite and tolerance.
PricewaterhouseCoopers’ 12th Annual Global

CEO Survey (January 2009)
Redefining success
This survey sets out to further explore
the pessimism that prevailed across all
geographic regions, business sectors
Fool
proof
plans
and levels of economic development,
painting a picture of how CEOs were
Future
proof navigating the time of extreme economic
plans uncertainty while working to achieve
enduring success.
pwc.com/ceosurvey
Acknowledgements
The following individuals and groups in Editorial team Publishing and
PricewaterhouseCoopers and elsewhere Emily Church Project management
contributed to the production of this report. Sophie Lambin Angela Lang
Larry Yu Irina Ruseva
Suzanne Snowden
Editorial board Alina Stefan
Cristina Ampil Claire Styles
Mike Davies
Nick Jones Online content
Christopher Michaelson Vhanya Barba
Elizabeth Montgomery Lee Connett
Oriana Pound Tracy Fulham
Deepali Sussman Tim Kau
Leyla Yildirim
Design and layout
Advisory board
Studioec4
Hans Borghouts
Tom Craren Research and data
Dan DiFilippo
analysis
Moira Elms
Glen Peters The research was
David Phillips coordinated by the
Tony Poulter PricewaterhouseCoopers
Michael Rendell International Survey Unit,
Mark Schofield located in Belfast,
Jeremy Scott Northern Ireland.

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PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders.
More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
© 2010 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” and “PwC” refer to the network of member firms of PricewaterhouseCoopers International
Limited (PwCIL). Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients.
PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.
No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or
bind another member firm or PwCIL in any way.
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Printed on FSC 100% recycled material, supporting responsible use of forest resources. Produced at a mill that is certified to the ISO14001 environmental
management. This product has been awarded the NAPM 100% Recycled Mark.
Rethink
Vision
Reshape
Visibility
Result
Lighting
the way
Visual story
pwc.com/ceosurvey
In this supplement, we present an extended set of figures used to inform our analysis.
While some of these appear in the body of the report, many do not. Taken together,
they provide additional information and offer a visual complement to our narrative.
The visual story should be read in conjunction with the main report of the
PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 also available
at www.pwc.com/ceosurvey
Note: Not all figures add up to 100% due to rounding of percentages and to the exclusion of ‘neither/nor’
and ‘don’t know’ responses.
† This symbol indicates the figure also appears in the main report.
2 13th Annual Global CEO Survey – Visual story

Contents
The talent agenda remains vital as hiring returns 9
Shifting views on the complicated relationship with government 13
The impact of the crisis on the business environment – capital, consumers and public trust 18
The sustainability agenda 22
Setting a smarter course for growth 24
pwc.com/ceosurvey
Introduction: Heading towards

a growth agenda
On the whole, CEO confidence has risen from the depths experienced a year ago. They are now
guardedly confident about generating revenue growth in the near term and they are decidedly more
confident over a three-year time horizon. Geography helps drive confidence, as many companies
expect growth from faster-growing emerging markets. Yet, CEOs this year are wary of a wider range
of threats to their growth prospects.
1† 2†
CEO confidence is on the mend CEOs are confident, despite expectations that recovery will not begin until at
least the second half of 2010
60
‘Very’ or ‘somewhat confident’ in 12-month revenue growth prospects
3-year prospects
50 100
12-month revenue
growth prospects
29 15
40
18
80 31
29
37 38
30
24
60
30
20 29
33 28
40 26
36 35
10
21 30 22
20 21
0
18 18 27
2003 2004 2005 2006 2007 2008 2009 2010 13 18 13 16
0 5 3
of your company over the next 12 months? Europe America Pacific East America
of your company over the next 3 years? In 2011
Base: All respondents (2010=1,198; 2009=1,124; 2008=1,150; 2007=1,084, 2005=1,324,
2004=1,386, 2003=989)
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 In the first half of 2010
Note: 2006 confidence question was not asked.
Already recovered
Q: When do you expect recovery to set in for your nation’s economy?

of your company over the next 12 months?
Base: 28-442

3
Expectations of regional growth vary by CEOs’ headquarters
North America Western Europe Middle East Eastern Europe

HQ: % expecting regional growth HQ: % expecting regional growth HQ: % expecting regional growth HQ: % expecting regional growth
North America 63 North America 50 North America 50 North America 62

Western Europe 50 Western Europe 49 Western Europe 61 Western Europe 62
Asia Pacific 42 Asia Pacific 42 Asia Pacific 71 Asia Pacific 40
Latin America 44 Latin America 31 Latin America 54 Latin America 60
CEE 14 CEE 41 CEE 20 CEE 56
Middle East 60 Middle East 43 Middle East 72 Middle East 40
Africa 33 Africa 11 Africa 50 Africa 33
Latin America Africa Asia Australasia

HQ: % expecting regional growth HQ: % expecting regional growth HQ: % expecting regional growth HQ: % expecting regional growth
North America 86 North America 64 North America 91 North America 69

Western Europe 65 Western Europe 63 Western Europe 84 Western Europe) 52
Asia Pacific 77 Asia Pacific 58 Asia Pacific 80 Asia Pacific 80
Latin America 80 Latin America 76 Latin America 72 Latin America 50
CEE 67 CEE 40 CEE 75 CEE 33
Middle East 25 Middle East 67 Middle East 60 Middle East 50
Africa 100 Africa 87 Africa 78 Africa 33
CEOs are headquartered in this region
Q: In the next 12 months, in each of these regions are you expecting your business to grow?
Base: All respondents North America (14-139), Western Europe (60-412), Asia Pacific (25-250), Latin America (12-150), CEE (3-86), Middle East (2-25), Africa (2-39). Base of companies
headquartered in Australasia too small for inclusion.
pwc.com/ceosurvey
4†
Protracted global recession* 6 29 42 23 Decline in concern

19 3 12 43 42 from 2009 – 2010
Over regulation 12 27 33 27
13 31 37 18
Lack of stability in capital markets* 9 32 43 16 Decline in concern

7 20 42 30 from 2009 – 2010
Low-cost competition 14 31 31 23
15 37 31 17
Energy costs 17 29 35 19
19 30 33 17
Availability of key skills 15 34 35 16

16 37 33 13
Protectionist tendencies of national governments 20 30 32 17

27 33 30 9

from 2009 – 2010
13 39 37 12
40 34 19 7
Scarcity of natural resources (e.g. raw materials, water, energy) 31 32 23 12

38 31 21 9
Pandemics and other health crises 26 38 26 9

50 31 12 6
Security of the supply chain 24 40 25 10

26 40 26 7
Inadequacy of basic infrastructure (e.g. electricity, water, transport) 31 35 22 11

39 36 18 7
Terrorism 33 35 21 10
47 32 14 7
0%
2010
* ‘Protracted global recession’ and ‘Lack of stability in capital
markets’ were previously ‘Downturn in major economies’ and Not concerned at all Not very concerned Somewhat concerned Extremely concerned
‘disruption of capital markets’, respectively.
2009

5†
Global risks will be contained – but not by multi-laterals
The G20 will be the new dominant economic and 78 19 The G8 nations will remain the dominant
political power in the world economic, and political powers in the world
Within nations, the gap between rich and poor Within nations, the gap between rich and
people will increase 68 28 poor people will decrease
The world will be more open to free

Governments will become more protectionist 65 32 international trade
The pressure on natural resources will Efficiency of resource usage will improve
continue to increase 60 38
Regulatory insight will remain primarily the Multi-lateral organisations will increasingly provide
remit of each nation’s own regulators despite 55 42 oversight on regulatory issues such as in financial
increased co-operation services
Government and business efforts will be unable Government and business efforts will mitigate key
to mitigate key global risks like climate change, 39 57 global risks like climate change, terrorism and
terrorism and financial crises financial crises
0%
Q: Which of the following scenarios do you feel is more likely to occur in the future (more than 3 years)?
Base: All respondents (1,198) Respondents chose a scenario from each pair, or the option ‘Don’t know/Refused’.
6†
CEOs from Western Europe show the lowest level of concern in the
‘Anxiety Index’
60
52.39
50 46.44
44.73
Global index:
40 36.90 38.89
Anxiety Index
33.47 34.38 34.12
30
20
10
0
North Western Asia Latin CEE Middle Africa
America Europe Pacific America East
Q: How concerned are you about the following potential threats to your business growth
prospects related to or emerging from the current economic crisis and other threats?
Note: W
e analysed concerns by creating an index score out of 100 based on responses
to 20 potential threats to growth: ‘Extremely concerned’ received a score of 100;
‘Somewhat concerned’ received a score of 50; ‘Not very concerned’ received a score
of 25; and ‘Not concerned at all’ received a score of 0.
pwc.com/ceosurvey
7
CEOs in Asia Pacific, Latin America and Africa are decidedly more concerned about a range of potential threats to growth than their peers from other regtions
North Western Asia Pacific Latin CEE Middle East Africa

America (139) Europe (442) (289) America (167) (93) (28) (40)
Protracted global recession 59 60 77 62 65 57 70
Over regulation 63 55 63 75 46 46 70
Lack of stability in capital markets 53 62 66 44 55 39 63
Exchange rate volatility 54 47 74 60 62 39 75
Macroeconomic imbalances (e.g. trade or fiscal) 50 52 54 61 59 46 65
Protectionist tendencies of national governments 50 39 54 70 45 32 53
Permanent shift in consumer spending and behaviours 56 44 55 41 45 46 55
Financially stressed suppliers 36 50 49 46 49 43 33
Inflation 43 31 48 45 37 50 68
Inability to finance growth 28 41 42 43 43 29 53
Low-cost competition 45 52 66 53 45 54 58
Energy costs 43 48 63 63 40 32 80
Availability of key skills 39 43 58 57 54 64 80
Climate change 22 36 44 51 16 32 48
Scarcity of natural resources (e.g. raw materials, water, energy) 19 27 53 51 11 29 48
Pandemics and other health crises 33 24 53 41 23 39 43
Security of the supply chain 29 26 44 48 23 43 38
Inadequacy of basic infrastructure (e.g. electricity, water, transport) 14 21 35 65 35 36 78
Terrorism 27 23 38 43 16 54 33
Loss of biodiversity (e.g. soil degradation, fisheries collapse) 14 18 34 53 11 36 45
0-10% higher than global average >10% higher than global average
Q: How concerned are you about the following potential threats to your business growth prospects related to or emerging from the current economic crisis?
Q: How concerned are you about the following other potential threats to your business growth prospects?
Base: All respondents (base in brackets) Please note small base for Middle East
Note: Respondents who stated ‘extremely’ or ‘somewhat concerned’.

The talent agenda remains vital
as hiring returns
While many companies are still downsizing, more will be adding to their workforces than will be cutting
over the next 12 months. CEOs signalled intentions to increase investment in talent, particularly in
change management and training programmes.
8† 9†
More CEOs will be adding jobs than cutting them in the coming year Where are jobs being added?
48 Brazil 27 7 27
Decrease
25 (77% of those who expect to
decrease headcount in next India 23 13 23
12 months had already made cuts)
22
Stay the same China & Hong Kong 23 17 13
34
Korea 30 17 3
Increase by 13
less then 5% 20
Canada 18 15 15
7
Increase by 5-8% Australia 30 7 10
10
UK 14 9 19
Increase by more 9
than 8% 9 US 25 7 7
0%
Global 20 10 9
Past 12 months Next 12 months
Russia 17 13 7
Q: What happened to headcount in your organisation globally over the past 12 months? Japan 29 8
next 12 months? Mexico 23 10 3
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 Netherlands 20 7 7
France 14 5 11
Italy 18 11
Germany 14 3 10
Spain 6 3
0%
next 12 months?
pwc.com/ceosurvey
10†
Who is adding jobs?
Banking & capital markets 20 16 12
Business & professional 14 10 21

services
Technology 15 10 17
Engineering & construction 23 15 4
Industrial manufacturing 19 9 13
Insurance 21 4 15
Retail & distributive wholesale 21 14 5
Global 20 10 9
Chemicals 24 15
Consumer goods 23 7 8
Transportation & logistics 21 10 7
Pharmaceuticals/life science 25 10 3
Energy 15 15 6
Utilities 21 5 7
Automotive 22 4 4
Entertainment & media 23 3 3
Metals 12 3 12
0%
Q: What do you expect to happen to headcount in your organisation globally over the next 12 months?
11
Managing people through change is the top item on the talent agenda
Don’t know/refused
Managing people through change (e.g. redefining roles in organisation) 20 38 26 15 1
Training and development programmes 23 36 27 13 0
Staff morale and employee engagement programmes 24 34 26 15 1
Remuneration levels 38 43 14 4 1
Flexible working environments 39 34 18 7 1
Collaborations with networks of external specialists 40 35 16 6 2
Global mobility, including staff travel or international secondments 43 34 15 6 2
Pension and healthcare arrangements 58 28 10 4 1

0%
No change Changing somewhat Changing to a large extent Changing significantly
Q: Regarding your people strategy, to what extent will you change your approaches to the following areas, as a consequence of the economic crisis?

12
Top talent priorities, by industry
90 Automotive
86 Banking & capital markets
83 Pharmaceuticals
81 Transportation & logistics
80 Chemicals
79 Global
Managing people though change 78 Consumer goods
(e.g. redefining roles in organisation)
78 Technology
77 Insurance
76 Industrial manufacturing
76 Business & professional services
74 Energy
73 Retail & distributive wholesale
71 Utilities
64 Metals
85 Pharmaceuticals
83 Chemicals
83 Banking & capital markets
82 Metals
82 Automotive
77 Retail & distributive wholesale
77 Global
Training and development 76
programmes Transportation & logistics
75 Consumer goods
74 Industrial manufacturing
74 Business & professional services
73 Insurance
71 Technology
71 Energy
64 Utilities
0%
Q: Regarding your people strategy, to what extent will you change your approaches to the following areas, as a consequence of the economic crisis?
Note: R
espondents who stated ‘changing somewhat’, ‘changing to a large extent’ or ‘changing significantly’.
pwc.com/ceosurvey
Shifting views on the complicated

relationship with government
CEOs have consistently voiced concerns about over regulation in our surveys and few CEOs this year
believe the regulatory burden is lessening. Yet, their unease is particularly noteworthy this year not only
because expectations of regulatory reforms are heightened in the aftermath of the global crisis, but also
because many CEOs voiced optimism about the outlook for businesses and governments to successfully
mitigate systemic risk. They have differing beliefs about how to make regulation smarter.
13
Prospects for regulatory cooperation
Regulatory cooperation will help successfully mitigate systemic 3 13 53 12

risks such as another economic crisis or climate change
New regulations will largely be harmonised because of 41 6
5 22
cooperation among governments
National regulators will give more authority to
global or regional bodies 7 31 31 6
0%
Disagree strongly Disagree Agree Agree strongly
Q: How much do you agree or disagree with each of the following statements about anticipated regulatory cooperation among national governments on new regulations?
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 Note: Responses of ‘Neither/nor’ and ‘Don’t know/refused excluded’.

14†
Only 15% of CEOs worldwide believe their government has reduced the regulatory burden
Japan 37
Korea 30
China & Hong Kong 27
Italy 16
Global 15
Spain 15
Germany 13
India 13
Canada 13
Russia 13
Mexico 13
France 11
Netherlands 7
Australia 7
UK 3
US 2
Brazil 0
0%
Q: Thinking about the role of Government in the country in which you operate, how much do you agree or disagree with the following statements? % who ‘agree’ or ‘strongly agree’
with the statement, ‘The government has reduced the regulatory burden on corporations’.
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 Note: R
espondents who ‘agree’ or ‘strongly agree’.
pwc.com/ceosurvey
15
A majority of CEOs are looking for governments to drive global tax and regulatory frameworks
The government should drive convergence of global tax and

regulatory frameworks 8 14 42 14
The government is changing its tax rules and practices to raise

more tax from business 8 24 29 18
The government is taking adequate steps to improve the country’s

infrastructure (e.g. electricity, water supply, transport) 14 25 33 7
The government is working to improve health care access at lower cost 14 32 26 4
The government has clear and consistent long-term environmental policies 20 35 21 4
The government helps companies secure access to natural resources

(e.g. raw materials, water, energy) 16 33 18 1
The government has been effective in helping create a skilled workforce 21 36 17 2
The government has reduced the regulatory burden on corporations 33 34 14 2
0%
Q: How much do you agree or disagree with the following statements about the role of Government in the country in which you operate?
Note: Responses of ‘Don’t know/refused’ and ‘Neither/nor’ excluded.
16†
CEOs want regulatory clarity and stability, and to be included in the policy-making process
Work more closely with the private sector to maintain competitiveness 59
Ensure regulations are clear and stable 57
Work more closely with other nations to harmonise regulations 45
Place more emphasis on fairly enforcing existing regulations 39
Focus regulation on outcomes, not process 32
Make the representation of emerging 21

economies in global bodies more equitable
Empower multi-lateral organisations to act as global regulators 15
0%
Q: In which of the following ways do you believe government could best improve the policy-setting process with regard to smarter business regulation?
Base: All respondents (1,198) N.B. Respondents chose up to three of the seven possible options
Note: Responses of ‘Don’t know/refused’ excluded.

17 18
A majority of CEOs want less or no change to regulation covering access to CEOs would like to see more intellectual property protections and fewer
capital and foreign investment – but more regulation or better enforcement regulatory barriers to innovation
to maintain financial sector stability
Innovation and
competitiveness 12 16 19 32 18
Financial sector stability 25 32 21 8 13
Safeguarding intellectual
26 31 11 7 22
property
Access to affordable capital 14 18 15 26 24
0%
Access to foreign
9 14 13 32 29 More regulation Better enforcement of A different kind of regulation
investment opportunities
existing regulation
0%
Less regulation No change
More regulation Better enforcement of A different kind of regulation
existing regulation
Q: Through what approach would you like to see regulation address each of the following areas?
Less regulation No change Base: All respondents (1,198)
Q: Through what approach would you like to see regulation address each of the Note: Responses of ‘Don’t know/refused’ excluded.
following areas?
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 20†
Note: R
esponses of ‘Don’t know/refused’ excluded.
Not all CEOs agree that government ownership is helpful in times of crisis
19
50
Increased regulatory protection of the environment and consumers is more 51
supported by CEOs than regulations covering workplace practices 61
Government ownership helps
to stabilise an industry 34
in times of crisis 41
Social and environmental 54
25 27 21 12 13
sustainability
40
Protecting the interests of
20 29 16 12 21
consumers and the public
Workforce practices, 88
8 16 18 35 21
including compensation 75
0% 63
Government ownership will
lead to political interference 78
More regulation Better enforcement of A different kind of regulation in the marketplace
existing regulation 56
54
Less regulation No change 65
83
Q: Through what approach would you like to see regulation address each of the
following areas? 69
Base: All respondents (1,198) Government ownership 69
inherently creates a 78
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 conflict of interest with
Note: R
esponses of ‘Don’t know/refused’ excluded. its regulatory function 76
54
78
83
72
62
Government ownership
distorts competition 74
in an industry 69
61
70
0%
Q: How much do you agree or disagree with the following statements about Government
ownership?
Note: Respondents who stated ‘agree’ or ‘strongly agree’. Please note small base for Middle East.
pwc.com/ceosurvey
The impact of the crisis on the

business environment – capital,
consumers and public trust
The crisis is expected to leave a lasting impact on the business environment, even beyond regulatory
changes. Access to capital, consumer behaviours and public trust are three areas that are reshaping
CEOs’ strategies.
21†
Access to capital is expected to become more difficult
Same as before the crisis

Compliance and reporting to meet
capital markets requirements 2 10 39 15 28
Access to bank financing and credit 5 16 41 10 26
Access to capital through debt markets 4 17 38 7 29
Access to capital through equity markets 4 19 32 5 35
Access to capital from alternative investors 3 20 30 7 32

(e.g. private equity or sovereign wealth funds)
0%
Q: For each of the following, how do you expect conditions to change after economic recovery sets in, compared with before the economic crisis?

22† 23†
Technology, entertainment, retail and consumer goods companies are likely … and they are likely to be changing their strategies in response
to be concerned about permanent shifts in consumer behaviour...
Technology 66 94 Entertainment & media
Retail & distributive wholesale 64 91 Retail & distributive wholesale
Entertainment & media 60 90 Insurance
Consumer goods 55 89 Consumer goods
Transportation & logistics 54 85 Technology
Chemicals 52 83 Banking & capital markets
Industrial manufacturing 49 83 Chemicals
Global 48 81 Global
Automotive 48 80 Automotive
Insurance 46 79 Metals
Energy 44 78 Pharmaceuticals/life sciences
Metals 42 76 Engineering & construction
Business & professional services 40 75 Transportation & logistics
Pharmaceutical/life sciences 38 74 Industrial manufacturing
Banking & capital markets 37 71 Utilities
Engineering & construction 37 71 Energy
Utilities 26 69 Business & professional services

0% 0%
Q: How concerned are you about the following potential threats to your business growth Q: In the wake of the economic crisis, to what extent do you anticipate changes to any of
prospects related to or emerging from the current economic crisis? % ‘extremely the following areas of your company’s strategy, organisation or operating model?
concerned’ or ‘somewhat concerned’ about ‘permanent shifts in consumer behaviour’. Base: All respondents (33-1,198)
Base: All respondents (33-1,198) Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 Note: Respondents who stated ‘some change’ or ‘a major change’ to their strategy, organisation
or operating model in response to changing consumer purchasing behaviours.
24
How are long-term consumer behaviours changing?
Consumers will place a higher emphasis on a company's environmental 64

and corporate responsibility practices before making a purchase
Consumers will spend less and save more 63
Consumers will play a more active role 60

in product and service development
Consumers will place a higher emphasis on familiar brands 54
Consumers will place a higher emphasis on the 36

country of origin for the products they buy
None of the above 1
Don't know/refused 2
0%
Q: In which of the following ways do you believe long-term consumer behaviours will change?
pwc.com/ceosurvey
25†
Public trust is down in financial services and automotive, but much less elsewhere
Banking & capital markets 35 26 13 4
Insurance 4 42 19 4
Automotive 4 34 10 6
Business & professional services 17 17 10 2
Industrial manufacturing 3 23 12 3
Global 8 18 15 4
Entertainment & media 6 20 11 3
Engineering & construction 4 19 19 4
Transportation & logistics 6 16 21 4
Energy 3 18 9 3
Metals 3 18 15 6
Retail & distributive wholesale 9 9 9 3
Pharmaceuticals/life sciences 18 18
Consumer goods 4 11 18 3
Utilities 2 7 14 7
Chemicals 4 20 15
0%
Significant fall in public trust Slight fall in public trust Slight rise in public trust Significant rise in public trust
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 Note: R
esponses of ‘Public trust stayed the same’, ‘Don’t know/Refused’ excluded.
26†
CEOs who are addressing issues of trust are split on their approaches
Participation in industry initiatives to improve the sector's reputation 64
Proactive dialogue with policy-makers and regulators 63
A systematic approach to measuring and managing reputation 51
Expansion of your corporate responsibility programme 50
Media relations programme and advertising 49
Revisions to reporting and engagement with investor community 37
Engagement with NGOs to improve practices that affect your reputation 31
Changing executive compensation practices 30
0%
Q: Which, if any, of the following activities have you initiated or are you planning to initiate in your own company as a result of the decline in trust?
Base: Respondents who stated there has been a slight or significant fall in public trust in their industry (304)

The sustainability agenda
The recession restricted corporate investment in many areas – but climate change wasn’t one of them.
CEOs are beginning to make the business case for addressing the challenges associated with sustainability.
27†
Did your company have a climate If yes, how did the crisis impact
Don’t know

3%
Had no effect on investment 61
Yes Delayed investment in climate change strategy 13

45% 52%
0%
Q: Thinking back one year ago, did your company have a strategy to respond to the challenges posed by climate change?
28†
Three out of five CEOs are preparing for the impacts of climate-change
initiatives such as emissions trading
Don’t know/refused
4%
No 35%
61%
Yes
Q: Is your company preparing for the impacts of climate-change initiatives in the

coming 12 months?
Note: Climate-change initiatives defined to include cap-and-trade or other carbon pricing
policies, energy efficiency standards, industry or capital markets reporting requirements,
climate-change adaptation strategies, and other efforts to move towards a low-carbon economy.
pwc.com/ceosurvey
29†
Reputational advantage is the leading driver of responses to
climate change initiatives
51
64
Our response to climate-change
initiatives will provide a reputational 64
advantage for my company among 66
key stakeholders, including 43
employees
57
70
42
55
Climate-change initiatives will lead to 45
significant new product and service 52
opportunities for my company 30
39
25
33
29
My company will benefit from 39
government funds or financial
incentives for ‘green’ 23
investments 15
25
23
26
38
37
My company will need to reduce its
emissions significantly 40
22
29
43
32
34
37
Compliance with climate-change
initiatives will be a significant 38
expense for my company 24
36
30
30
20
19
Climate-change initiatives will 41
slow growth in my industry
11
21
13
0%
Q: How much you agree or disagree with the following statements about the potential
impacts of climate-change initiatives?
Note: Respondents who stated ‘agree’ or ‘strongly agree’.

While remaining vigilant on cost structure, CEOs are also reshaping their businesses to position for
recovery by addressing their risk management processes, focusing on organic markets and investing
in leadership development.
30†
Cost-cutting remains agenda item no. 1
Implemented a 88
cost-reduction initiative 69
Outsourced a business 35
Entered into a new strategic 35

‘Insourced’ a previously 23
outsourced business
Divested or spun-off majority 20

interest in a business or
Completed a cross-border 20
merger or acquisition 30

0%
Have initiated in past 12 months Plan to initiate in coming 12 months
Q: Which, if any, of the following restructuring activities have you initiated in the
past 12 months?
Q: Which, if any, of the following restructuring activities do you plan to initiate in the
coming 12 months?
Note: R
esponses of ‘Don’t know/Refused’ and ‘None of the above’ excluded.
pwc.com/ceosurvey
31†
More CEOs are planning a ‘a major change’ to risk management than other elements of their strategy, organisation or operating model
Approach to managing risk 15 43 41
Investment decisions 18 48 33
Responding to changing consumer purchasing behaviours 17 55 26
Strategies for managing talent 21 50 29
Organisational structure (including M&A) 23 49 27
Focus on corporate reputation and rebuilding trust 33 43 23
Capital structure 37 44 17
Engagement with your board of directors 42 41 16
0%
No change Some change A major change
Q: In the wake of the economic crisis, to what extent do you anticipate changes to any of the following areas of your company’s strategy, organisation or operating model?
32†
Board agendas are getting busier – with assessing strategic risks at the top
No change
Assessing strategic risks 1 3 51 20 25
Overseeing financial health 12 43 23 30
Constructively engaging the management team on strategy 1 3 44 17 34
Focusing on the long-term key performance indicators 1 4 45 15 34
Ensuring regulatory compliance 1 5 32 19 41
Enforcing high ethical standards 1 4 33 17 44
Assessing the leadership pipeline for succession planning 2 6 37 13 40
Aligning executive compensation with long-term performance 2 5 35 12 43

0%
Significantly less engaged Less engaged More engaged Significantly more engaged
Q: With respect to your board, to what extent is your board of directors modifying their behaviour as a result of the economic crisis?

33† 34
Existing markets remain the focus for growth Internal cash flow dominates financing plans
Internally generated cash flow 83

Better penetration of existing markets 38
Bank lending 40
New product development 20
The debt market 24

Equity markets 17
Mergers and acquisitions 14
New joint ventures and/or 11 Private equity or venture capital 15

strategic alliances
0% Divestiture (sale) of existing assets 15
Q: Which one of the following potential opportunities for business growth do you see as Domestic government sources 10
the main opportunity to grow your business in the next 12 months?
Base: All respondents (1,198) Sovereign wealth funds 3
Note: R
esponses of ‘Don’t know/Refused’ excluded. Don't know/refused 2
0%
Q: How do you expect to finance this growth?

Base: : All respondents (1,198)
Note: Multiple responses allowed.
35†
No change
Initiatives to realise cost efficiencies 13 41 37 17
Leadership and talent development 3 47 21 27
Organic growth programmes 1 6 46 18 28
Strategic technology infrastructure or applications 1 6 43 16 32
R&D and new product innovation 2 6 41 16 32
Advertising and brand-building 3 12 35 7 42
Capital investments 3 16 32 8 39
0%
Q: How do you plan to change your long-term investment decisions in the following areas over the next 3 years as a result of the economic crisis?
pwc.com/ceosurvey
100%
Rethink
Assumptions
Reshape
Business
Models
Result
Transformation
In-depth CEO story
pwc.com/ceosurvey
Contents
Section 1 Rethink: From crisis to cautious optimism 5
Section 2 Reshape: The post-crisis environment 11
Section 3 Result: Adapting to compete 19
Final thoughts: Lessons learned and applied to 2010 27
CEOs interviewed: Company profiles 29
pwc.com/ceosurvey
2 13th Annual Global CEO Survey – In-depth CEO story

Introduction: Heading towards
a growth agenda
Business thinking is getting back to an even keel, but the recession
leaves lasting impacts that may colour future actions.
Much of the strategic and operational actions business leaders are taking in response
to the new environment is captured in the main report of the PricewaterhouseCoopers
13th Annual Global CEO Survey. It is clear that while cost adjustment remains paramount,
companies are moving ahead and confidence in revenue growth is recovering.
To better appreciate what is underpinning those outlooks for that growth – and what
keeps business leaders up at night – we also conducted in-depth interviews with
27 CEOs from five continents over the fourth quarter of 2009.
Selections from these interviews are presented here. We remain grateful to all of the 1,198
CEOs who took part in our annual survey and we are particularly grateful to the 27 CEOs
for sharing their insights on the business environment in 2010 and their perspectives on
the economic and financial crisis, a crucial turning point for many.
The full transcripts for each interview are available online; some interviews are also on
video. The interviews, as well as the full 13th Annual Global CEO Survey, the quantitative
data and prior years’ surveys, are all accessible at pwc.com/ceosurvey
pwc.com/ceosurvey
Rethink
Section 1

Many business leaders are emerging with a healthy respect for risk, volatility and flexibility, and
a different view of the growth imperative.
‘Iquantum
have emphasised repeatedly that Air China benefited from the rapid growth and
leaps in development of the past five years. Since 2008, I have changed
Kong Dong
Chairman, Air China Ltd., China
my tune somewhat; prudent operation and sustainable development are the most
important factors for the development of an excellent enterprise. This is a shift from
our previous view on accelerating the pace of development.
’
‘Ewhich
verybody has to be leaner and place more emphasis on being closer to the customer, Mikael Mäkinen
in our case means moving away from having everything in Europe.
’ President and CEO, Cargotec, Finland
‘Tthat
his crisis brought up another insight about business. It drove us away from the fact
when we do business with other individuals or companies, the existence of
Eduardo Elsztain
tension, negotiation and conflict is natural. But when you live in a world in which
secured Swiss derivatives are swapped, and a safe return is sought in paper, then
there is no tension but there is also no care for the other individual. That is why, if you
look this financial collapse in a certain way, it is also a blessing, in particular because
it breaks up the world of reckless revenue-seeking to leave behind only that which is
basic and essential. It is obviously so much easier to build up a structure of investment
papers and derivatives, and it takes less time. However, in that scheme the human
being is not considered. The basic principle behind money is that it has to do with
doing something with another to mutual benefit. Dealing with another is always difficult
’
but it is a natural process.
Global growth contagion – starting in emerging markets
‘Iathink global capital flows will likely change and I am convinced that Africa could be
net beneficiary because of its positioning as the next frontier for investment. Africa
Dr. James Mwangi
MD and CEO,
Equity Bank, Kenya
holds the world’s largest mineral wealth which is especially valued by emerging
markets. A lot of investment will be required to exploit that wealth. With better infra-
structure, Africa might also one day be seen as a competitive region for manufacturing.
And to the extent that Africa becomes viewed as a unified market of one billion
consumers, I think it would be very attractive to investors.
’
pwc.com/ceosurvey
Dean A. Scarborough
President and CEO, ‘Italking
thought it would be worse, but it’s incredible how China has rebounded. Now, I’m
specifically about our materials business, which serves the domestic economy
Avery Dennison Corporation, US
there [China] and is not export-driven. There are still a lot of consumers in China with
money, and the Chinese government stimulated the economy pretty aggressively, and
effectively, it seems.
Istillthink China’s export economy will also come back; it has started to stabilise. China’s
a low-cost manufacturing platform for a lot of companies, and inventory de-stocking
has pretty much ended. Now it’s down to consumer demand outside China.
’
Phil Cox
CEO, International Power plc, UK ‘Weconomies,
hen we look at the developing world, such as the Middle East and Southeast Asian
for us it is not China or India but countries like Indonesia, Pakistan, Thailand,
Vietnam and the Philippines that have grown and are continuing to grow. Even through
the crisis they have grown at 5% or 6%.
’
Kong Dong
Chairman, Air China Ltd., China
‘Iknowledge
went to the Star Alliance CEO meeting in the US not long ago. It enhanced my
of the Euramerican aviation industry. I found it has developed into a rather
mature and saturated state, so its supply and demand relationship is unlikely to have
a sudden breakthrough. By contrast, China has a lot of potential in this respect.
’
Yet with higher confidence, comes greater unease

Chairman and CEO, Grupo Modelo, ‘Icorporations
am concerned about the significant rally in the valuation of several businesses and
when this whole situation has not been completely absorbed or
Mexico
eliminated; this could be generating another kind of economic bubble. Such high
valuations do not match the reality of some countries’ markets and economies.
I think we might be seeing what we want to see – a kind of illusion. Moreover, the
bad credit or toxic investments that have caused so much damage in the financial
systems haven’t been assimilated or eliminated yet. So there is no real alignment
between what we see and what we feel. One of the main things that will emerge is
how our people, clients, consumers and the families of our co-workers feel. Because
’
they are living the reality.

CEO, Pão de Açúcar Group, Brazil ‘Tone
he flow of foreign investment has been substantial and has been targeted at Brazil as
of the best world market options. It can’t be denied that our universe has become
very jittery. These funds have not necessarily come to stay. Investors are very agile at
seeking the best markets at any specific time, so there could be a migration of these
funds as the markets recover. For now, though, the financial world is still in a crisis
recovery mode. Although things have become much better, that doesn’t mean it is over.
’

‘Wthise’vecrisis,
learned which conditions apply to China and which do not. With regard to
China is in a relatively advantageous position and I attribute that to China’s
Shen Heting
Executive Director, President,
Metallurgical Corporation
monetary policy. But there are also conditions in China that we must pay attention of China Ltd, China
to. China’s economic development relies on exports and all over the world we’re
regarded as a manufacturing country. However, the raw material we use is mostly
supplied domestically, and the products we produce are sold relatively cheaply.
In fact, the products we sell seldom reflect a high technical content or value-added.
So in my opinion, China should reduce its volume of exports, but begin to manufacture
products of higher quality and higher value-added. That would contribute substantially
to China’s economic development. The core issue is how much innovation is contained
in your products.
’
Shift in private debt to public sector is particular source of unease
‘Bwithdrawn
illions – even trillions – have been pumped into the markets and must obviously be
at some point. But politicians are clearly reluctant to do so, as they are
Alfredo Sáenz
Second Vicechairman and CEO,
Banco Santander, Spain
concerned of the risk of precipitating another decline in growth. In response to the
financial crisis, we have probably reacted too aggressively – particularly in the US.
We have pumped too much money into the economy, and we will probably be too
late in withdrawing it. Financial bubbles are a risk we should always have in mind.
’
‘Twillhebeglobal economy is now starting a process of recovery, but the greatest challenge
the way in which this mega-issuance of money and debt will be absorbed, and
Eduardo Elsztain
it is here where I see a very bright warning light, because I look at the situation with
Argentine eyes, and we are very well aware of the cost of resolving a crisis by means
of the printing of money.
’
‘Jcash
ust the sheer size of the debt crisis in terms of the gap that was created, how much
has gone in to support it, and therefore what it means in terms of the timeline to
Phil Cox
recover and pay for it is, effectively, a big unknown.
’
Protectionism worry on the rise … is it justified?
‘A[protectionist
lthough I have not seen it yet in the 73 countries where we have a presence, I think it
barriers] is a trend that could harm international trade. The economists
Pablo Isla
Deputy Chairman and CEO, Inditex,
Spain
and other experts have shown that protectionist barriers are not useful measures to
cure the economy and preserve growth. However, I view it as a possible risk in the
current economic situation.
’
pwc.com/ceosurvey

CEO, Pão de Açúcar Group, Brazil ‘Ssignificant.
ome countries may impose protectionist barriers but I don’t think they’ll be very
In addition, in Brazil’s case, the appreciation of its currency (the real) may
offset possible protectionist barriers.
’
Eduardo Elsztain
President, IRSA Group, Argentina ‘Jbarriers
ob losses in markets such as that of the US have not yet resulted in protectionist
but they have led to a slower pace of accession by new countries to free
trade agreements… The most probable scenario is that barriers will be imposed on
capital flows, and I foresee a more regulated world… Brazil has set a 1.5% tax on
ADR conversion transactions, and signs such as this are beginning to reveal some
of the secrets as to how regulations are going to be added.
’
Mikael Mäkinen
President and CEO, Cargotec, Finland ‘WSweden
e moved some of the factories that produce products for the US market from
to the US itself because of concerns over government regulation and the
tendency for them to buy local. We were afraid that one day there would be a
regulation that the US government buy from a US manufacturer. In China there is
a similar tendency to buy from Chinese producers. Having said that, I do not think
there will be a kind of protectionism at large. But there will be countries like the US
that prefer to buy from US manufacturers. This goes for the big nations … nobody
could care less what little nations like Finland do.
’
A sense that the crisis accelerated global economic drivers

Michael I. Roth
Chairman and CEO, ‘Tcritical
he structural shifts have already begun. The emerging markets, if you will, are a
component of the business environment that we have to compete in. So
Interpublic Group, US
whether it be the BRIC countries, where we have to have a strong presence, our clients
are demanding that we be in emerging markets. Brazil, Russia, India and China are
markets that we are investing in. We have a very strong competitive position in those
markets, and we will continue to grow it. That doesn’t mean that the United States is
not going to grow, as well. It’s just a question of the rate of growth. Certainly the
emerging markets seem to have the ability to grow more rapidly than a more mature
market, such as the United States or Europe.
’
Ian Bremmer
President, Eurasia Group, US ‘Mcapital
ulti-national corporations ultimately need access to global consumer markets, global
flows and global labour to succeed. In a world that is not led by the G7, where
state capital is as viable an economic model as a regulated free market is for many
states, multi-nationals will not have that access; they will be constrained.
’
Sunil Duggal
CEO, Dabur India Limited, India ‘Dtoeveloped nations are in a very serious structural downturn which may be impossible
reverse. Even if it does reverse it will take a long, long time. The best thing for the
developed economies would be to develop completely revolutionary technologies,
such as “green” technologies. In contrast, well-governed countries in Asia and Africa
are on a growth curve that is pretty similar to that of India’s.
’
Debate on the future role of the US economy
‘Ashould
lthough there are a lot of problems in the US economy, my personal view is that we
never underestimate its strength. The US economy has an effective mix of
Huang Tianwen
President, Sinosteel Corporation,
China
market-based mechanisms and good external regulation. During the financial crisis,
the US government did apply a stimulus package. But the stimulus package will
eventually end and, sooner or later, the American economy will get back on track.
The US economy has a great capacity for self-balance and self-adjustment and the
society is comfortable with questioning and debate.
’
‘Ireplacing
t’s not the Chinese consumer replacing the American consumer, it’s Chinese investment
the American consumer. That is the difference in the world between 2010
Ian Bremmer
President, Eurasia Group, US
and 2008. Which of those two things is bigger? We need to recognise that China’s
investment is not on the same scale as a driver of global economic growth that the
American consumer was over the last five years.
’
‘Teconomic
he economy of Europe and the US will get back to normal development after this
crisis. Therefore, we will maintain our transport capacity deployment to the
Kong Dong
Chairman, Air China Ltd, China
utmost in the international market and will not withdraw from the market in a hurry.
Air China will not be short-sighted.
’
‘Iany
will point out that the US dairy producers seem to have taken a bigger hit than almost
other dairy producers in the world. We have seen significant reductions in US dairy
Andrew Ferrier
CEO, Fonterra Co-operative Group,
New Zealand
production and that production is not recovering the way it is in other parts of the
world. That may be attributable in part to the fact that US dairy farms are heavily
leveraged and that sort of economic formula doesn’t snap back quickly.
’
‘Tofhedomiciled
US is, I think, one of two countries in the whole world that tax the foreign earnings
companies. To be competitive in a global economy, we need to move to
Dean A. Scarborough
President and CEO,
a territorial tax strategy like other countries’. Unfortunately, the current administration
sees this as a place to get money to fund deficits, but they will kill the golden goose if
they’re not careful. I really do worry about that. It’s not a smart idea. We’re a global
company domiciled in the US, but two-thirds of our revenue comes from outside the
US. It would not be a good thing for the United States to fundamentally disadvantage
its corporations, both at home and abroad, with that kind of tax strategy.
’
pwc.com/ceosurvey
Reshape
Section 2

As the process of economic stabilisation unfolded in 2009, CEOs consider the lasting legacies of the downturn.
Opposing views on a permanent change in consumer behaviour
‘Tashere has been a fundamental shift in how consumers will spend their dollars, as well
the ecological effect of the spend. Consumers are looking for a “green” effect,
Michael I. Roth
Chairman and CEO,
I think appropriately.
’
‘Crecession
onsumers here have cut back, but they’ve cut back on anticipation of a worsening
as much as the reality of the recession. In fact, we are already seeing some
Dr. Paul Reynolds
CEO, Telecom Corporation
of New Zealand Limited,
signs of bounce-back in the New Zealand market. So I do expect a recovery of New Zealand
consumer spending.
’
‘Cregardless
onsumer behaviour today is very different from what it was a decade ago. Today,
of their financial position, people want to spend money. Without losing
Tigran Nersisyan
President, Borodino Group,
Russian Federation
traditional Russian care for children’s and grandchildren’s future, today’s culture is
no longer based though on saving to support them. Our mentality has changed and
I’m in no position to say whether that’s for better or worse. We simply have not
invented any other approach to driving economic development than that of growing
consumer consumption.
’
‘Iconsumers’
think it’s pretty clear that consumer demand won’t come back. So much of American
capital was locked up in homes that were basically annuities where value
Ian Bremmer
was going up every year. A lot of that value has been destroyed and it’s not coming back.
That will allow for younger people coming into the workforce to buy property and you’re
going to see a re-distribution of wealth in the US that over the long term will probably
serve America well. But, it’s not going to re-build consumer confidence tomorrow.
’
pwc.com/ceosurvey
Sunil Duggal
CEO, Dabur India Limited, India ‘Gtheoingsame?
forward, might consumer demand contract? Highly unlikely, I think. Will it remain
Quite likely. The best case scenario is that a revived economy will stimulate
even greater demand and take us to a higher growth trajectory.
’
Andrew Ferrier
‘Iultimately,
think this propensity to trade down is temporary. It may last a couple of years. But
CEO, Fonterra Co-operative Group,
New Zealand
I think we will see consumers come back to the brands they know and trust.
’
Sensing opportunity in new consumer habits

Dean A. Scarborough
President and CEO, ‘Ibythink security in the broad sense is going to be an important factor. What do I mean
that? Well, people are worried about viruses, such as swine flu. People are worried
about their personal security. They’re worried about the security of the food market.
We’ve had a lot of scares in the last few years around jalapeno peppers, peanuts and
spinach. More people are starting to care about what goes in their mouths. Where did
it come from? So we’re going to see more compliance, more track-and-trace, more
investment in protecting supply chains or important areas of the economy. I think that’s
definitely coming.
’
CEO, Benetton Group SPA, Italy ‘Btheenetton’s positioning in what we like to call “democratic fashion” is helpful in facing
crisis, however; the consumer on average is spending less and more shrewdly.
Spending a lot is less trendy than it has been in the past and consumers prefer to buy
greater quantities of products at the same price rather than a single “designer” product.
’
Pablo Isla
Deputy Chairman and CEO, Inditex, ‘Anew
fter the crisis, consumers will demand a very high level of quality. There are also
communications technologies to keep in touch with consumers, such as blogs,
Spain
Facebook and so on. Inditex has two million Zara users fans on Facebook, a completely
new and powerful communications tool.
’
Eduardo Elsztain
President, IRSA Group, Argentina ‘Tespecially
he good thing is that the increase in per capita income in the BRIC countries,
because of salary improvements that take place with the opening up of
new jobs, has a profound impact on living conditions in such countries. In emerging
countries, a small increase in per capita income generates deep changes in the global
economy. We have followed this same philosophy for 20 years, we know the great
impact that produces a US$50 increase in a citizen’s income of an emerging country,
the first thing they will do will be to spend it on food, on eating better: meat, fried rice
and more dairy products. And that is where we in Argentina benefit spectacularly,
because we are in a position to produce seven times more than what we consume.
And we produce a product that will be in high demand for the next 50 years.
’

In banking, size matters …
‘Bsignificant
anking has been redefined by this crisis, and it appears that size has become a
factor going forward. Unless you’re focusing on a clearly defined niche, you
Dr. James Mwangi
MD and CEO,
Equity Bank, Kenya
can’t operate in the wider market without having achieved sufficient scale because
technology – which has become a big driver of the banking industry – is hugely
expensive and the unit cost is dependent on the size of the bank. A bank’s attractive-
ness in terms of raising capital and ability to absorb shock is again determined by the
size of its capital base. You can’t afford to be heavily capitalised and still remain small
because capital is very expensive and needs to be leveraged.
’
… and size is a factor for bank customers, too
‘Twhat
here is a lot of concentration on lower risk, higher strength organisations. Unfortunately,
happens in that environment is that the people who don’t need the money are the
Michael I. Roth
Chairman and CEO,
ones who have the money easily available to them.
’
‘Tthehesmaller,
reluctance of the banks to lend wasn’t directed toward companies like us. It was Graham Mackay
medium sized enterprises that felt squeezed.
’ Chief Executive, SABMiller plc, UK
‘Tpartners
he credit crunch has not damaged us. It has however had repercussions on our
who manage points of sale, in particular the smaller ones, which therefore
CEO, Benetton Group SPA, Italy
have less contractual power over the banking world.
’
Regulatory priorities: Getting it right with financial services
‘CSarbanes-Oxley
learly, after Enron and some of the huge issues in the US eight or nine years ago,
completely over-reacted to what had happened in the market and
Paul Walker
Chief Executive, The Sage Group plc,
UK
shut the door after the horse had gone. I get the impression, looking at some of the
regulation around governance that’s been issued of late, that we don’t seem to have
over-reacted this time. Where I think we really have to apply regulation, as I’m sure
you hear all the time, is around the banks. That is clearly where we’ve got to get it
right because it’s clear to everyone that a weak financial system will have a
catastrophic effect on the economy.
’
‘Icome
am unable to say with any certainty how a regime for controlling systemic risk will
about. I do know, however, that this issue has many unanswered questions.
Alfredo Sáenz
Second Vicechairman and CEO,
In the case of a cross-border institution, when a failure occurs as a result of systemic
risk, who pays the bill? The treasury of one country or the other?
’
pwc.com/ceosurvey
Huang Tianwen
President, Sinosteel Corporation, ‘Mresources.
arkets – when they are working well – are much more efficient in the allocation of
In times of financial turmoil, it is necessary for the government to strengthen
China
regulation. But if we over-regulate markets, it will have a negative effect on market
efficiencies and the natural development of markets. In the end, it will also erode the
core competencies of businesses competing in those markets.
’
Honorable (Hon.) Amando Tetangco Jr.
Governor, Bangko Sentral ng ‘Fplay
inancial sector players are in a unique position to influence the private sector to
a major role in promoting sustainable development. They can do this by adopting
Pilipinas (BSP), Philippines
ecologically sound risk management practices, investing in products and services that
are environment friendly, and incorporating environment due diligence practices to the
credit initiation and management processes.
’
Steps towards smarter regulation

‘Igenerate
nstead of looking for more restrictions, we could look for more collaboration and
Chairman and CEO, Grupo Modelo,
Mexico
through good practice more value in the industry and the whole country.
’
Pawan Munjal
MD and CEO, ‘Uabout
nder-regulation is as damaging as over-regulation. For example, there is much talk
traffic congestion in our cities. But even as the vehicle population has exploded,
Hero Honda Motors Ltd., India
virtually no attempt has been made to control or regulate traffic movement. I think city
administrations need to be given more teeth. Very often city administrations are
subservient to state control. Similarly, there is often a conflict of regulatory interest
between the state government and the Centre.
’
Tigran Nersisyan
President, Borodino Group, ‘Ilowered.
believe that all restrictions on capital movement should be lifted and customs barriers
These are a serious hindrance. Regulation must be present, but regulation
Russian Federation
should create incentives to encourage certain business behaviours, such as those
related to corporate social responsibility. Regulation should be incentive-based.
Business should be encouraged to invest in social assets and environmental protection.
Summing it all up, I’d say that regulation should be based on clear and effective laws
’
that are free of judicial corruption.
Phil Cox
CEO, International Power plc, UK ‘Ithe
t is incumbent on us to engage as much as we possibly can with government and with
civil service. The power sector does not speak with one voice, since it is a collection
of individuals, all of whom have got a slightly different agenda. I have some sympathy for
government and opposition when they say, ‘what does the industry want me to do here?’
and they get seven different replies.
’

‘Wbecomes
e should work to refine our model of regulation whereby a merits-based review
part of the regulatory process and acts, if you like, as a self-managing
Dr. Paul Reynolds
of New Zealand Limited, New Zealand
check over the scale and scope of regulation and whether or not it’s achieving its
intended outcomes.
’
‘Ilarge
n many ways it isn’t the large companies that bear the brunt of regulation. After all, the
companies have the infrastructure to handle the regulatory burden. What over-
Paul S. Walsh
regulation does is to stifle the start-ups, the smaller enterprises. That’s where the real
’
issue is.
‘Wmarkets
e certainly don’t need more regulation in the media industry overall. In general,
have to be free. But we’ve also seen, in other industries, what can happen
Hartmut Ostrowski
Chairman and CEO, Bertelsmann AG,
Germany
when freedoms are abused or when there is too little regulation. There have to be rules,
and these rules must be binding for all players in the market.
’
‘Wstifles
e should make sure that we adopt the kind of regulation that supports rather than
medical innovation and a robust private market. There are many, many examples
Angela F. Braly
President and CEO, WellPoint Inc., US
of how that has or has not worked in health care.
’
‘Idon’t
think that co-operation is essential because everything is inter-connected and we
want businesses to move to environments where similar regulation is not applied.
David Levine
Président-directeur général de l’Agence
et de santé et de services sociaux de
Companies are very mobile nowadays.
’ Montréal, Canada
CEOs support US healthcare reform but question policy direction
‘Tthehere’s not enough productivity in the healthcare sector, and it has much more to do with
link between the doctor and patient and process than it does anything else. You have
Dean A. Scarborough
President and CEO,
incredibly wide outcomes and costs for the same procedure in different hospitals in
different parts of the country. Suppose I have that problem inside my business. If there’s
wide variation between my factories, what do I do about it? We get teams together to put
best practices in place. And guess what? We lower the cost, we improve the quality and
we narrow the variation at the same time. That’s not being done in healthcare. I’m sure it
would lower costs better than rationing, which, if we try, people aren’t going to accept.
’
pwc.com/ceosurvey
Michael I. Roth
Chairman and CEO, ‘Happropriate
ealthcare reform, I think, is a requirement. There are too many people who don’t have
healthcare, and therefore it’s our responsibility to make sure they have it.
Costs have gotten out of hand. One of the single biggest issues we have is how we
manage our healthcare costs and how much sharing with our people should we put in.
We want to make sure that we’re fair, we’re competitive and that our people are being
adequately protected from a healthcare point of view. But the costs are rising at a rate
that is not consistent with the way the overall businesses in the economy are growing.
Therefore something has to be done.
’
Angela F. Braly
President and CEO, WellPoint Inc., US ‘Iwas
think the health care reform discussion has changed over time. Originally, the discussion
around value and ways to construct a sustainable health care model. Over time, the
discussion narrowed to one focused on health insurance market reform and health care
financing. And I think that just postpones a serious debate about some very critical
issues: the solvency of the Medicare and Medicaid programmes, the need for tort reform,
and ways to promote the next wave of health care innovation. So there are a number of
things we should be tackling in the discussion that we’re currently not.
’
Credit crunch eases, but not for all

Tigran Nersisyan
President, Borodino Group, ‘Mpartuchtoofindustry.
this newly available capital tends to flow to stock markets and only a small
As a consequence, there is the possibility of overheated stock markets
Russian Federation
and new speculative bubbles appearing. In the meantime, businesses face reduced
margins and lack of working capital and this hinders their cash flow.
’
Alfredo Sáenz
Second Vicechairman and CEO, ‘Cscarce.
redit will become more expensive, more difficult to attain, and will be relatively
As marginal players are pushed out, capacity will decline. And there will be
more supervision generally. The same process will more or less occur in the capital
markets. Credit in capital markets will become more complex, expensive, and scarce.
’
Rebuilding public trust

Dr. James Mwangi
MD and CEO, ‘Icapitalism’s
feel there is loss of trust in the private sector and there are questions about
ability to allocate resources rationally. But that is a debate that needs to be
Equity Bank, Kenya
taken a step further. We have lost trust in existing systems but what is the alternative?
What alternative would be better at allocating resources? Rather than condemning
private sector capitalism altogether, we should modify in ways to ensure that it works
for the public good. I would like to see a combined effort by the private sector and the
regulatory authority to find a balance that will protect the public good.
’

‘Wobligations.
ith the onset of the crisis, many companies thought they could go back on their
But the market soon made it clear that obligations should be met.
Tigran Nersisyan
Russian Federation
A company’s prospects hinge only on its reputation and the integrity of its people.
One can cheat once, but you won’t get away with it again.
’
‘PI’veublicbeen
trust is a real issue for big business, not just in the United States, but globally.
through a couple of turnarounds now, and my philosophy on that is pretty
Michael I. Roth
Chairman and CEO,
straightforward, and that is transparency. If all the constituents, whether they be
investors or employees, are aware of what’s going on and they feel that you’re being
transparent with them, they give you some slack. It’s those companies that are very
close to the vest that leads to this type of distrust. Of course, governance is critical
and I believe communicating is key. I have open dialogue and an open door. That lends
’
itself to trust.
‘WWehether there’s an erosion of trust generally in the private sector, I’m not sure.
are perhaps a bit different from many other companies in that a lot of our business
Graham Mackay
is based in poor countries. And in those countries, the private sector – and the
multinational corporation, specifically – is viewed as a bastion of wealth, power,
and influence. Consequently, we are very conscious of public opinion and go to
great lengths to protect our reputation and build the trust of the local community.
Quite frankly, if there’s any clear erosion of trust, I think it’s directed toward the
political establishment.
’
‘Itrust
think in the US and Europe where major financial institutions failed, confidence and
in the private sector have declined sharply. In Asia, the financial sector has been
Haruhiko Kuroda
President, Asian Development Bank,
Philippines
relatively unscathed, so I don’t think the confidence in the private sector here has been
much affected. But that doesn’t mean we don’t need reform in corporate governance.
’
pwc.com/ceosurvey
Result
Section 3

Last year’s survey found CEOs taking action to survive swift drops in demand without cutting deeply
into investments vital to long-term competitiveness. The pressure has not gone away.
‘CofEOs have to recognise that a lot of their long-term planning will need to be tossed out
the window. There has to be a lot more volatility built into your modelling; your ability
Ian Bremmer
to do your three- and five-year planning in that kind of an environment is diminished.
You have to be much more tactical.
’
Heightened focus on costs
‘Iswitch.
f you’re not looking at your cost structure in this environment, you’re asleep at the
If the revenue isn’t there, in order to protect margins, you have to take a look at
Michael I. Roth
Chairman and CEO,
your cost profile. So IPG, like all other companies, has been doing that since the end of
2008, and we will continue to look at our ratio of cost-to-revenue as this goes forward.
’
‘Tbecome
he era of high oil prices in 2008 has given us a clear indication that fuel costs will
the major cost for airlines in less than a decade. It accounted for merely about
Kong Dong
20% of the total cost 10 years ago, but the proportion has soared to 41% or 42% in
a very short time. The highest fuel prices once reached about RMB 9,000 per ton of
jet fuel, including taxes and other related costs. Therefore, this is becoming a great
challenge for the sustainable and sound development of airlines. Although we cannot
control the movements of fuel prices, as a leader in aviation businesses, we won’t sit
by and watch price increases without doing anything. To avoid price risks, we are now
engaged in hedging. This was a difficult decision for us but one that had to be made.
’
‘Taryhe“leaks”
crisis has its silver lining in the sense that we were forced to identify these budget-
and bring them under control. Going forward, we’re going to scale up our
Tigran Nersisyan
Russian Federation
new expertise and train managers at all levels to apply it.
’
Cash is still king …
‘Wmarket
e know that if push comes to shove, certainty of capital structure comes first. The
does not like losing earnings but it has no forgiveness whatsoever if you run out
Phil Cox
of cash. The very worst thing that we could have done is gone back to the market and
said, “Sorry, we did not get our capital planning right and we’re out of cash. We didn’t
sell this business when we could have but now we need a rights issue and we’re cutting
the dividend.” It was a straightforward decision to sell the Czech business.
’
pwc.com/ceosurvey
… and less appetite for leverage

Andrew Ferrier
CEO, Fonterra Co-operative Group, ‘WThat
e plan to run our gearing at a significantly lower level than we have traditionally.
is not to say that we ran a high-risk strategy previously. But we are feeling as a
New Zealand
result of market uncertainties that it is better to be more conservative going forward.
’
Short-term focus on existing markets
Kong Dong
‘Aback
s economic conditions change greatly, companies have put their transport capabilities
to the home market. A new round of a price war is heating up, and the supply
exceeds demand as a whole. We must win customers with our brand and cannot
follow the trend to reduce prices. We have our own judgments and opinions. In fact,
the passenger load factor has improved a lot this year. And the effect is pretty good.
’
Positioning for the long-term: Acquisition strategies

Sunil Duggal
CEO, Dabur India Limited, India ‘Wthere
e are very clear that we will not look for acquisitions in the developed markets where
are very high levels of competition, entrenched players, few platforms, and, more
importantly, very little growth. Instead, we will continue to invest in our core markets,
which include South Asia, the Middle East and North Africa, and sub-Saharan Africa.
These markets, we believe, offer long-term growth prospects.
’
Andrew Ferrier
CEO, Fonterra Co-operative Group, ‘Aworld
s we emerge from the crisis, we’re beginning to see a re-pricing of assets around the
and that presents opportunities for a business like ours. A potential acquisition
New Zealand
that we might have passed up before the crisis hit because the price was too high,
may today be much more attractively priced. Coming out of the crisis, I think we are
beginning to see good opportunities for prudent investors.
’
Paul Walker
Chief Executive, The Sage Group plc, ‘Wcompared
e decided, going into this recession, that while we didn’t have a huge amount of debt
to many people in the UK, we had to be very focused on cash generation
UK
and reducing our debt. We’ve done that over the last 15–18 months, and opted not
to pursue an acquisition strategy during this difficult time, given the risk it would bring
to the business… When we see the economic upturn we’ll be in a very strong position
to take advantage of that.
’

‘Ibef you did a deal in the more developed world, the likelihood is short term margins will
down. Banks don’t like this, as there is not enough security for their lending so this
Phil Cox
tends to reduce capacity. This limits how much, even if we wanted to, we could invest.
Therefore it’s been more of a focus on the developing world and more of a focus on
renewables in the developed one, because they fill the same sort of niche in the sense
that they are heavily incentivised, supported by the regulatory framework, which is
driving demand. A lot of economies want to increase their renewable footprint and
again it comes back to the financing; because they are incentivised and supported
by regulatory framework, they are able to get finance as well.
’
‘CHowever,
urrently, the M&A market is very sluggish and there are few opportunities around.
given the current climate, transactions that can represent the first step
Bruno Lafont
towards strong future development are not out of the question. Crucially, we have
a clear strategy and know how to draw out and develop added value.
’
‘Iabelieve that we will emerge stronger and with more influence. We have capital and Alfredo Sáenz
well-established business. So I believe that there will be clear opportunities for us.
’ Second Vicechairman and CEO,
‘WInestern multi-nationals are still very, very attracted to international investments.

some cases, they’re even more attracted, because emerging markets are where
Ian Bremmer
they see the big growth opportunities. Some of those investments will be more
challenging now, because there are going to be much tougher domestic competitors
in those spaces. The trend towards capital controls may constrain that investment
over the long term. But we likely won’t see much impact of that in 2010.
’
Positioning for the long-term: R&D shifting to emerging economies
‘Remerging
esearch efforts and new product development will increasingly be focused on
countries. We have made the ability to develop products on the ground
Bruno Lafont
central to our marketing organisation. Why restrict innovation to just 20% of the
market (i.e. developed countries)?
’
‘Ione
would anticipate in the future that there would be more R&D centres – one in Europe,
in the Americas and one in Asia. And I think that this is a huge change which the
Mikael Mäkinen
President and CEO, Cargotec, Finland
politicians have not understood in Europe – that after the recession we will not go
back to the old way of doing everything in Europe. I think this is a fundamental change
in our business.
’
pwc.com/ceosurvey
Risk and strategy go hand in hand

Alfredo Sáenz
Second Vicechairman and CEO, ‘Wtime
e have an Executive Committee, which meets weekly, that devotes 80 percent of its
to risk issues. We also have the Risk Committee, which is the highest committee
in the bank dedicated to the assessment of risk. The Risk Committee is comprised of
independent Board directors and bank executives responsible for risk management.
’
Angela F. Braly
President and CEO, WellPoint Inc., US ‘Nourow,analysis
more than ever, the company and its board have become more sophisticated in
of risk. It’s an agenda item at all of our board meetings. And we continue
not only to get better at quantifying risk, but also in building right the kind of culture
that can appropriately manage risk over the short- and long-term.
’
Ken MacKenzie
Managing Director and CEO, Amcor, ‘Owork
ur operational risk processes have always been fairly robust, but we’ve done a lot of
on strategic risk management. When considering strategic risk we map a risk’s
Australia
probability of occurrence against the impact it would have on the business and we
formally review this once a year. Once we complete that review, we enter into a cycle
of continuous improvement of our mitigation plans. That’s a journey we’ve been on for
the past two or three years and we feel that our control posture is much improved as
a result. And that’s helped us come through the global economic downturn really well.
’
Dr. Paul Reynolds
CEO, Telecom Corporation ‘Imore
feel confident in saying that never in our company’s history has our board been
involved in these issues. But that involvement has much more to do with the
New Zealand huge structural changes taking place in our industry rather than issues related to
the recession.
’
Andrew Ferrier
CEO, Fonterra Co-operative Group, ‘Pcrisis.
rice volatility has been one of the most significant spin-off effects of the financial
Consequently, we’re developing a new risk management capability that takes
New Zealand
volatility into account in terms when we sell a product, how far forward we contract,
and all other risk considerations in selling a year’s production of dairy products.
’
Shen Heting
‘FRisk
or us, the key to wise foreign investment is good risk management practices.
Executive Director, President,
Metallurgical Corporation
management is now the primary task of state-owned enterprises.
’
of China Ltd, China

Companies are setting the pace on climate change
‘Olarge
ver the last few years, the company has progressively eliminated the use of a
number of harmful substances and materials, including asbestos. Today, every
Pawan Munjal
MD and CEO,
raw material and chemical we use is thoroughly evaluated for its environmental
impact before it is introduced into a production process. We have many ongoing
environmental projects.
’
‘Cif ompanies have had to give increasingly greater thought to the issue of sustainability, Claudio Eugênio Stiller Galeazzi
not out of need, at least as a posture required by consumers.
’ CEO, Pão de Açúcar Group, Brazil
‘Trisk
ypically, in our business, environmental risks are at the top on our list. But with
comes opportunity and we see the whole environmental agenda as a terrific
Ken MacKenzie
Managing Director and CEO,
Amcor, Australia
commercial opportunity. We see changing consumer behaviour around issues of
sustainability as an opening to develop new products and differentiate ourselves
from the competition.
’
‘[are
Sustainability] is a huge thing for us. Employees ask me all the time about what we
doing around sustainability. The younger generation especially wants to work for
Dean A. Scarborough
President and CEO,
companies that make a difference. That’s really critical. The Milton Friedman school of
thought, that our job is just to go make money, well, pardon the pun, but that thinking’s
not sustainable anymore.
’
‘Wande expect our vendors – for example, the manufacturers of our servers, switchers,
transmission equipment – to continuously improve the efficiency of their products
Dr. Paul Reynolds
so that our infrastructure as a whole consumes far less energy. And as we function New Zealand
in a more energy-efficient way, we simultaneously operate more cost effectively.
’
‘Wtrying
e have started to do scenario planning, which we had never done before. We are
to look at various scenarios – the probability of them, how they will affect us.
Mikael Mäkinen
So, I cannot tell you it is only for climate change. I look at scenarios from our
customers’ point of view; how does the world evolve and how does transportation
in the world evolve. From there come the scenarios. From that we look at the
appropriate change. From the list you have here, I would pinpoint climate change
as the biggest one. We use outside consultants and universities – so we take it to
a very high level. What does climate change mean? OK, the sea rises five metres.
You have to rebuild all the harbours … big business opportunity. But that would
mean that it would be forbidden to transport many goods like Perrier water.
Nobody needs Perrier water in Asia. It is totally unnecessary to transport it.
We are in the early stages of this now.
’
pwc.com/ceosurvey
And experiencing some frustration with the direction

of emissions-control policies
Dean A. Scarborough
President and CEO, ‘Ais lot of the fundamental technology is out there, but the way the laws are being written
just crazy. The government wants to put a tax on carbon, but then let everybody out
of it, so that no one gets hurt. It’s insane. Put a tax on carbon, just put a tax on it.
’
Graham Mackay
‘Tconcept
here’s a huge amount of misinformation being circulated. Take, for example, this
of “carbon footprint”, which leads to pressure to buy “local” In the case of
beer, one might argue that imported brands from Italy or the Czech Republic have an
excessive carbon footprint because of their associated cost of transport, and one
should, instead, buy local brands. In reality, the transport of that imported beer incurs a
tiny carbon footprint compared to the construction of the supermarket itself and having
all those shoppers drive their cars to the store. That’s where the carbon footprint is.
Take another example: returnable bottles. Retailers don’t like returnable containers
because they’re a hassle. And so they’ve forced the beverage producers to develop
disposable packaging, which, in environmental terms, is much more expensive than
returnable packaging. In the debate about sustainability and climate change, there’s
a great deal of misinformation and special interest at work.
’
Sunil Duggal
CEO, Dabur India Limited, India ‘Tsanctimonious
he biggest contributor to climate change is population. We may be very
in saying that Indians are very low emitters of greenhouse gases, but
when you consider that our population is growing by 2.5 percent every year, the figures
don’t look good. If India doesn’t keep its population under control, there will be little
it can do to help minimise climate change.
’
New people strategies: Linking compensation with
long-term performance
Eduardo Elsztain
President, IRSA Group, Argentina ‘Tbeing
here has been a kind of magic scenario in the corporate world, with executives
offered derivatives, stock options, phantom stock plans and other possibilities.
However, I believe that managers will show you whether they truly believe in the
company or not when they receive shares and maintain them in the long term.
I think this will be a new trend in management compensation.
’
Phil Cox
CEO, International Power plc, UK ‘Mgood,
ore competitive times mean that we need to have narrow levels of tolerance between
acceptable and lower performance. We are thinking more critically about how we
differentiate, how we incentivise, how we reward top performers and how we identify
areas where people who are good can improve further.
’

New people strategies: Collaboration
‘Wfore solutions
have a strong corporate culture of partnership. Partnership means jointly looking
and finding them. This is not always simple but certainly worth doing.
Hartmut Ostrowski
Chairman and CEO, Bertelsmann AG,
Germany
Bertelsmann has always been an advocate of a good corporate culture, and we have
nurtured this culture over the decades. We communicate openly and comprehensively,
give our employees a lot of autonomy and let them participate in the company’s
success. This increases motivation, identification, and loyalty. And our culture has
proven to be very crisis-resistant. Partnership pays off, especially in tough times.
’
Talent needs little changed by recession
‘Risecruiting people is much more important than before. At the same time, the business
really globalising, we need to recruit for top positions in areas outside our home base
Mikael Mäkinen
in the Nordic region. As a result, we really have to think about our values and how we
communicate them because those prospective employees don’t know Cargotec – they
don’t even know where Finland is.
’
‘Wtohat you do in this environment is add to your talent base and reposition your talent
be more suited for the challenges that are ahead. Even though we’ve had a nine to
Michael I. Roth
Chairman and CEO,
10 percent reduction in terms of staffing, we’ve also had increases to invest in those
markets and resources that are necessary to be competitive.
’
‘Fattrition
rom a human resources perspective, the downturn has actually benefited us. Our
levels are at an all time low and the talent pool available to us is a lot bigger
Sunil Duggal
CEO, Dabur India Limited, India
than it was during the up-cycle.
’
pwc.com/ceosurvey
Final thoughts
Final thoughts
Lessons learned and applied to 2010

‘IThis
t’s fair to say that the general understanding of the economy has made record strides.
is the first crisis of the internet era – not to mention highly-developed derivatives
Bruno Lafont
markets – and everyone now has a clearer vision of globalisation and the divide between
the real economy and finance.
’
‘IWith
am more worried about the growing public borrowing and its serious consequences.
all its seriousness, the crisis has shown us some positive lessons which we
Pablo Isla
Deputy Chairman and CEO, Inditex,
Spain
should take advantage of. The situation was worse in 2007, when there was heavy
borrowing and a bubble with no clear end. This crisis should teach us to be more
demanding of ourselves.
’
‘Mriskostmanagement
importantly, we learned that we must further strengthen our internal controls and
capabilities. The financial crisis has made it clear that all enterprises
Huang Tianwen
President, Sinosteel Corporation,
China
must be better prepared against future risks.
’
‘Tenterprise
he last year has been an unforgettable lesson for me. I frankly admit that our
lacks the capacity to judge the tremendous change of the macro-economy
Kong Dong
in terms of our traditional management. When the forebodings of financial crisis hit
last year in the US, we concentrated on doing our own things – the snow disaster, the
12 May earthquake and the Olympic Games, which we promised the world to do well.
We did not realise that the damage was going to be so great. What inspires me most
is that an enterprise like ours cannot go through such difficulties by its own efforts or
by using a simple form of protection. Therefore, we are paying more attention to our
internal controls and management mechanisms.
’
‘Tahis type of economic downturn is always an opportunity for people to perhaps take
much harder look at their own operational efficiency and where they could be leaner
Paul Walker
Chief Executive, The Sage Group plc,
UK
and take appropriate action. We’ve certainly done that at Sage. We come out as
a business in a much stronger position.
’
pwc.com/ceosurvey
Paul S. Walsh
‘[And
When] emerging economies begin to cool off, things can slow down very, very quickly.
that is a scenario that may be unfamiliar to some younger businesspeople who are
used to operating in the very stable and predictable worlds of Europe, the US, and the
more mature Asian economies. One big lesson learned is that developing economies
simply don’t provide consumer marketers with the kind of safety net that they’re used
to when operating in the developed world. A second lesson learned is the importance
of making sure that you have very clear visibility of the inventory at each point in your
extended supply chain. And a third lesson has to do with consumers’ changing
consumption habits. In our case, we’ve seen the relative share of consumption of our
products in bars and restaurants outpaced by in-home consumption. That required us
to develop a different set of marketing skills better suited to in-home consumption.
’
Tigran Nersisyan
‘WI believe
e have implemented tight controls over the whole process, from logistics to sales.
Russian Federation
that one of the factors underlying the crisis was loss of control.
’

Company profiles
CEOs interviewed
Angela F. Braly Ian Bremmer Phil Cox

President and CEO, WellPoint Inc., President, Eurasia Group, CEO, International Power plc,
US US UK
WellPoint works to simplify the connection Eurasia Group is the world’s leading International Power is a leading
between Health, Care and Value. We help political risk research and consulting independent power generation company
to improve the health of our communities, firm. It provides financial, corporate and with interests in 32,358 MW (gross) of
deliver better care to members, and government clients with information and power generating capacity, located in
provide greater value to our customers insight on how political developments 21 countries across five core regions –
and shareholders. WellPoint is the nation’s move markets. Headquartered in North America, Europe, Middle East,
largest health benefits company, with New York, the company has offices in Australia and Asia.
approximately 34 million members in its Washington and London, as well as a
affiliated health plans. vast network of experts and resources
around the world. For more information,
please visit www.eurasiagroup.net.
pwc.com/ceosurvey
CEOs interviewed
Gerolamo Caccia Dominioni Kong Dong Sunil Duggal

CEO, Benetton Group SPA, Chairman, Air China Ltd, CEO, Dabur India Limited,
Italy China India
The Benetton Group is present in 120 Air China Limited is the leading provider Dabur India Ltd is a leading consumer
countries around the world. Its core of air passenger, air cargo and airline- goods company in India with several
business is fashion apparel: a group related services and products in China. successful brands in segments
with a strong Italian character whose Its operational headquarters are in like healthcare, personal care,
style, quality and passion are clearly Beijing and it has 9 branches in other homecare, food and beverages and
seen in its brands, the casual United major Chinese cities where it provides air over-the-counter drugs. Dabur has
Colors of Benetton, the glamour oriented transportation and other airline-related 17 state-of-the-art manufacturing units
Sisley, and Playlife American college services, including aircraft maintenance spread across the globe and its brands
style. The Group produces over 150 and ground services. As of June 2009, are marketed in over 60 countries.
million garments every year. Its network the Company operated a fleet of 243 The US$601 million Dabur India has
of over 6,200 contemporary stores aircraft, serving 143 destinations in three subsidiary group companies –
around the world, offers high-quality 32 countries and regions. Dabur International, Fem Care Pharma
customer services and generates a and newu – and eight step-down
total turnover of over 2 billion euro. subsidiaries in countries like Nepal,
Egypt, Bangladesh, Pakistan, Nigeria,
UAE and the US.

Company profiles
Eduardo Elsztain Andrew Ferrier Claudio Eugênio Stiller Galeazzi

President, IRSA Group, CEO, Fonterra Co-operative Group, CEO, Pão de Açúcar Group,
Argentina New Zealand Brazil
The IRSA Group is active in the Fonterra is the world’s largest dairy The Pão de Açúcar Group is the largest
financial, agricultural and real estate exporter, accounting for around retail chain in Brazil with gross sales
development business, with revenues one third of cross-border dairy trade. totalling about US$23 billion a year and
of US$580 million and assets valued As New Zealand’s largest and truly 137,000 employees. It now ranks as the
at US$4.6 billion. multinational business, Fonterra trades in eighth largest corporate conglomerate in
140 countries and employs 16,000 staff. the country after acquiring the Ponto Frio
Through Cresud, which is listed on the
In 2009, revenues were NZ$16 billion. and Casas Bahias chains in 2009 and
Buenos Aires Stock Exchange since
operates through a chain of 1,807 stores
1960 (CRES) and in New York’s NASDAQ The product portfolio includes dairy
in 18 Brazilian states.
(CRESY), IRSA directly and indirectly ingredients, liquid and powdered milks,
manages more than a million hectares cultured foods and yoghurts, butter,
distributed along Argentina, Brasil, cheese and specialty foodservices
Paraguay and Bolivia, which produce products.
grain, meat and milk.
The real estate branch of the corporation,
IRSA Inversiones y Representaciones
S.A., is listed on the Buenos Aires
Stock Exchange (IRSA) and the NYSE
(IRS). It operates a shopping centre,
offices, 5 star hotels and an urban land
reservoirs portfolio and develops
residential projects in Argentina.
pwc.com/ceosurvey
CEOs interviewed
Carlos Fernandez Gonzalez SHEN Heting Bruno Lafont

Chairman and CEO, Grupo Modelo, Executive Director, President, Metallurgical Chairman and Chief Executive Director,
Mexico Corporation of China Ltd, China LAFARGE Group, France
Grupo Modelo is a publicly held Metallurgical Corporation of China Ltd. Lafarge is the world leader in building
company leader in the production, (MCC) is a large industrial group materials, with top-ranking positions in
distribution and sale of beer. The group operating in various specialised fields, all of its businesses: Cement, Aggregates
owns seven beer production facilities across different industries and in many & Concrete and Gypsum. With more
in Mexico and its business portfolio countries, with engineering and than 84,000 employees in 79 countries,
includes 12 brands, among which construction, resources development, Lafarge posted sales of EUR19 billion
Corona Extra is the number one equipment manufacturing and property in 2008.
imported beer in the USA with 28% development as the principal businesses.
In 2009 and for the fifth year in a row,
of the market share.
Lafarge was listed in the ‘Global 100
Most Sustainable Corporations in the
World’. With the world’s leading building
materials research facility, Lafarge places
innovation at the heart of its priorities,
working for sustainable construction
and architectural creativity.

Company profiles
Graham Mackay Ken MacKenzie Mikael Mäkinen

Chief Executive, SABMiller plc, Managing Director and CEO, Amcor, President and CEO, Cargotec,
UK Australia Finland
One of the world’s largest brewers Amcor is a leading global packaging Cargotec improves the efficiency of
with brewing interests and distribution manufacturer offering a broad range of cargo flows by offering solutions for the
agreements across six continents. Its plastic, fibre, metal and glass packaging loading and unloading of goods on land
brands includes international beers such products, along with packaging-related and at sea – wherever cargo is on the
as such as Pilsner Urquell, Peroni Nastro services, A$9.5 billion annual sales, move. Cargotec’s main daughter brands
Azzurro, Miller Genuine Draft and Grolsch 21,000 employees worldwide, 73,165 for cargo handling Hiab, Kalmar and
along with local brands such as Aquila, shareholders, 226 sites, 34 countries. MacGregor are global market leaders
Castle, Miller Lite, Snow and Tyskie. in their fields www.cargotec.com
Six of its brands are among the top 50
in the world. It is also one of the largest
bottlers of Coca-Cola products. In the
year to the end of March 2009, the
group reported US$2.96 billion in
adjusted pre-tax profit and revenue of
US$18.7 billion. It is listed on the London
and Johannesburg stock exchanges.
pwc.com/ceosurvey
CEOs interviewed
Pawan Munjal Dr. James Mwangi Tigran Nersisyan

MD and CEO, Managing Director and CEO, President, Borodino Group,
Hero Honda Motors Ltd., India Equity Bank, Kenya Russian Federation
New Delhi-headquartered Hero Honda Equity Bank is the leading microfinance Borodino Group of Companies
is the world’s largest two-wheeler bank in Africa, listed at the Nairobi was founded in 1994 and today is
manufacturer. This joint venture between and Uganda Stock Exchanges. It is one of the greatest transnational
the Hero Group of India and Honda of the largest bank in the region in terms corporations in Russia.
Japan sold over 3.72 million units in of customer base with 54% of all bank
Borodino Group – multisectoral
2008-09. The US$2.6-billion Hero accounts in Kenya and has a presence
holding developing its activity in such
Honda has grown by leaps and bounds in Uganda and Southern Sudan. The
fields as: engineering, construction,
since its inception 25 years ago. Today, Bank has received accolades for its
machine-building, electrification,
Hero Honda has three manufacturing transformational business model that
telecommunications, financing and
plants (in Gurgaon, Dharuhera and has enabled millions of ‘unbanked’
food stuff production. Group unites
Haridwar), 256 manufacturing partners people access affordable financial
more than 80 companies and industrial
and 3,500 customer touch points spread services. Equity Bank is the holder of
ventures with over 15,000 employees.
across India. Despite the global the Best Microfinance Bank in Africa
Powerful industrial, scientific and
recession and a slowdown in India’s Award by the African Banker in 2008
technological basis allows the Group
two-wheeler industry, Hero Honda grew and 2009.
to provide 95% of production process
by 11.53% in 2008–09, thereby garnering
with own raw materials and intellectual
a 57% share in the country’s two-
resources.
wheeler market. The company managed
to achieve this through the launch of
new brands, a strong rural focus and
by driving down costs. The two-wheeler
major has an impressive portfolio of
14 motorcycles and a scooter.

Company profiles
Hartmut Ostrowski Dr. Paul Reynolds Michael I. Roth

Chairman and CEO, CEO, Telecom Corporation Chairman and CEO,
Bertelsmann AG, Germany of New Zealand Limited, New Zealand Interpublic Group, US
Bertelsmann is an international media Telecom is New Zealand’s largest Interpublic is one of the world’s leading
company encompassing television (RTL telecommunications service provider, organisations of advertising agencies
Group), book publishing (Random House), offering a comprehensive range of and marketing services companies.
magazine publishing (Gruner + Jahr), mobile, fixed and information computer Our agency brands create marketing
media services (Arvato) and media clubs technology products and services to solutions on behalf of clients in every
(Direct Group) in more than 50 countries consumer and business customers. major world market. Our companies
Telecom was one of the first telcos in cover the spectrum of marketing
the world to be fully privatised. Telecom disciplines and specialties, from
employs almost 7,000 people in New traditional services such as consumer
Zealand and around 1,600 more in advertising and public relations to
Australia and around the world. It has emerging services such as mobile
annual revenues of over US$4 billion. and search engine marketing.
In 2006, the New Zealand Government
introduced legislation that introduced
regulation operational separation of its
business units.
pwc.com/ceosurvey
CEOs interviewed
Alfredo Sáenz Dean A. Scarborough Pablo Isla

Second Vicechairman and CEO, President and CEO, Deputy Chairman and CEO,
Banco Santander, Spain Avery Dennison Corporation, US Inditex, Spain
Banco Santander is a leading retail Avery Dennison is a recognised Inditex is one of the world’s largest
and commercial bank, with presence in industry leader that develops innovative fashion distributors. It has over 4,500
10 main markets including Spain, UK, identification and decorative solutions stores in 73 countries in Europe, the
Germany, Portugal, Brazil, Mexico, for businesses and consumers Americas, Asia and Africa. Inditex has
Chile and US. With more than 14,000 worldwide. The company’s products eight fashion concepts (Zara, Pull
branches, over 170,000 employees and include pressure-sensitive labelling and Bear, Massimo Dutti, Bershka,
90 million customers, Banco Santander materials, graphics imaging media, Stradivarius, Oysho, Zara Home and
is the largest bank in the euro zone by retail apparel ticketing and branding Uterqüe), all of which share the same
market capitalisation and third in the systems, RFID inlays and tags, office commercial and managerial focus:
world by profit. products, specialty tapes, and a variety adapting the supply chain to the
of specialised labels for automotive, customer demands in order to deliver
industrial and durable goods applications. new items to each store twice per week.
A FORTUNE 500 company with sales Inditex has been listed on the stock
of US$6.7 billion in 2008, Avery Dennison exchange since 23 May 2001, and
is based in Pasadena, California and has been a member of the FTS4Good
has employees in over 60 countries. and Dow Jones Sustainability Indexes
For more information, visit since 2002.
www.averydennison.com.

Company profiles
Huang Tianwen Paul Walker Paul S. Walsh

President, Sinosteel Corporation, Chief Executive, Chief Executive, Diageo plc,
China The Sage Group plc, UK UK
Sinosteel Corporation is a state-owned Sage is a leading global supplier of Diageo is the world’s leading premium
enterprise under the supervision of business management software solutions drinks business with an outstanding
the State-Owned Assets Supervision to 6.1 million small and medium-sized collection of beverage alcohol brands
and Administration Commission of enterprises (‘SMEs’) worldwide. across spirits, wine and beer categories.
the State Council. It is a large multi- ‘Our goal is to help our customers These brands include: Smirnoff, Johnnie
national enterprise with a clearly defined manage their business processes Walker, Captain Morgan, Baileys, J&B,
core business that integrates resources more effectively through software José Cuervo, Tanqueray, Guinness,
development, trade and logistics, applications and support services.’ Crown Royal, Beaulieu Vineyard and
engineering project and science and Sterling Vineyards wines, and Bushmills
technology, equipment manufacturing Irish whiskey. Diageo is a global company,
and specialised services, providing trading in over 180 markets around the
a comprehensive auxiliary service for world. The company is listed on both the
the steel industry, especially steel mills. London Stock Exchange (LSE) and the
There are 86 subsidiaries under the New York Stock Exchange (NYSE).
governance of Sinosteel, among which We employ over 22,000 talented people
63 are in China and 23 abroad. The core worldwide with offices in around 80
business revenue of Sinosteel reached countries. They have manufacturing
RMB168.4 billion in 2008, ranking them facilities across the globe including
372nd among the 2009 World Top 500 Great Britain, Ireland, the United States,
according to the Fortune’s list. Canada, Spain, Italy, Africa, Latin America,
Australia, India and the Caribbean.
pwc.com/ceosurvey
100%
Rethink
Workforce
motivation
Reshape
The talent
pool
Result
Business
alchemy
CEO perspectives on success
Interview transcripts of Andrew Ferrier,
CEO, Fonterra Co-operative Group

The In-depth CEO story
Andrew Ferrier is the CEO of Fonterra

Co-operative Group
PwC: What effect has the global financial crisis had on your key markets?
AF: One of the biggest shocks we experienced was the volatility in the cost of consumer pricing.
We are in the food industry. And in our business, we saw dairy prices rise dramatically, then
decline during the course of the crisis, and then, at the bottom of the crisis, dairy prices went
right back up again. I think most commodities experienced that sort of volatility – a huge
rise in commodity prices just before the crisis hit, and then, following the start of the crisis,
a massive overreaction downward. We were very concerned about consumer reaction to that
kind of volatility. In fact, to a significant degree, consumers backed off buying dairy products.
For example, in Asia – depending on the country – we saw the whole category down between
5% and 20%. What we saw was consumer ‘sticker shock.’ Consumers were unsure what dairy
products were going to cost week-to-week and, as a result, they were not sure whether they
should maintain their regular buying habits or back off buying these products. So, the financial
crisis created an enormous amount of uncertainty in our markets.
PwC: Would you say that there was a strong correlation between the course of the global financial
crisis and the sort of pricing volatility experienced by Fonterra?
AF: Although it’s likely coincidental, dairy product consumption fell almost in a straight line from
a May 2008 high to a February 2009 low, which coincides with the bottoming out of the
global economy.
PwC: Is it fair to say that your key markets are beginning to recover?
AF: I would say that recovery is slowly setting in. Nonetheless, what makes this recovery atypical is
the degree of volatility in commodity pricing. We are seeing demand come back. But demand
might not fully recover because of the degree of volatility that still exists.
PwC: So, some of your markets may have experienced lasting change as the result of the global
financial crisis?
AF: Yes, I would say so. Moreover, that change may apply to the food industry as a whole.
We certainly see consumers looking for less expensive products. And trading down from
national brands to house brands is a trend that may be with us for a while.
PwC: In response, has Fonterra introduced different price points into its product mix?
AF: To some degree. I think this propensity to trade down is temporary. It may last a couple
of years. But ultimately, I think we will see consumers come back to the brands they know
and trust.
PwC: Have changes in the capital markets affected the capital structure of your own business?
AF: To the extent that changes in the capital markets dictate a more conservative approach to
one’s balance sheets, I would say that every business in the world has been affected. Despite
the fact that Fonterra has an excellent credit rating, we are no different. So we plan to run our
gearing at a significantly lower level than we have traditionally. That is not to say that we ran
a high-risk strategy previously. But we are feeling as a result of market uncertainties that it is
better to be more conservative going forward.
PwC: Has Fonterra seen changes in banks’ behaviours in relation to risk premiums?
AF: Yes, absolutely. I think, across the world, the pricing of risk has risen – thus increasing the
cost of capital.
Andrew Ferrier, PwC: As the world emerges from recession, do you expect to see structural economic shifts?
CEO, Fonterra AF: From the perspective of the food industry, not really. Having said that, I will point out that the
Co-operative Group US dairy producers seem to have taken a bigger hit than almost any other dairy producers in
Continued
the world. We have seen significant reductions in US dairy production and that production is
not recovering the way it is in other parts of the world. That may be attributable in part to the
fact that US dairy farms are heavily leveraged and that sort of economic formula doesn’t snap
back quickly.
PwC: Have infrastructure investments by governments affected any part of your business?
AF: We are seeing that in China. Because of the financial crisis – but also because of their domestic
dairy crisis last year – China has made huge investments in dairy industry infrastructure. And
we have been cooperating with the Chinese government on that and advising them on ways
to rebuild their dairy industry. In terms of infrastructure investment not specifically related to
the dairy industry, my observation is that, around the world, we are seeing a lot of activity.
For example, here in New Zealand, we are working in conjunction with the New Zealand
government on ways to drive efficiencies in the supply chain. From a business perspective, I
see governments’ desire to invest in infrastructure as something that is very positive for us.
PwC: Has the financial crisis undermined the public’s trust in the private sector?
AF: I certainly think that’s true of the banking industry. Here in New Zealand, if you consider the
number of failures, not among the major banks but among many finance companies, I assume
many consumers are wondering, ‘What’s safe and what’s not safe?’ That is probably true
across the world with regard to the public’s opinion of the financial sector. But I don’t really see
that sort of scepticism directed to the food industry. The food industry has always had a strong
quality focus, and so I would say that we have come through this crisis much stronger than
many other sectors.
PwC: Has the financial crisis had an effect on your company’s strategy?
AF: In the short-term, the crisis has encouraged greater focus on our balance sheet – trying to be
more prudent, being extremely careful about managing working capital and having less interest
in acquisitions. All the normal steps you would expect a prudent organisation to take in volatile
times. But as we emerge from the crisis, we’re beginning to see a repricing of assets around
the world and that presents opportunities for a business like ours. A potential acquisition that
we might have passed up before the crisis hit because the price was too high, may today be
much more attractively priced. Coming out of the crisis, I think we are beginning to see good
opportunities for prudent investors.
PwC: What effect has the financial crisis had on your company’s approach to risk management?
AF: For Fonterra, pricing volatility has been one of the most significant spin-off effects of the
financial crisis. Consequently, we’re developing a new risk management capability that takes
volatility into account in terms when we sell a product, how far forward we contract and all
other risk considerations in selling a year’s production of dairy products. Developing that
capability is something that management has focused on in a very significant way as has our
board of directors.
PwC: Has the financial crisis constrained your company’s ability to raise capital?
AF: We don’t have difficulties raising debt, but as I said earlier, we are keeping a more prudent debt
ratio. As a cooperative, our capital is subscribed by our suppliers and linked to the volume of
milk they supply to us. I have just proposed to our shareholders a change to our constitution
that will ultimately end up in more equity being available to us. As a result, we expect to be
able to raise capital more easily than we did before.
Andrew Ferrier, PwC: And will more capital expand the investment opportunities available to you?
CEO, Fonterra AF: Yes, that is correct. We see many opportunities and are thrilled that we now have more capital
Co-operative Group behind us to take advantage of those opportunities.
Continued
PwC: What are the key drivers of M&A activity in the dairy industry?
AF: In general, we saw over priced assets for a long period of time. Consequently, very few
assets traded. With assets now being repriced, there are some good opportunities out there.
Having said that, we now are seeing multiples rise again. So you’ve got to pick and choose
your opportunities carefully.
PwC: Were gaps in your company’s risk management exposed as a result of the financial crisis?
AF: I would say, yes. There is no futures market for dairy products, and so we did not have an easy
way to hedge forward our sales. With the level of volatility that exists now in the spot market,
we can no longer just take a simple position with regard to the type of contracting that we
might normally do. So we had to find ways to hedge our products. And one of the ways we
did that was to establish a dairy commodities exchange. Right now, the exchange’s members
is limited to Fonterra and its direct customers. But as the dairy market becomes more
sophisticated, we expect that membership in the exchange may expand. So that is one of the
steps we took in response to the financial crisis.
PwC: In the face of the financial crisis, how have you managed to maintain the morale of your
employees?
AF: As I mentioned, the crisis precipitated a drop in dairy prices, which resulted in lower returns to
our owners – the farmers who comprise our dairy cooperative. On the other hand, we had an
excellent year in the brands we sell globally and actually grew both market share and margins.
So we had a two-sided message to our employees: ‘Total return to our farmers has gone
down. But at the same time, we have grown profits.’ To the extent that we managed to grow
profits, it hasn’t been as tough on our people as it has been for employees in other companies.
PwC: Has Fonterra been able to recruit talent from companies hurt by the financial crisis?
AF: Yes. We have recruited talent that we may not have otherwise been able to attract before the
crisis occurred.
PwC: In our last annual global survey of CEOs, 72% of the respondents told us that talent
was a critical driver of their companies’ long-term success. Would you say that is also true
for Fonterra?
AF: I am in complete agreement with that sentiment. And frankly, I think that as time goes on –
and the world grows evermore competitive – human capital will become an even more
important factor to business success.
PwC: In order to improve productivity in the future, what sorts of business models might your
organisation adopt?
AF: On that front, we are taking a number of actions. We invest a significant portion of our R&D
budget in technology that is intended to help us drive efficiencies. This is critical for us
because, at a bare minimum, we must offset the annual rate of inflation. Along with technology,
we also drive efficiencies through continuous process improvement – what we call ‘operational
excellence’. Finding ways to do things better is built into our corporate culture. And when you
have a culture in which your people are continuously driving greater efficiency, you can avoid
disruptive and painful cost-costing exercises.
Andrew Ferrier, PwC: As a consequence of the financial crisis, do you expect governments to enact new regulations
CEO, Fonterra and might that lead to over regulation?
Co-operative Group AF: There is that risk. But here in New Zealand, I don’t see over regulation as a material risk.
Continued
And that, in part, reflects the attitude of the New Zealand government, which is very focused
on attempts to drive the country’s overall productivity. What I see in New Zealand is a
government that is ready to regulate in areas where regulation can actually aid productivity,
and a government that is willing to work with large businesses in order to improve the
wellbeing of all New Zealanders. Proactive businesses that are willing to work with the
government can find ways to help enact effective and efficient regulation.
PwC: What about regulation in some of your overseas markets?

AF: We are struggling in some countries – such as Sri Lanka and Argentina, for example –
in terms of price controls. It’s been a reaction by government against the volatility surrounding
commodity prices. So while I gave you a favourable response concerning the regulatory
approach taken in New Zealand, it’s a lot trickier in other parts of the world.
PwC: From your perspective, are there positive aspects to regulation?

AF: I can say that if well thought out in full consultation with the business community, regulation
can have many positive aspects. The issues that regulation must address are complex and
there is always going to be a resulting cost on industry. But if done responsibly, regulations can
ultimately open up opportunities in terms of broader consumer acceptance for your products.
So for businesses, regulation presents both threats and opportunities.
PwC: What are your views regarding regulation of the banking sector?
AF: Broadly speaking, if you look at the countries that came through the financial crisis reasonably
well, it was those countries that had sound regulation on their financial services industries.
New Zealand, Australia, and Canada, for example. So, I think there is a lesson there that a little
more aggressive regulation in the financial sector area across the world would be a sensible
thing. Ultimately, I would like to see that as one outcome of this crisis.
PwC: Governments around the world are trying to reach agreement on accords that address the risks
of climate change. What are your thoughts about that effort?
AF: From my perspective in the food industry, I think the world also needs accords on ways to
increase food production by 50% over the next 30 years. That is what the United Nations
is saying we must do – and the question now becomes how are we going to increase food
production in a way that is sustainable for the environment? That is a big issue for the food
industry. But it is also a huge global concern. It’s inappropriate for any country to stick their
head in the sand and say, ‘Let’s not worry about the environmental consequences of food
production.’ New Zealand is taking action around the environmental implications of large-scale
agriculture. And I think the global food industry has to say, ‘We are going to be increasing
production but we are going to do it in a responsible way.’
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Interview transcripts of Alfredo Sáenz,
Second Vice Chairman and CEO, Banco Santander

Alfredo Sáenz is the Second Vice Chairman and CEO,

Banco Santander
PwC: What will it take for the economies of your main markets to stabilise?
AB: Let’s begin with Spain. In Spain we expect a slow recovery that, in macro terms, will probably
not be perceptible until the second half of 2010. Moving from macro to micro, the situation is
complex as the type of economic structure that will emerge from this crisis will not be the same
as the one we have left behind.. Obviously, the construction and property industry will recover
more slowly and will probably take more time to absorb the excess.
We are concerned about the industrial sector because, in comparison to the present financial
crisis, the crises of the 1980s and 1990s were not as deep or intense as this one. Above
all, those past crises did not have such a large credit component as the current one. The
construction sector will eventually resuscitate, as will tourism and the service sector. But the
industrial sector in this country, which is of medium size and already suffering, has a more
complicated horizon.
PwC: Do you expect more protectionist barriers to arise as a result?

AB: That’s difficult to imagine. The world has stigmatised protectionist policies. Economists and
others have clearly demonstrated that protectionism does not guarantee anything – particularly,
not growth.
PwC: Do you expect to see changes in the way the banking sector operates?
AB: We may see a couple of changes. The first relates to a separation of high-risk activities, or
casino banking, which is investment banking in its purest form, from what is now called, narrow
banking, or the traditional deposit and loan banking. I do not mean that they will be legally
separated, but that they will come under different regulatory treatments to distinguish one type
of banking from the other. They will be regulated differently and the risks assumed by each
type of institution will be weighted differently. If hybrid banks combining aspects of theses two
bank types are allowed to continue, they will require specific treatment.
The second change we might see relates to capital requirements. I believe that regulation will
mandate additional capital for all types of banks, particularly investment banks with highly
leveraged balance sheets. At the same time – following the recent period in which there really
were no liquidity rules – I expect liquidity requirements to be tightened considerably. All these
things will create a very different playing field and entail certain consequences. Credit will
become more expensive, more difficult to attain, and will be relatively scarce. As marginal
players are pushed out, capacity will decline. And there will be more supervision generally.
The same process will more or less occur in the capital markets. Credit in capital markets will
become more complex, expensive, and scarce. The banks and capital markets will attempt to
pass the costs associated with this new regulatory environment onto customers, just as every
business does. If nuclear power plants require greater security they become more expensive;
but nobody expects that General Electric or Alstom will simply absorb those additional costs.
One other additional point: The concept of a globalised financial market might also be re-
thought because globalisation generates systemic risk. Now, economists and politicians alike
believe that the world needs this type of global financial capacity. But it is also clear that in a
globalised financial market the risks of contamination are very high – as we have seen in the
case of Lehman Brothers. How to control this kind of systemic risk is a major cause of concern
for regulators. There are now plans to establish international committees with responsibilities
for managing systemic risk. For the first time in history, we’ve experienced a financial
pandemic and need to determine what sorts of firewalls are required. But even minor firewalls
will necessarily restrict the way financial institutions deploy their resources globally. The point is
that protections against systemic risk will also restrict the globalisation of financial flows.
Alfredo Sáenz, PwC: Where will the control over systemic risk lie?
Second Vice AB: Not with any one single country. It is possible that general control will rest with one or more of
Chairman and CEO, the international regulatory bodies that already exist. For example, the European Union might
Banco Santander generate a systemic risk doctrine for all of Europe and on that basis each EU member would
Continued
have to create particular laws conforming to that doctrine. But I am unable to say with any
certainty how a regime for controlling systemic risk will come about. I do know, however, that
this issue has many unanswered questions. In the case of a cross-border institution, when a
failure occurs as a result of systemic risk, who pays the bill? The treasury of one country or the
other? The issue is therefore very complicated. All the major international forums such as the
G8 and G20 are discussing this matter; and Basel and other bodies have been asked to study
it and propose solutions. Eventually, this will lead to some type of restrictions on growth, or on
particular kinds of growth, or on particular ways to manage capital. This will probably not occur
until the financial crisis is over.
PwC: And yet, Spain’s banking sector is highly regarded. Would not its international standing help it
exert some influence on the course of regulatory deliberation?
AB: It is true that the Spanish banking sector – and Santander in particular – has a very good
reputation with in the EU. This means that they listen to us and respect us The international
financial forums are a kind of spider web relationships and connections that have been created
over many, many years. We cannot expect to force our way in overnight but we are currently
participating in all the discussions and working groups going on in the international financial
arena.
PwC: Once a recovery takes hold, will consumer spending return to its former levels?
AB: Consumers have very short memories. We are now in a phase in which consumers must de-
leverage and that means saving more and investing and consuming less. Consumers must
therefore acknowledge that there can be no easy credit right now.. Nevertheless, the Spanish
banking sector needs to concentrate on doing what it must; we cannot turn water into wine.
In the past six years, Spain has become hyper-leveraged by almost €800 billion. We now need
to de-leverage. The actual issue is not that Spanish banks are refusing to lend, but a bank
is simply a link in a long economic chain and the de-leveraging process must therefore be
undertaken by the entire real economy.
PwC: Will we ever return to the same economic behaviours as before?

AB: I am sure that we will return to the stock markets and buy risk-based products and make
mistakes because this has always happened. I am old enough to tell you that I have seen these
behaviours over the course of four crises. Human greed results in these behaviours. People
say, “I swear I will never invest in the stock market again.” And then, four years later, they
invest in the stock market.
PwC: I imagine that consumers’ financial attitudes and behaviours will depend on whether or not
liquidity surpluses reappear.
AB: Of course – because if there are surpluses, we will go too far again. Billions – even trillions
– have been pumped into the markets and must obviously be withdrawn at some point. But
politicians and authorities are clearly reluctant to do so as they are concerned about the risk
of precipitating another decline in growth. In response to the financial crisis, we have probably
reacted too aggressively – particularly in the US. We have pumped too much money into the
economy, and we have to be careful in order to avoid withdrawing it too late. Financial bubbles
are a risk we should always have in mind.
Alfredo Sáenz, PwC: Has the financial crisis caused you to re-think Santander’s business model?
Second Vice AB: Our model has worked well and we have experienced only a minor impact as a result of
Chairman and CEO, the financial crisis. In fact, results for 2009 will be similar to last year’s, and our prospects
Banco Santander are good. We have therefore not changed our approach. But we have taken into greater
Continued
consideration four issues. The first is risk management – an issue that has been highly relevant
to this crisis. We have asked ourselves the question: is our risk management adequate? The
overall result is very positive. The second issue concerns portfolio management – which
baskets we put our eggs in. Right now, our portfolio focuses on Spain, Brazil, the UK, and,
to a certain degree, the US. We have no investments in Central Europe or Asia. Third, we
have devoted quite a lot of time to keeping abreast of developing regulatory reform. Fourth,
whatever happens in the future, it is clear that we must have a lot of capital on hand. There will
be dark clouds and storms, so it is better to be in a strong capital position even though some
of our analyst and investors say we conserve too much capital. But during uncertain times we
must be well protected and ready to take on board events as they occur.
PwC: Has the financial crisis affected the functioning of your Board of Directors?
AB: We have an Executive Committee, which meets weekly, that devotes 80 percent of its time
to risk issues. The Committee assesses operations and controls over risk, reviews large
customers, and considers the bank’s sector positioning. One can think of it as an Executive
Committee for Risk. In order to ensure an optimal focus on risk, the Executive Committee
is comprised of both executive and non-executive Board members. We also have the Risk
Committee, which is the highest committee in the bank dedicated to the assessment of
risk. The Risk Committee is comprised of independent Board directors and bank executives
responsible for risk management. Because our business embraces the principle of
independence, neither the Chairman nor I are on the Risk Committee. When an issue is too
complex for the Risk Committee to make a decision, that issue is passed on to the Executive
Committee. But in the end, most issues related to risk are decided by the Risk Committee. In
terms of the way banks typically manage risk, I believe that Banco Santander is at the top of
the pile. All these approaches having to do with managing risk that are purported to be recent
major discoveries, Banco Santander has been applying for a long time.
PwC: During the downturn, has it been difficult to maintain the commitment and engagement of the
bank’s employees?
AB: No, I have not perceived this to be an obstacle – not at all. Of course, the downturn has
changed our objectives and priorities. But while our 2009 and 2010 budgets will establish
incentives similar to previous ones, more emphasis will be placed on increasing investment
and on recovery. It is a matter of aligning incentives with our objectives.
PwC: Has the downturn provided an opportunity to recruit from the international pool of talent?
AB: We do a very good job developing talent internally and have well-structured career plans for
international positions. I often say that one of the most fundamental changes that could occur
at this bank is when the Board and Management Committee meetings are held using English.
PwC: What focus has Banco Santander placed on the issues of sustainability and climate change?
AB: We are focusing actively on two things. First – above and beyond the obligations imposed
upon us by regulation – we are very involved in issues of responsible financing. We have
established various committees employing social responsibility criteria to screen our
financing opportunities. We are also involved in the development of the Equator principles
which encourage businesses in the financial industry to conduct their operations in socially
responsible ways and adopt sound environmental management practices. As regards climate
change, we have not adopted a position on that because we have not been asked to.
Alfredo Sáenz, PwC: Do you think that Banco Santander will emerge from the financial crisis stronger?
Second Vice AB: Unlike others, we have been relatively unaffected by this crisis. That being the case, I believe
Chairman and CEO, that this crisis will help us to become stronger in relative terms. Within the constraints that are
Banco Santander imposed on us by the new regulation, I believe that we will emerge stronger and with more
Continued
influence. We have capital and a well-established business. So I believe that there will be clear
opportunities for us.
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Interview transcripts of Angela F. Braly,
President and CEO, WellPoint Inc.

Angela F. Braly is the President and CEO, WellPoint Inc.

PwC: Do you see any positive economic indicators in your markets?
AB: Most of our 34 million WellPoint members come to us as employees of an insured employer
group. So employment data is a very important reference point for us. It’s the economic factor
that most directly impacts our business. But it’s not just levels of unemployment that we look
at. It’s also the levels of underemployment. For us, underemployment means that more people
are working in part-time jobs that don’t provide health benefits. So in our business, we watch
unemployment and underemployment quite closely – while also acknowledging that these are
lagging economic indicators. Right now in our markets, we’re still seeing employment losses,
although those losses are beginning to stabilize. As we look forward, we expect unemployment
to remain at relatively high levels until, potentially, the end of 2010.
PwC: As a result of the economic contraction, do you expect changes to your capital structure
going forward?
AB: Because we’re a health insurance company, we’ve always tended to be conservative in terms
of our capital reserves. We take into account the ups and downs of the economic cycle during
our capital planning process. On a comparative basis, I would say that given the volatility
we’ve experienced, our capital positioning has grown more conservative. And in light of
continuing factors – such as high unemployment rates and the H1N1 flu epidemic – that’s likely
to remain the case for the foreseeable future.
PwC: What are your expectations about consumer spending once an economic recovery gets underway?
AB: Our business provides us with an interesting perspective on consumer consumption. We
know that healthcare services and health insurance are valued by most consumers. But at
the same time, we recognize that some consumers who enjoy good health might not view
health insurance as an essential purchase. Now, the marketing techniques commonly used
to stimulate demand for consumer goods may not make sense for health insurance. Also,
how the consumer views spending for the health care services they need is impacted by the
design of their health insurance policy. We feel the best approach is to educate consumers –
give them the tools they need to make smarter health insurance and health care choices. At
WellPoint, for example, we focus a lot of on information transparency so that the consumer
fully understands the cost of any given medical procedure and how much they will be
responsible for.
PwC: What’s been the consumer response to that approach?

AB: Consumers welcome the opportunity get involved in their own healthcare decisions. The key is
making consumers aware of the choices available to them. So our focus is getting consumers
engaged and making sure they have the information they need. And as a result, they’re having
more informed conversations with their doctors and hospitals about what a procedure costs,
what the potential benefits of the procedure are, and what the risks might be.
PwC: Some observers believe that the economic crisis has undermined the public’s trust in the
private sector. Do you agree? And what is your industry doing to help restore public trust?
AB: I think the public’s trust in almost all sectors of business and government is an issue right now.
As a consequence, it’s very important that the health insurance industry articulates its value
proposition in a very clear and precise way. In my view, the industry’s value is in speeding
and simplifying the public’s access to affordable health care. We help consumers get the right
procedure, at the right time, in the right setting. I think if we help the public to understand our
value proposition, their trust in us will return.
Angela F. Braly, PwC: Will WellPoint become a stronger company as a result of the economic crisis?
President and CEO, AB: I think we will definitely become a more focused organization as a result of the crisis. Our
WellPoint Inc. service operations have gotten sharper, for example. And the crisis also prompted us to sell
Continued
off some peripheral parts of our business, and that has made us a leaner organization. So I do
think we’re stronger as a result of facing these challenges and preparing ourselves for whatever
might happen in the economy. Our people figured out how to achieve higher productivity as
a result of some of the challenges they faced and they’re not going to go back to their prior
behavior. They’re going to take advantage of what they’ve learned and carry it forward. So the
crisis took us to a new place – it was a reset for our business.
PwC: Has your board of directors become more hands-on as a result of the economic crisis?
AB: Our board has been and continues to be deeply engaged in issues relating to strategy and risk.
Being a health insurance company, our core business is in evaluating risk. But now, more than
ever, the company and its board have become more sophisticated in our analysis of risk. It’s an
agenda item at all of our board meetings. And we continue not only to get better at quantifying
risk, but also in building right the kind of culture that can appropriately manage risk over the
short- and long-term.
PwC: What is your approach to acquisitions? And how does that effect the way you go about
building your brand and innovating?
AB: WellPoint has been built through acquisition – we’re the product of 14 separate Blue Cross
and Blue Shield plans coming together. So we are very much attuned to potential acquisitions
and opportunities to combine with other Blue Cross and Blue Shield companies. But we also
realize that all acquisitions must be in service to our brand. Our brand is very valuable to us –
it’s the strongest one in the industry. And since our brand is perceived differently by each of the
age groups we serve, we must be very diligent about taking a focused, customized approach
to enhancing the value of our brand among each of those demographics. On the issue of
innovation, we think that as a result of health care reform, there will be new opportunities for
growth. Consequently, we’re looking at what we call a core innovation strategy and a non-core
innovation strategy. For example, we have a joint venture in China that allows us to diversify
both our core skills as well as non-core competencies – like our ability to process claims for
Chinese insurers. So we’re definitely focused on how we can be structured for innovation.
PwC: Is WellPoint taking any new steps with respect to risk management?
AB: We’re actually in the process of gathering risk management best practices –from across our
industry and other industries as well – and embedding those practices into our organization.
Our end goal is to put in place a sophisticated risk management model that responds both
to the requirements of good governance as well as day-to-day operations and management.
When our model is up and running it will provide us with improved supervision of our capital
position and a better handle on future operating results.
PwC: How have you been able to maintain morale and motivate staff during the downturn?
AB: If your people aren’t on board and committed to your mission, you can’t be successful. And
I do think our associates have felt the effects of the downturn in many ways, as most of us
have. So we’ve done a couple of things to make sure we are addressing those issues. First, we
took a different approach to our incentives for our frontline associates – the people who work
in customer service and claims administration. This year, we brought their incentive structure
closer to home by changing from an annual incentive structure to a quarterly one. And instead
of tying their incentive to operational results for the whole company, we tied it to the results
of their on-the-job performance. That has turned out to be very popular with our frontline
associates and it is driving improved performance. Getting a quarterly reward can make a big
difference to a frontline associate.
Angela F. Braly, PwC: What kind of people and skills will you look for in the future?
President and CEO, AB: We know that WellPoint can be a change leader in our industry. But to become the change
WellPoint Inc. leader, we need folks who are comfortable with change and prepared to be a part of the
Continued
change that is coming to the health care industry. At the same time, the skill level we require of
our people is rising. Our goal is to have a very engaged relationship with our members. That’s
because the member’s entire life situation has a direct bearing on how their medical condition
can and should be treated. So for example, rather than thinking about a WellPoint member as
an asthmatic, we want our frontline associates to think about that person as a single mom,
who’s working part-time, who also has asthma. From our associates’ perspective, it’s more
satisfying to have that kind of a deeply informed relationship with a member. But that requires
different skills so we’re making sure that WellPoint people come to us with those the skills or
acquire them through our training programs.
PwC: Are reforms in health care necessary to restore US competitiveness?

AB: I absolutely believe that responsible and sustainable health care reform is necessary to keep
American companies competitive. We know that medical costs are growing at an unsustainable
rate. And we know that much of that is related to the inefficiency of the health care system.
Right now, reimbursement is geared to the quantity of health care services consumed rather
than the quality of those services or the results they achieve over time. And so the goals of
health care reform should focus on the factors driving health care costs, and ways to steer
toward higher quality and greater efficiency. We’ve really got to get to the underlying costs
of care. But what we’re seeing now in the debate is a move to add additional taxes onto
the health care industry, which – in the end – is really just another tax that businesses and
individuals will have to bear. So we are very concerned that reform should not be limited to the
health insurance market but instead considers the whole of the health care system.
PwC: Do you have concerns regarding over-regulation of the health care industry?
AB: I’m concerned that the wrong kind of health care regulation could have unintended
consequences that make certain kinds of insurance plans – that many people have today and
like – unaffordable or unavailable. You know, health insurance is already a highly regulated
industry. But the question is, have those regulations been applied in a way that meets the
original policy? Or have those regulations been used for other purposes never intended by
the original framers of the regulation? It’s an important consideration. I think there is much
that can be done in partnership between business and government. But I’m concerned about
our industry’s continuing ability to innovate. We should make sure that we adopt the kind of
regulation that supports rather than stifles medical innovation and a robust private market.
There are many, many examples of how that has or has not worked in health care.
PwC: Is the current reform agenda sufficient for tackling health care’s fundamental problems?
AB: I think the health care reform discussion has changed over time. Originally, the discussion was
around value and ways to construct a sustainable health care model. Over time, the discussion
narrowed to one focused on health insurance market reform and health care financing. And
I think that just postpones a serious debate about some very critical issues: the solvency of
the Medicare and Medicaid programs, the need for tort reform, and ways to promote the next
wave of health care innovation. So there are a number of things we should be tackling in the
discussion that we’re currently not.
Angela F. Braly, PwC: What about the role of the individuals in health care reform?
President and CEO, AB: It’s essential that individuals accept responsibility for their own health and understand how
WellPoint Inc. their health affects the health care system, overall. When individuals exercise regularly and
Continued
get the right kind of nutrition that makes a big difference in their lives. But it also makes a big
difference to our over-burdened health care system. To some degree, having a greater focus on
healthy behavior is an opportunity that we’re missing out on
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Interview transcripts of Bruno Lafont,
Chairman and Chief Executive Director, LAFARGE Group

Bruno Lafont is the Chairman and

Chief Executive Director, LAFARGE Group
PwC: How would you describe Lafarge’s current performance? What is the outlook for the coming
period? You have suggested several times that mid-2010 could be the first milestone on the
road to a rebound in Western countries – do you stand by that?
BL: First, I would deal with Lafarge’s environment, which has been strongly affected by the
market turmoil. This is especially true in the developed world, which has been hit by the most
severe construction sector recession in 50 years. The key feature of the crisis has been the
profound and brutal slowdown in the developed countries. Depending on which case you
look at, volumes have plunged by 15% to 30%. In its wake, the crisis has inevitably generated
funding problems, unemployment and deficits, which all point to the same conclusion: private
investment has stalled and only government stimulus measures can kickstart growth. Even
then, the benefits will not feed through until 2010.
On the other hand, we are also seeing signs that things are stabilising somewhat, and it
appears unlikely that the situation will decline further. A handful of indicators are showing
signs of improvement, including housing prices, building permits and mortgage lending, and
unemployment rates are levelling off. Taken together, these encouraging developments suggest
an upturn in the second half of 2010, albeit starting from a very low base. Moreover, there is a
genuine need for construction in countries such as France, the UK and the US.
Emerging countries, on the other hand, are something of a mixed bag. While the economies of the
central European nations are highly dependent on the developed countries, Africa, the Middle East
and Asia are in much better shape. Against this backdrop, Lafarge has been performing well and
has demonstrated its ability to adapt swiftly to the circumstances. As planned, we have put in place
a strategy aimed at shoring up our financial structure in light of the debt taken on as part of the
Orascom acquisition. In addition, our free cash flow generation targets have broadly been achieved
– i.e. a 60% increase in free cash flow. I can honestly say that I have been impressed by the effort
and focus shown by our teams across the world, and by the Group’s ability to meet its objectives.
PwC: What were the main levers used by Lafarge to achieve these goals?
BL: We took the right decisions very early on. For example, our capital increase and action plan
were announced in February, while our cost-cutting programme was launched three years ago,
before the onset of the crisis. Moreover, we made free cash flow a key indicator over one year
ago, and a portion of variable compensation of 2,000 top managers is indexed to that. All of
these initiatives have yielded excellent results.
In addition, our ambitious plan to develop 60 million tonnes of fresh capacity was scaled
back to 40 million tonnes within three months. These all demonstrate our responsiveness in
a deteriorating market. Although I remain cautious, I think we may see an improvement in the
second half of 2010.
PwC: How does your deep footprint in emerging countries represent a strategic advantage for
Lafarge? How do you expect your sales breakdown to evolve over the medium term? And what
is your view on the influence of emerging countries in the broader economy? Do you think that
their momentum is sustainable?
BL: In 2008, emerging countries represented 50% of our sales, more than two-thirds of our
cement capacity and 60% of net income. The crisis has actually bolstered their influence.
These countries will continue to absorb 80% of the world’s construction requirements over the
coming decade. At the same time as we have consolidated our position in developed markets,
Lafarge has successfully integrated into emerging countries and we are continuing to step up
our industrial capacity there. We have a large pipeline of projects in emerging countries but we
only consider local consolidation opportunities if they make sense in terms of synergies and if
they represent reasonable value. Currently, the M&A market is very sluggish and there are few
opportunities around. However, given the current climate, transactions that can represent the
first step towards strong future development are not out of the question. Crucially, we have a
clear strategy and know how to draw out and develop added value.
Bruno Lafont, PwC: What emphasis does Lafarge place on innovation? Does it have a major part to play for the
Chairman and Group in the quest for durability in building materials, ecohousing, etc.?
Chief Executive Director, BL: Lafarge has a strong ecological footprint. For sure, we’re among the leading emitters of CO2
LAFARGE Group – but we were also one of the first to commit to reducing them. All of the products, systems,
Continued
ideas and services that emerge from Lafarge are aimed at boosting the energy efficiency of
buildings, improving all-round durability and respecting our commitments to combat current
climate change. Lafarge is one of the most innovative players on this matter in developed
countries. We boast the world’s leading research centre for building materials.
Research efforts and new product development will increasingly be focused on emerging
countries. We have made the ability to develop products on the ground central to our
marketing organisation. Why restrict innovation to just 20% of the market (i.e., developed
countries)? Our current offering includes innovative products adapted to varied local contexts
that take account of the local climate, lifestyle, income, resources, etc. We are improving our
knowledge of local markets, but we still have plenty of scope for improving our understanding
of the specific needs and conditions of each country. In 20 years, we have accumulated a
wealth of knowledge that allows us to generate value for our customers and for Lafarge.
In terms of organisation, the degree of emphasis to place on global versus local development
is a constant challenge for management. Lafarge’s activities are local, yet we cannot ignore the
global environment. We have succeeded in implementing a multi-local structure whereby we
provide the means at the central level to respond to local needs. The current phase is focused
on strengthening our local resources.
PwC: Sustainable development has become a major concern in our society, and Lafarge has long
since flown the flag. Here we are a couple of days before the Copenhagen Summit closes:
what is your analysis of the role of business – notably industry – in the fight against global
warming? How can or should it contribute?
BL: As I said previously, our sector is especially concerned and Lafarge has stepped forward to
lead the way in terms of combating global warming. We acted virtually alone initially, but we
took the whole sector with us. Take for example the Cement Sustainability Initiative (CSI)
programme within the World Business Council for Sustainable Development, which brings
together 21 cement businesses and illustrates the unique sector-based approach to climate
change: the members set out their scope and measurement system, make pledges and have
their commitments audited. It’s a form of self-regulation. Through this programme, we cut
CO2 emissions by 70 million tonnes between 1990 and 2007. That represents the emissions
of a developed country of approximately 20 million people. So, in the context of the overall
environmental effort required, Lafarge is ready to press ahead with concrete actions to
preserve the environment. The per-tonne price of carbon is a major investment criteria for us
– bearing in mind that these decisions are taken with a 50-year horizon. But there is scope for
rapid progress as long as the environmental effort is equitably distributed, that all the players
are bound by the same commitments.
Lafarge also works closely with NGOs. For example, we have just renewed a partnership
agreement signed with the WWF 10 years ago. Awareness of sustainability issues has reached
such a point that there is no turning back – and rightly so.
Bruno Lafont, PwC: How have you adapted your HR policy, and in particular your talent management strategy,
Chairman and to the recession?
Chief Executive Director, BL: People are central to Lafarge’s industry. The transformation of the natural raw materials we
LAFARGE Group work with requires skilled management and expertise. This is the prerequisite for an efficient
Continued
cement plant. Our teams are superb and our long-term goal is to continue to outperform our
competitors at all our industrial sites, which now number more than 2,000 in 80 countries.
This is a tremendous challenge. Our efforts have been concentrated on gearing our HR policy
to this difficult period. While we are strong on diversity, we are determined to improve further
and to develop new talents across all our territories. What’s more, we have continued recruiting
in emerging countries.
The integration of Orascom is a key subject. Acquisitions enrich Lafarge with high-quality
human resources and allow us to share experience and build on it. That is what we are doing at
the Cairo Management Center, where three of our senior managers are tasked with attracting
new talent, redeploying resources, building Lafarge know-how into the Orascom teams,
interconnecting our experience and acquiring an in-depth understanding of local needs. All
Group functions are represented at the Management Center. We developed it very quickly, but
it is proving a fabulous tool for streamlining and improving efficiency through working practices
and hands-on management.
PwC: What is the most important lesson to draw from the economic crisis?
BL: First and foremost, the crisis is still with us. Secondly, I prefer to think that we are constantly
learning that we never stop learning, so I’m not sure how appropriate the question is. You can
learn in less volatile periods as well, but the process tends to be slower. Also, you have to bear
in mind that the next crisis or economic transition will necessarily be different. Nevertheless,
I think it’s fair to say that the general understanding of the economy has made record strides.
This is the first crisis of the internet era – not to mention highly developed derivatives markets
– and everyone now has a clearer vision of globalisation and the divide between the real
economy and finance.
We also have a better understanding of the role of the state. In crisis conditions, private
interests cannot remain in isolation and must inevitably come to terms with the collective
interest. Lastly, we have seen the shortcomings of the every-man-for-himself approach: co-
operation is a precondition of success and we must therefore seek to develop ways of co-
operating each and every day.
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Interview transcripts of Carlos Fernandez Gonzalez,
Chairman of the board of directors and CEO, Grupo Modelo

Carlos Fernandez Gonzalez is the Chairman of the board

of directors and CEO, Grupo Modelo
PwC: This interview is based on three basic topics. The first one is your perception about the current
global situation and what trends you identify, as well as if you think we are on the way to
recovery, if you think there are still serious rebound risks. Also, what is the crisis’ impact on
the Mexican economy and your particular sector? The second topic is the strategy with which
you are fighting this situation and the third is about regulatory issues. Should we start then with
your perception of the global and national environment?
CF: As I see it now, this situation caught everyone by surprise. What happened with the mortgages
in the US in 2007 was just a warning sign of what was to happen. Undoubtedly, this was going
to have consequences...maybe we all experienced a winning streak for several years with
healthy growth, the development of many economies, the consolidation and strengthening of
several financial institutions, and businesses that mushroomed in 10 years while for others that
growth had taken almost a century. There was an important dynamism in the global economy.
We limited the mortgage issues to the real-estate sector, neglecting the consequences they
could have in the global economy; that same phenomenon in the US occurred under different
conditions and had a different scope in many other parts of the world. This was a like a small
snowball that turned into an avalanche, as was evident at the end of 2008
How did we look at this situation? First we were afraid, scared in many ways, since we were all
exposed to a situation we did not fully understand and could not gauge; pessimism went from
0 to 10. It made us think about our businesses, our boards, our teams – this was an emergency
situation and we were forced to make some important decisions. As I see it now, I’m neither
more optimistic nor more pessimistic than before, my perception has remained the same
since the beginning of the year. We have to handle things carefully, delicately…and we have to
visualise a recovery soon.
I am concerned about the significant rally in the valuation of several businesses and
corporations when this whole situation has not been completely absorbed or eliminated; this
could be generating another kind of economic bubble. Such high valuations do not match the
reality of some countries’ markets and economies. I think we might be seeing what we want to
see – a kind of illusion.
Moreover, the bad credit or toxic investments that have caused so much damage in the
financial systems haven’t been assimilated or eliminated yet. So there is no real alignment
between what we see and what we feel. One of the main things that will emerge is how our
people, clients, consumers and the families of our co-workers feel. Because they are living the
reality, a reality that still hasn’t reached macro- and micro-businesses. For example, if you go
to a corner shop it doesn’t have the liquidity it used to have; if Modelo, Coca Cola or Bimbo
vendors were there earlier, the owner will not have enough money to pay your vendor and will
ask him to come back again. Resources are limited and the operation costs (taxes, electricity,
property taxes, etc.) are growing. Summarising, what I see is a lack of congruency, so it will
take us some time to recover. And I fear the early signs of recovery may not be natural but have
been forced by the significant investments made – maybe we haven’t learned the lesson yet.
PwC: Some experts believe government stimulus investments have produced excess liquidity in
some markets, which could be inflating new bubbles. Do you think this current liquidity could
turn again into new investments or a resumption of foreign investment in emerging markets?
CF: I think this is already happening, there’s evidently an important liquidity and a lot of people
prefer to invest, instead of putting their money in the bank with really low interest rates. It
is important to consider if the multipliers are correct. The significant increase in business
valuations (in some sectors) this year should alarm us. The multipliers paid in the past by some
industries or sectors were based on a promising future and we could afford to give awards;
however, in the current situation we see a future of work but not exactly a future of bonanza.
So, I definitely believe the world has to continue working and investing to generate wealth, jobs
and a better distribution in every way, but this should be natural not induced.
Carlos Fernandez PwC: Focusing more on your company, some headlines do not reflect the sparkling results from
Gonzalez, Chairman of Grupo Modelo, and a few other companies. How have you achieved those results in such
the board of directors adverse conditions?
and CEO, Grupo Modelo CF: Realistically, we would have never expected those results based on this scenario. I think they
Continued are due to three important factors: first, real understanding of the economy based on a proper
cost-benefit balance for consumers or end-users. So, in the last five or six years there has been
no price increase, there has been an important performance and effectiveness improvement,
and we have tried to find a way to attract clients. Second, the way we generate products allows
us to increase volume, helping us to have healthy margins and continue our business deals
and expansion plans, including the development of new products. Third, we are cautious and
focused: our philosophy has been not to go crazy and generate ‘go go companies’, as Dr. Asis
said. That is to say, start generating luxury in one area and there another and another …our
business focus is beverages, especially beer. Everything is based on an important framework
of discipline, which is reflected in the good results; and the national market which allows us
to work in that direction; our products are considered luxury items in the international market
because they are much more expensive than the local beers, so there we have experienced
some setbacks in volumes, around 4% decrease compared to last year. This is mainly due to
that factor, since people stopped visiting restaurants, resorts, hotels, etc. or are not willing to
spend their money in the same ways.
PwC: Have you felt any pressure from the international regulations, tariffs, or any other trade tax?
CF: Not until now; sometimes they want to apply a certain tariff, perhaps promoted by local
competitors; sometimes they require a certain label, origin certificates and some additional
issues that complicate our exports or imports scheme in those places, but fortunately we have
been able to comply with them.
PwC: What is the secret to creating value during a crisis and where is your strategy going in the next
few years?
CF: I think that every company must have a plan for the long run; if you don’t know where you want
to be, everyday decisions become difficult and it is hard to focus the efforts of your work team
and collaborators towards your goal. Grupo Modelo, from the start, had clear objectives; some
were short- or medium-term objectives, but the most important ones are those that always
inspire and help you to move forward to fulfil your dreams. Some dreams seem unachievable
but you somehow manage to reach them and then you have more dreams to fulfil. This has
been part of our philosophy and the other part has been caution, always updating and not
doing crazy things, always trying to create value through the delivery of results. Likewise, I
believe there is a cycle to these things: not every year has to be extraordinary, there are difficult
years, important challenges, but fortunately this long-range vision has always helped us to
overcome rough patches.
PwC: In the strategic part, what direction did you decided to take: expand your production capacity?
Create new products? Assume a more aggressive position in the international markets?
CF: I think Modelo has always had a cautious spirit, but has also assumed some risks. Evidently,
every business has its challenges and you must make decisions for things to happen, measuring
precisely the context where you work from the start. In the 1920s Mexico was a country that
was recovering from a very serious problem, and the company decided to build a beer factory,
the youngest in the country. There were other beer groups that had much more history in the
market, but the company decided to do it and do it right. The same is true of other crises; and
now we are in the process of starting the operation of a beer factory next year in Coahuila. We
have always been able to launch our projects one way or the other, building big factories with
significant investments in the middle of some crisis. That is what we’ll do now, we’ll continue
to invest, improving our positioning and expanding our production plant. We plan to achieve a
better management of our general infrastructure, strengthening our exports, looking for a way
to develop new markets, maybe exporting other brands, improving our resource distribution
and logistics in the country. The factory I mentioned before will help us achieve these goals, so
I think there is no reason for stopping and waiting for the crisis to be over. This is what we have
learned from the past, not just in our sector, but others too, to always take the long-term view.
Carlos Fernandez PwC: What is the production capacity of this new plant you are building?
Gonzalez, Chairman of CF: Our initial investment is approximately $600m with which we will be able to produce 10 million
the board of directors hectolitres of beer. The idea is to do it in two stages, the first one would start by the end of
and CEO, Grupo Modelo Q1 or the beginning of Q4 next year, and the second one would start during the last quarter.
Continued
So, if we consider that the installed capacity is enough by that time, we could invest the
remaining $5m by 2011, so there would be five million hectolitres with the possibility of turning
them into 10 in less than 12 months.
PwC: You will have approximately a 90-million installed capacity…

CF: No, we’ll have capacity of around 70 million hectolitres. This year we’ll sell approximately
60 million.
PwC: Are you thinking to establish factories abroad in the future?

CF: Well, we have a malt factory in Idaho, which is an area of the US rich in two-line barley, which
is not produced in Mexico and is essential for our products.. Aside from that, we could say that
our strategy and exporting goals have been to produce in Mexico; that is why we have tried to
have cost-effective breweries, generating benchmarks where our indicators are higher than the
international indicators, and as long as we can continue improving those indicators and have
really competitive production costs, we’ll definitely be able to continue exporting from Mexico.
PwC: As for branding, how do you create a successful brand like Corona and is there also the
possibility of making a similar success story out of other brands of the group?
CF: The philosophy of the company has always implied extreme care of the product: quality
does matter, it is highly valued by the client, and all our investment in ensuring that quality
has definitely paid off. During the 1960s we started an internal campaign focused on quality
in every stage and we started the renovation of Cervecería Modelo in Mexico City; during
the 1980s we renewed all the factories to guarantee the best equipment, the best systems,
the best machinery and equipment vendors. So, I can proudly say that we have the leading
processes and procedures in the industry. This is what supports our strategy to position our
products abroad. Modelo has always been aware of the need to have a brand portfolio that
could compete with any international brand – and is successful in the biggest market – the
US market. A brand that is successful in the US becomes successful in other parts of the
world. So, I believe Modelo is well-positioned in that environment as a high-quality product,
in a market that is always looking for innovation and new products with a different identity,
with a new economic dynamism generated by the baby boomers, and also with folkloric
ideas. Corona and Grupo Modelo know how to take advantage of that environment – with a
well-defined strategy and the undisputed support of the board of directors. There have been
times when we have run important risks, because exporting costs were high and we barely
received profits or even registered some losses due to all the necessary investments and the
low volumes of earlier days. Later, the brand started to generate that preference and to position
itself without advertising campaigns, and finally we became a top brand and started facing the
attacks of competitors, which generated media coverage we had never imagined.
PwC: Positive for you right?

CF: It was positive but there were critical and difficult moments. However, all that helped position
the product, and after that we generated a concrete communications strategy to promote the
product and we decided to make a mass-media campaign, which had to be simply focusing on
the product and we got what we wanted.
Carlos Fernandez PwC: Which would be the spirit of Corona brand?

Gonzalez, Chairman of CF: I think the spirit of the brand is somehow related to enjoy what you do and what you
the board of directors have. Sometimes we come to this world and we do not enjoy much, living crazy. All our
and CEO, Grupo Modelo communication is based on stating Corona is the beer, period, that’s it! Quality does not have
Continued
borders and our ads just invite people to sit down and enjoy a beer, enjoy what you have!
Overall we have a strong portfolio of brands: the most popular one is Corona, of course,
because it is the main brand of the group, with which we have entered many markets. Corona
Light is also showing an important double-digit growth rate. It’s been successful in the Mexican
market and the industry in general. The can we use for Corona Light is the same as the tall
Modelo Especial, which has already positioned in the US as the third most important beer
brand in that country, with double-digit growth rates. We are not doing a lot of promotion or
merchandising of that brand now, but it is generating an important sales volume and we are
satisfied with the results. Pacifico is another brand that is also growing steadily, even though it
is showing moderate growth at a little over 5%. Modelo Especial and Negra Modelo are doing
well; Negra Modelo has its own niche and is generating positive results. I think we are one of
the few beer producers that are currently producing 13 different brands of beer; practically all
of our brands are known in many different countries and we are proud of that. So, I think we
have a pretty well-positioned portfolio. In the domestic market we have Modelo Light, Estrella,
Montejo, Leon, Tropical Light, and all of them have significant growth rates and presence in
their corresponding niches. We are also working on the Modelo Chope, which is a draught
beer that has been very well-received and we are satisfied with its performance. In our culture
draught beer is not very popular, especially in bars or restaurants, but little by little we can
transform the culture, not change it completely, but generate an important presence.
PwC: About distribution channels, how much has your commercial division grown and what are the
results obtained?
CF: We have made an important change in the structure of our commercial division during the
last six years, investing heavily in IT and using the latest technologies. We have implemented
an ERP and all the related tools to gain a better understanding of the market around the
national distribution centre renewal; today we have 32 agencies with a higher drop size and
effectiveness, as well as a higher billing rate. This is also due to the training we have given our
people, because we strongly believe that the higher the education and training level, the better
the judgement and operational ability.
PwC: What does China mean for Grupo Modelo?

CF: On one hand, China is a headache and, on the other hand, it is an opportunity. A headache
because we have had some troubles regarding the commercialisation of our products there,
problems that thanks to the Chinese government and the Mexican authorities we have been
able to solve. However, we still have problems. For example, there are people trying to refill the
bottles with another beer and sell it at the same price or exporting refilled products from other
areas of Asia or even copying our image to launch another brand. Nonetheless, it is a market
that represents a great deal of opportunities. We have an imports and distribution agreement
with Anheuser Busch InBev in China: I think there are opportunity areas for both and we’ll
continue looking for a way to position ourselves strongly in that market.
PwC: How are things going with AB InBev?

CF: We are in the process of arbitration and we are awaiting the final resolution in the next
few months.
Carlos Fernandez PwC: What can you tell me about regulation? How do see the domestic environment, where do
Gonzalez, Chairman of you think the regulatory systems will go in your environment and generally? Do you think
the board of directors there are some risks generated by the new regulations or new tax effects, like the ones
and CEO, Grupo Modelo we are facing now?
Continued
CF: Regulations are going to be inevitably linked to industry in general, and for certain industries
like ours will become more specialised. For example, one restriction on our industry is that we
can only sell our products to people over 18. However, I think that in some instances good
practice is not being generated or that everyone is not measured equally. We always have
to compare ourselves with the best rather than the underachievers, and doing that means
generating the proper balance between the development of an industry and local, regional or
national development. I think there are good international practices that could be adopted and
adapted here in Mexico, and some things we do here in Mexico could be adopted by other
countries. I think in our industry the lack of understanding about what we do for the community
in general creates more regulations, in messages and communications, for example… we have
far more regulations here than in other countries and I think the beer industry has given a lot
to Mexico and will continue to do it. It is an important industry for the jobs it generates and
because it has positioned Mexico as one of the main beer producers in the world. Instead of
looking for more restrictions, we could look for more collaboration and generate through good
practice more value in the industry and the whole country.
PwC: To conclude, regarding labour, you were not forced to make an important downsizing in these
times of crisis, which leads me to think that yours is a company that focuses on retaining talent
and promoting innovation. How do you manage your labour policies?
CF: One of the main things I particularly ask from all our team is respect, a lot of respect and
communication. Respect in how they say things and treat people. Attitude is also very
important. This focus has ensured we have low rotation rates and high seniority rates. We have
a good combination of youth and experience, but most of us have around 20 years’ experience
in the company and the average age is 35. We have people of 45 or 50 years old who have
been working for the company for 30 years, and we have young people around 30 for whom
this was their first job; they do not want to go anywhere else. We have had to make some
adjustments, but it was almost natural wastage, due to retirements. However, if we have to let
some of our people go, we always speak the truth and do it respectfully.
PwC: And how does the Group promotes innovation?

CF: We have looked for a way to develop a strong internal communications system, inviting
everyone to participate in ‘kiosks’ or in the intranet to comment on various subjects to allow
us to improve processes, programmes, take care of our clients, etc. But the innovation part
focuses on talking about machinery, equipment and processes. We have an engineering team
that is probably the best or second best in the world on innovation. In fact, an important part
of our technological development and the improvement of our specialised equipment has
been achieved by our engineers and vendors, and these vendors are already commercialising
what was developed with our people. We are not interested in generating patents or
being acknowledged in this sense, what we want is to solve issues, and we provide our
recommendations or suggestions, and then they make the adaptations and develop prototypes
that are generating great results. Some are no longer prototypes; they have already become
equipment. We have an innovation committee that meets once a month to discuss packaging
trends; we assess and talk about financial issues, since finance has a lot to do with innovation
because our ultimate goal is to generate income to continue investing. Every innovation
represents an investment, and we have to consider legal issues to ensure regulations
compliance. Marketing and sales are also an important part of innovation to realise ideas and
operations, and find out if we can do what we have in mind. Our sessions last from one to two
hours, depending on the topics and products presented, and then we make an assessment and
decide which ones will continue and which will have to wait.
Carlos Fernandez PwC: Is climate change challenging you in any way?
Gonzalez, Chairman of CF: Yes, I believe it affects us all. Therefore, as part of our social responsibility we have to deliver
the board of directors the best results to generate the best resources possible and offer them to as many people
and CEO, Grupo Modelo as we can. We try to improve quality of life; we focus on educational and ecological plans,
Continued
because the more education we have the better civilizations we will build.
Regarding the ecological part, forests have been there for hundreds of years and we are just
catching a moment of their existence. But we keep on destroying what took years and years
to develop. What will happen to our world, our planet? Climate change will affect the health of
people and the development of society. If we are not able to take good care of our environment,
we will surely be incapable of taking good care of our society. Natural resources will also
be affected, which implies the limitation of goods and services; therefore, it is absolutely
necessary to protect what really matters. Every year, we issue a social responsibility report
detailing the progress achieved, for example, in the water retrieval area, the disposal of waste,
contaminating emissions, as well as our specific plans and our philosophy.
PwC: How has corporate governance changed in Grupo Modelo during the last few years?
CF: Corporate governance is a key value in Grupo Modelo and it has evolved according to the
reality of the environment and of the company itself. Corporate governance is definitely more
dynamic, from the establishment of the partnerships to the members of the board and the
board committees, because since our alliances with foreign partners and since we became
a public company – not too long ago by the way – the internal dynamics of the organisation
changed. We have non-executive directors, foreign partners, board committees with specific
functions integrated only by independent advisors, who try to meet the specific needs of the
company and comply with the requirements of Sarbanes Oxley and the Mexican Stock Market
Law. Besides, we are convinced we have to do it and we do it, and the company has evolved
as expected, complying and taking care of all this. Our board of 19 has a great combination
of specialists and professionals with wide experience in the national and international market,
in legislations, finance…so our sessions are very enriching and productive, based on an open
collaboration, and continue to generate value for the company.
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Interview transcripts of Claudio Eugênio Stiller Galeazzi,
CEO, Pão de Açúcar Group

Claudio Eugênio Stiller Galeazzi is the CEO of

Pão de Açúcar Group
PwC: What is the impact of the recent global financial crisis on the dynamics of globalisation, on the
capital market and on consumer behaviour?
CG: The Brazilian crisis occurred against a different backdrop from that of the global economy. It
was more intense on the international scene, where a true financial meltdown occurred, which
affected the economy as a whole. We felt this close up with our partner, the Casino French retail
chain: we witnessed how greatly it suffered from the effects of the crisis as of September 2008.
Brazil was the last country to experience the crisis and the first to exit from it. The growth in
domestic consumption in the last couple of years, driven by an increase in the population’s
purchasing power and the measures adopted by the government, spared our country from
feeling the effects of the crisis as strongly as other world economies. It was possible to predict
that the emerging nations would suffer the effects of the crisis less, insofar as they had already
been seeking a certain independence from the American economy and from developed
countries generally. To investors, the country became an expedient alternative for defensive
action. There was a large flow of investments into Brazilian securities.
For example, the performance of Pão de Açúcar shares improved on the stock exchange. They
have appreciated by 84% over the last two years, whereas the stock exchange only recorded
9% growth in the same period.
PwC: Should we expect to see changes in international trade and in capital flows as an outcome of
the crisis?
CG: I don’t believe that trade barriers will be erected. We, for example, are increasing our imports.
Some countries may impose protectionist barriers, but I don’t think they’ll be very significant.
In addition, in Brazil’s case, the appreciation of its currency (the real) may offset possible
protectionist barriers, and may keep our foreign trade process from being affected by potential
limitations. Owing to our large domestic consumption, we are not dependent on exports, which
was precisely what protected us to a certain extent from the effects of the crisis.
The flow of foreign investment has been substantial and has been targeted at Brazil as one
of the best world market options. It can’t be denied that our universe has become very jittery.
These funds have not necessarily come to stay. Investors are very agile at seeking the best
markets at any specific time, so there could be a migration of these funds as the markets
recover. For now, though, the financial world is still in a crisis recovery mode. Although things
have become much better, that doesn’t mean it’s over.
PwC: Would you say that the crisis rattled public confidence in the private sector as a whole?
CG: There was a loss of confidence in financial institutions in the world as a whole but, again,
this did not affect Brazil to any great extent because of the structure of our banking system.
Governments had to inject billions of dollars to sustain the market.
PwC: What were the most significant changes made in strategy, in the business model or in the
organisational structure of companies as an outcome of the crisis?
CG: Our investment forecast in early 2008 was R$3bn. At the end of the first quarter, the crisis
– which was already threatening to appear in the second semester of the previous year –
was looming over us. We reduced our investment forecast to less than half to strengthen our
working capital, thus adopting a more conservative position. We restructured our debt profile,
renegotiating and extending payment terms. In September, when the effects of the crisis landed
on Brazil’s doorstep, our cash position was reinforced and we were recording a growth in store
sales. That is to say, we stepped into the crisis shored up.
We ushered in 2009 with a more conservative position, but in a situation that favoured pursuing
opportunities to broaden our market share. The upshot was that, although 2009 foretold a year
of meagre business expectations, we were able to make two large acquisitions and double our
size, from gross sales of R$22bn to about R$40bn.
Claudio Eugênio PwC: How did the crisis affect employee motivation and measures to increase productivity?
Stiller Galeazzi, CEO of CG: We were prepared to address possible needs to change our staff structure. We had an
Pão de Açúcar Group emergency plan but there was no need to take any action. There was no drop in sales and I
Continued
think things could have been even better if there hadn’t been a cut in industrial production in
the first quarter of the year. Contrary to expectations, we have had a substantial increase in
employee levels this year.
PwC: Do you think there will be an increase in regulation and how do you assess the threat of
excessive regulation to business growth?
CG: Internationally speaking, I am convinced that there will be increased regulation, especially in the
financial market. The main concern is that any regulatory measures are not defined as a reaction
triggered by a moment of panic, but rather that they are introduced to regulate excesses. I
don’t believe that the objective will be to restrict free float. There will undoubtedly be greater
inflexibility, greater control and greater levels of inspection. In Brazil, the most concerning
aspect is that, as a rule, laws create a highly bureaucratic process. My fear is not regulation per
se but the bureaucracy it will create.
PwC: What are your views on sustainability?

CG: Companies have had to give increasingly greater thought to the issue of sustainability, if not out
of need, at least as a response required by consumers. This consideration must be part of a
company’s daily business concerns. The ideal situation is for both companies and government
to address the issue and each, in turn, seek the best solutions in the sphere in which each
operates, ultimately working together as supplementary forces.
At Pão de Açúcar, we have undertaken several initiatives to promote sustainability. We have a
system in place to control the source of the meat we market and we are constantly expanding
our supply of organic products, although we still have a limited number of suppliers. We have
two “green” stores – their construction complies with Leed (Lead in Energy and Environmental
Design) standards, their furniture is made of certified wood, all their electric power comes from
renewable sources, they offer organic products in greater number than any other store and they
provide rubbish and oil recycling programmes.
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Interview transcripts of Dean A. Scarborough,
President and CEO, Avery Dennison Corporation

Dean A. Scarborough is the President and CEO of

Avery Dennison Corporation
PwC: What will it take for the economies of your key markets, both domestic and global, to stabilise,
if they haven’t already? And are there specific signals that will indicate, or have already
indicated, to you that a recovery is underway?
DS: First of all, recovery is at full steam in emerging markets, especially Asia. For us, China’s
right way back to where they were. We had a few flat quarters there, but now it’s back to
very high growth.
PwC: Did you expect that, or did you think the global recession would go deeper?
DS: I thought it would be worse, but it’s incredible how China has rebounded. Now, I’m talking
specifically about our materials business, which serves the domestic economy there [China]
and is not export-driven. There are still a lot of consumers in China with money, and the
Chinese government stimulated the economy pretty aggressively, and effectively, it seems.
I think China’s export economy will also come back; it has started to stabilise. China’s still a
low-cost manufacturing platform for a lot of companies, and inventory de-stocking has pretty
much ended. Now it’s down to consumer demand outside China.
The two metrics I look at in most of our businesses are, first, inventory-to-sales ratios; given
our position in the supply chain, what people do with their inventories is the thing that’s the
most volatile for us,. We saw an immense amount of de-stocking in the first two quarters of
this year. Our sales were down 13 percent organically for the first two quarters, and then they
were only down six in the third quarter. Then, as I talked to customers and looked at the ratios
for retail and apparel, for example, I started to see them reach the trough in the peak-to-trough
for that ratio. People aren’t investing a lot in new inventory; they’re operating at a different level
today, chasing sales and replenishing as they go with less.
The other metric is consumer discretionary spending. That’s the one I’m worried about. Let’s
not get too enamoured of the GDP numbers that have come out.
PwC: Yes, just today the EEU reported that its GDP numbers for the third quarter were up…
DS: And it’s a “so what?” Government spending is up, and the inventory de-stocking, which pulls
down the GDP, seems to be over, but the consumer with the willingness or ability to spend
hasn’t returned yet. With unemployment rates as high as they are, especially here in the US,
it’s not clear to me that we’re going to see a change. Given what housing and the stock market
have done, I believe consumers are going to be conservative and try to repair their personal
balance sheets for the next couple of years.
Dean A. Scarborough, PwC: Because your international business has become so prominent, will some countries play a
President and CEO, larger or smaller role in global trade than in the past?
Avery Dennison DS: I see little trade skirmishes, but I don’t see them as a huge issue. Actually, it’s interesting. Right
Corporation now I see a lot more trade agreements happening between countries that don’t include the
Continued
United States. That doesn’t impact us all that much because we tend to supply and support
within regions, and we don’t have a lot of cross-regional business. So it’s useful for us to see
trade barriers between regions go down. I’m frustrated for our economy as a whole, because I
think the current administration is just way too protectionist. Anyway, the trade issues are not
going to affect us too much. I think we’ll be fine.
PwC: How might capital flows and capital markets change, and how would those changes affect
your capital structure?
DS: I think we’re okay. We did a lot of work on our balance sheet for the first six months of this
year. We’re focusing on de-leveraging. We converted some convertible debt to equity earlier
this year, and we cut our dividend in July. We’re well-positioned to survive even another
downturn. I wouldn’t say we have a fortress balance sheet, but the walls are higher and
thicker than they were a year ago. We don’t have a problem accessing credit.
Here’s what I worry about: I worry about our customers. A lot of our customers are small.
They are having problems getting credit. And that’s an issue for us as a company. Risk
premiums seem to be back to normal now, and that’s a good thing, but I do worry that at
some point all this government borrowing could crowd out private investment, and that interest
rates could go up. Economists are saying there’s no risk of that in the next couple of years.
I hope they’re right, but every government is running heavy, heavy deficits, so I do worry
about that for the medium term.
PwC: Will capital flow freely across borders when recovery sets in? Will foreign investors return?
Will opportunities to invest overseas be attractive?
DS: From my perspective, I don’t see any issues there. If the US government tries to tax US corporations’
foreign earnings differently, we may see a different set of capital flows, but for the wrong
reason. I have not felt any restrictions so far, and I don’t anticipate any, at least at this point.
PwC: To follow up on that, what is your perspective on some of the tax law changes that are
being proposed?
DS: The US is, I think, one of two countries in the whole world that tax the foreign earnings of domiciled
companies. To be competitive in a global economy, we need to move to a territorial tax strategy like
other countries’. Unfortunately, the current administration sees this as a place to get money to fund
deficits, but they will kill the golden goose if they’re not careful. I really do worry about that. It’s not a
smart idea. We’re a global company domiciled in the US, but two-thirds of our revenue comes from
outside the US. It would not be a good thing for the United States to fundamentally disadvantage
its corporations, both at home and abroad, with that kind of tax strategy.
PwC: Do you get some feeling as to which way those winds might blow?
DS: I’m concerned about it. The government’s running such high deficits; they know they need to
raise tax revenue, and the politics around foreign earnings are relatively easy. Unfortunately,
most voters don’t understand the implications of raising taxes on multinational corporations.
In the short term, it could enhance government revenues. In the long run, it will not. So it’s a
really bad idea.
PwC: Are your opinions being asked for and listened to in this debate?
DS: We work very closely with the Business Roundtable. We are spending time in Washington to
help explain to Congress that this is not a good idea.
Dean A. Scarborough, PwC: You talked earlier about consumer spending and confidence. In the economic crisis, consumer
President and CEO, demand has certainly fallen in many key markets. Recognising that so many of your end
Avery Dennison customers are dependent on consumer purchasing and confidence, when recovery sets
Corporation in, what’s your expectation as to whether that spending will return and whether purchasing
Continued behaviours will resemble those seen in the past?
DS: That’s the $64,000 question. Again, emerging markets are back, but it’s too early right now to
declare that the consumer is back in the US and Western Europe. I just don’t think we know
the answer yet. I’ve heard such a wide variation of opinions from different economists. Some
say we’re back. Others say, no, consumers are going to change their behaviour. I think it’s
pretty fragile right now. We’ve seen a slight increase in retail sales in the US, and I’m hopeful
Christmas is going to be okay. That will start to build some confidence. But it’s so fragile.
All it will take is one really bad event somewhere and we’ll go back into a hole for a while.
That’s what I worry about.
PwC: Are you anticipating major structural shifts in economies as they emerge from this recession?
DS: Some of them are obvious. Government spending as a percentage of GDP in almost every
economy is going up. We’ll adapt to that environment. In fact, we need to look at government
as more of a customer. Our strategy in the past was “let’s just stay under the radar,” and that’s
not doable anymore. We need to be an influence, certainly, so we’re going to step up our
involvement in the public sector to influence the outcome in a good way. The other areas I see:
Is technology still going to be a growth area? Healthcare and clean technology?
I think security in the broad sense is going to be an important factor. What do I mean by that?
Well, people are worried about viruses, such as swine flu. People are worried about their
personal security. They’re worried about the security of the food market. We’ve had a lot of
scares in the last few years around jalapeno peppers, peanuts and spinach. More people are
starting to care about what goes in their mouths. Where did it come from? So we’re going to
see more compliance, more track-and-trace, more investment in protecting supply chains or
important areas of the economy. I think that’s definitely coming.
PwC: To follow up on that, you mentioned in an interview last year that food safety problems in China
may create opportunities for Avery Dennison related to possible food-labelling regulations.
DS: Any time governments want compliance around track-and-trace, or people want to know
what’s in a product, it tends to be good for our business.
PwC: On a related subject, some observers believe the economic crisis has undermined the public’s
trust in the private sector’s motivations and the reputations of entire industries. Do you agree?
If so, what are some of the specific things that Avery Dennison is doing to restore either the
public’s trust in the private sector or the reputation of your industry?
DS: At the end of the day, you’ve got to have a strategy, and you’ve got to communicate it. You’ve
got to have values, and you’ve got to focus in on them. We’ve spent a lot of time in the last few
years reinforcing our values as a company. We have developed a very strong values and ethics
programme in the company, with a lot of transparency, which I think is a real positive message.
You’ve got to make sure the reputation of your company is good inside the four walls, and with
your customers. You’ve got to set an example.
Sustainability and social responsibility are part of that, too, and we’re increasingly focusing
on that as an extension of our values. We need to do more, so for us it’s just the beginning.
You do the best you can for your shareholders, for all your constituents, and you have to
lead by example.
Dean A. Scarborough, PwC: What are the most significant changes in your strategy, business model or organisation that
President and CEO, you’ve initiated in response to this economic crisis. Specifically, could you discuss Avery
Avery Dennison Dennison’s restructuring programme announced in fourth quarter of last year.
Corporation DS: The restructuring programme is actually very straightforward – it’s all about getting our fixed
Continued
costs down when our volume drops. There isn’t anything necessarily strategic about it.
More important, though, we are changing where we’re focusing as a company and what we’re
doing as a result. We are a market leader in our three major sectors: pressure-sensitive materials,
retail-information services, and office and consumer products. But, frankly, we haven’t been
growing fast enough, and that’s been our fundamental issue. Our focus has been almost 100
percent on our direct customer – people who are reselling our products – either by converting
them or selling them. In office products, it’s the superstores. In our pressure-sensitive materials
business, it’s printers. In our retail-information services business, it’s apparel manufacturers.
The real change for us in strategy is to get a lot more externally focused. So now our focus in
office products is the actual end consumer. In pressure-sensitive materials it’s not the printer,
it’s the brand owners – the consumer packaged-goods company or the transportation company
such as UPS. In RIS, it’s the retailer or the brand owner, such as Nike, Adidas or Under Armour.
Our job is to understand their needs. How can we help enable their brand to sell more? And how
can we help our customers be more intelligent so their supply chains operate more efficiently?
That lens is different for us. Here’s the great news: We have yet to find an end-use market or
consumer who doesn’t think we’re relevant in their space; they think it’s great we’re there. And
our competitors aren’t doing it. This is great news, because if the initial reaction is positive, and
your competitors aren’t there, then we should go there.
The challenge for us is to find innovative solutions with the insights we gain from this work.
It’s going to cause us to think differently about the solutions we’re providing. For example,
in pressure-sensitive materials we’re going to have to partner or offer equipment as part of
the solution, which we haven’t done in the recent past. We did a long, long time ago. It’s
challenging us to think differently about those markets. It’s a much more rigorous external
orientation on end users and customers to get key insights in these new markets. It’s a big
strategic change in the company for us.
PwC: Has it been difficult to implement that type of new or expanded thinking?
DS: On one level yes, because it requires investment in a tough time. It requires training and
new capabilities. It’s required us to go outside and bring in some capabilities. For example,
if we’re going to call on the food market, we’ve hired people with a lot of expertise in food.
Our old strategy would be to take somebody inside the company and try to have them to
learn about the food market. That’s a bad idea; it just takes too long. Instead, let’s find
somebody in that market who knows a lot about it, and we’ll tell them all they need to know
about Avery Dennison.
The second thing is, we worried way too much about what our direct customer would think.
Will they punish us? Will they take away business? Will they worry about us competing with
them? The reality is, in most cases, they’re glad we’re doing it, because our objective isn’t to
try to figure out how to squeeze more margin from them. Our objective is to grow the business,
which is certainly consistent with their objective. A lot of the mental block has been in our
heads, not external.
PwC: Is that bold on your part to invest at this time?

DS: It’s necessary. We have ramped up our investment in end use and consumer marketing. We’re
investing in hiring and training people in these new areas and skills. At the same time, we’re
generating some of the dollars by restructuring and reducing our workforce. The second
place we’re investing is information technology. We need stronger business-intelligence and
networking capabilities to be successful in a global environment, so we’ve brought in new IT
leadership and new thinking. We’re going to be spending more on IT to enable us to leverage
our scale and our knowledge on a global basis much better than we’ve ever done before.
Dean A. Scarborough, PwC: With the hope, too, that the IT investment will increase your efficiencies?
President and CEO, DS: Yes. We’re already really good at using Enterprise Lean Sigma as a productivity enhancer,
Avery Dennison especially in our supply chain and operations. In fact, you can see it in our numbers. Our gross
Corporation profit margins were very good in the third quarter of 2009. One of the reasons is because we
Continued
know how to execute that well. Now we need to leverage our scale in functions like finance,
IT and human resources and make these services a lot more efficient and more effective. We
have wide variation in the cost and capability depending on the business that we’re serving. I
know from our supply chain work that we can do this better.
This is going to be a big change for us. We’re really globalising the business. More of our
businesses are running on global functional models today, which definitely ramps up two
things. You need to have really good people to be able to manage around that complexity, and
you need to have good information availability and structure so you can do it on an efficient
basis. We’re breaking through those barriers now. It’s a cultural change, it’s a business model
change for us, but it’s absolutely the right thing for us to do.
PwC: To follow up on that, has your board become more engaged with strategy, risk, leadership
development or other areas that in the past had primarily been management’s responsibility?
You recently brought on a board member from the energy sector, and you have a board
member in healthcare, both of which are key areas right now.
DS: We’re doing a much better job these days of engaging our board on strategy and risk
management. We have a great board, and we should utilise all of their skills to help the
success of the company. They definitely have an oversight and governance role, but for me the
most important contribution the board can make is to help us with the strategy development
and execution.
PwC: Is your ability to respond to new opportunities constrained by difficulties in raising capital? You
said earlier that capital is not really much of an issue for the company.
DS: We have adequate cash flow to invest in the business for the long term. We’re focused more on
de-leveraging right now. We’ve cut the dividend and we’ve converted some convertible debt to
equity. We’re going to pay down some debt. We’re increasing fixed assets a little bit for the IT
function, but overall they’re lower. We’re not hot and heavy after any acquisitions right now. We
have adequate access to capital; we have a billion-dollar revolver we can tap into, so liquidity
is not an issue. We’re in pretty good shape.
PwC: What gaps in risk management, at Avery Dennison or within your industry, were exposed by
the economic crisis? Did you make any incremental changes to address them, or are you
initiating different approaches to risk?
DS: We did a couple of things this year. At the behest of the board, we did much more aggressive
scenario planning. At the end of last year, the board asked us to show them a really extreme
business case. They pushed us to say, ‘You really need to think about how bad this recession
could be’. Remember, a year ago everybody was highly uncertain. It was tough to get capital;
it was very doom and gloom. The exercise pushed us to say, if this recession is long and
protracted, there are decisions we should make today, because if we wait, it will be too late to
have made them. For management, it certainly opened our eyes. We said, ‘There’s no downside
to taking action early’. That led us to convert the convertible debt and cut the dividend.
We beat our bottom line and free cash flow targets, because we had put enough plans in place.
In fact, we over-performed in a worst-case volume scenario. So that was a real positive.
PwC: What about how you managed risk regarding vendor relationships and customer relationships?
DS: We did some vendor risk management. On the customer side, we took a real hard look at who
we were giving credit terms to. So we’re using enterprise risk management more effectively now
as a business. We talk about it with the board. I still think we have a ways to go, because the
tools are still clunky if you’re a non-financial organisation. But we did a good job of identifying
the things that could really hurt us in the future and building action plans around them.
Dean A. Scarborough, PwC: With regard to your employees, have you been able to maintain morale and motivate staff while
President and CEO, achieving productivity?
Avery Dennison DS: Yes and no. Our employee engagement scores aren’t as high as they should be. At the
Corporation same time, the organisation has risen to the occasion in the last year. I spend a lot of time
Continued
communicating our vision and our strategy, talking to people about what we’re doing, why
we’re doing it and how we’re doing it. It’s easier today to do that, by the way, with all the tools
you have to communicate with people.
At the senior level, it’s been interesting. I got a comment from a director at our strategic off-site
meeting in July, who asked me, Why is the management team so enthusiastic and motivated?
I thought about it for a minute and said, ‘Hope’. He said, ‘What do you mean?’ I said, ‘There
are a lot of things out there that are not under our control. The economy is not under our
control, and volume is down because people are de-stocking. All we can do is react to that
environment. We’re investing in the things that we think will make us successful in the long run.
In the whole external orientation, when we’re out talking to consumers and end users, we’re
getting an incredibly positive response. So we can really grow if we do this well’. If we had
gone out there and the reaction had been, ‘We don’t really need to talk to you guys’, it would
have been a whole different conversation, because we would have been discouraged. But
we’re encouraged by our early adventures into this new world. A little success goes a long way
in this kind of environment.
PwC: In what ways has the financial crisis affected your ability to recruit and retain talent?
DS: Obviously retention has been a lot easier, because most people are voting for security. But
we’ve also been able to attract some great talent, especially in our new growth platforms area.
They believe in the vision of the company and what we’re trying to do with these new growth
platforms. I am very energised by this. I’ve also made some changes in my management team.
PwC: Do you believe that reforms in the financial sector, healthcare and energy are necessary to
maintain or, as some argue, even restore US competitiveness? Why or why not? And what are
your major concerns about the impacts of proposed reforms?
DS: I think the reforms, the way they’re coming out, are fundamentally flawed, because they don’t
leverage market mechanisms. For example, let’s take carbon. I actually think it’s a good idea
for us to try to regulate the amount of carbon we’re putting into the atmosphere. Now, I’m not
an alarmist and think that the whole world is going to come crashing down. On the other hand,
I don’t think it’s a good idea to fool around with the atmosphere, because it’s something we
don’t have a lot of control over.
A lot of the fundamental technology is out there, but the way the laws are being written is just
crazy. The government wants to put a tax on carbon, but then let everybody out of it, so that
no one gets hurt. It’s insane. Put a tax on carbon, just put a tax on it. Yes, people will have to
pay more for gasoline. Tough. That’s the only way we will change our behaviour. Europe has
much higher taxes on fuel and carbon-based things, but somehow they seem to survive and
people adapt. They drive smaller cars, they use public transportation.
To me it’s a marketplace orientation. It’s the same thing with healthcare. The issue we have
is that there’s not enough productivity in the healthcare sector, and it has much more to do
with the link between the doctor and patient and process than it does anything else. You have
incredibly wide outcomes and costs for the same procedure in different hospitals in different
parts of the country. Suppose I have that problem inside my business. If there’s wide variation
between my factories, what do I do about it? We get teams together to put best practices in
place. And guess what? We lower the cost, we improve the quality and we narrow the variation
at the same time. That’s not being done in healthcare. I’m sure it would lower costs better than
rationing, which, if we try, people aren’t going to accept.
PwC: Are you concerned that there is a risk of over-regulation in the US in the current environment?
DS: Yes.
Dean A. Scarborough, PwC: In what ways could businesses like yours help governments make regulation smarter?
President and CEO, DS: I wish I knew the answer to that question, I really do. The fundamental issue is that the
Avery Dennison motivations of a non-profit sector like the government are so different from the for-profit sector.
Corporation For example, the state government in California can’t take hours away from state employees
Continued
when it’s running a huge deficit. That’s just unfair to taxpayers.
I do think the federal government did a good job of preventing a financial meltdown.
The government had to intervene. It could not let the confidence in the financial sector fall
away; we would have gone down a spiral that would have gotten more and more difficult
to correct. I give the government a lot of credit for stabilising the financial sector. They had
to do it, and I’m happy they did.
PwC: Following up on that, what one thing could governments do to stabilise the financial sector
and minimise the risk of another meltdown?
DS: I wish it could be just one thing. Governments need to require higher reserves and more capital,
and they have to mandate transparency. It’s as fundamental as that. And can’t encourage the
financial system to make mortgages available to people who can’t afford them.
PwC: The American Clean Energy and Security Act that passed in the US House of Representatives is
largely recognised as the first comprehensive bill to address energy security and climate change.
Of course, there is still a long way to go before the Senate passes its own climate-change bill,
and then the two bills must be merged and voted upon. In the meantime, however, are you
preparing Avery Dennison to benefit from any of the provisions outlined in the House bill?
DS: It’s not going to impact us that much. We’re not a huge carbon emitter. We’re doing all the
sustainability things we should -- reuse, reduce and recycle. This is a huge thing for us.
Employees ask me all the time about what we are doing around sustainability. The younger
generation especially wants to work for companies that make a difference. That’s really critical.
The Milton Friedman school of thought, that our job is just to go make money, well, pardon the
pun, but that thinking’s not sustainable anymore.
PwC: Finally, we’ve touched on a lot of different areas here. About which of all these issues would
you most like to learn what your fellow CEOs have told us?
DS: Economic recovery and consumer behaviour. Those are areas that are going to show us our
path forward.
Rethink
Workforce
motivation
Reshape
The talent
pool
Result
Business
alchemy
Interview transcripts of Dr. James Mwangi,
Managing Director and CEO, Equity Bank

Dr. James Mwangi is the Managing Director and CEO

of Equity Bank
PwC: To what extent has the global economic crisis affected your country?
JM: Our domestic capital markets were hit hard. The Nairobi Stock Exchange saw an appreciable
flight of capital. In terms of exports, the market for cut flowers has suffered most, but coffee
and tea exports have been affected, too. Tourism volume has also slowed. We had hit the
one-million-visitors mark in 2007, but are now down to 400,000. However, the impact on our
Diaspora remittances has been minimal – we have had only a 5% reduction. In terms of direct
foreign investment, that had already been on the decline for the past two years.
PwC: How might the financial crisis affect the African economy?
JM: I think global capital flows will likely change and I am convinced that Africa could be a net
beneficiary because of its positioning as the next frontier for investment. Africa holds the world’s
largest mineral wealth, which is especially valued by emerging markets. A lot of investment will
be required to exploit that wealth. With better infrastructure, Africa might also one day be seen
as a competitive region for manufacturing. And to the extent that Africa becomes viewed as a
unified market of one billion consumers, I think it would be very attractive to investors.
PwC: What will it take for the economies in your market to stabilise?
JM: Fortunately, as a result of a very conservative regulatory framework, the African banking sector
has largely been insulated from the crisis. No African banks failed or were undermined by toxic
assets. If you look at the performance of African banks in 2008, they did much better than in
2007. And looking at the first half of 2009, it appears that their performance will improve again.
But while there was no direct hit, the African banking sector was not completely immune to the
crisis. The slowdown in the economy naturally affected the volume of their transactions. The
fall-off in direct foreign investment was also a lost opportunity for African banks.
PwC: Do you expect consumer consumption to eventually return to its pre-crisis level?
JM: Consumer behaviour might change slightly. In particular, I doubt whether the level of consumer
consumption in the US will continue to be as high as it has historically been. I think there might
be a few lessons about Africa’s culture of saving that America might wish to adopt. But the
nature of consumption may also change from a propensity to consume what we call high-
end products, to more economical ones. For example, here in Kenya we now see fewer gas
guzzlers on the roads and more economical vehicles. So we may see a shift toward ‘affordable
consumption’. Of course, if the economy fully recovers people will naturally want to go back
to products that defined their previous quality of life. In that case, industries that drive ‘quality
of life consumption’ are likely to return to their pre-crisis levels. But very top-end ‘snobbish’
consumption might still remain a bit soft.
PwC: Do you anticipate structural shifts in the world’s economies as a result of the economic crisis?
JM: Finance ministers and regulatory authorities around the world are using incentive packages
to drive private capital towards particular sectors. When we look at China, the US and here
at home, it’s pretty clear that we’re seeing huge shifts in how these economies are driven. In
Kenya, we’re shifting towards what you might call rural development and that will have a direct
impact on the livelihoods of ordinary Kenyans.
PwC: Are changes in the Kenyan economy causing your business to adopt a different strategy?
JM: Of course, you have to align yourselves to the micro-economics of the environment in
which you operate. You always do your level best to align your organisation to the external
environment. So you study that environment and adjust your behaviour accordingly.
Dr. James Mwangi, PwC: Has the economic crisis undermined the public’s trust in the private sector?
Managing Director and JM: I feel there is loss of trust in the private sector and there are questions about capitalism’s ability
CEO, Equity Bank to allocate resources rationally. But that is a debate that needs to be taken a step further. We
Continued have lost trust in existing systems, but what is the alternative? What alternative would be
better at allocating resources? Rather than condemning private sector capitalism altogether,
we should modify in ways to ensure that it works for the public good. I would like to see a
combined effort by the private sector and the regulatory authority to find a balance that will
protect the public good.
PwC: What is your organisation doing to restore public trust?

JM: The financial industry thrives on confidence, so we are doing our utmost to restore public
trust. In that regard, we are doing more listening and take very seriously the concerns being
expressed. And we are giving those concerns due consideration before we respond. But you
do not know what can be reasonably promised because it may take sometime before the new
economic system takes shape. But we are doing our very best to ensure that the integrity of the
financial system is quickly restored.
PwC: Do you think your organisation will come out of this financial crisis stronger?
JM: Equity bank will become much stronger because there are so many lessons to be learnt.
One of the biggest lessons we have learnt is about risk management. In the past, we believed
that it is the things that we ourselves do – or fail to do – that would hurt us most. But now we
understand that the environment can also affect us significantly. So we now want to be in a
position to shape and influence the wider banking industry. Most of the organisations that failed
were brought down not because of toxic assets but because public trust was lost. So we have
learnt a valuable lesson about managing the external environment, about thinking macro and
acting micro. That’s made Equity Bank a stronger organisation. We are more aware now of the
possible repercussions of events out of our control.
PwC: Were any gaps in your organisation exposed by the financial crisis?
JM: One of the issues we’ve had to contend with is the diversification of our business across the
world’s economies, some of which were resilient to the downturn while others were vulnerable.
Getting that global diversification right is a very good way of managing risk. As a bank operating
in emerging markets, we have quite significant correspondent relationships with banks, both in
Europe and America. During the crisis, it was frightening to watch what was happening to those
banks. That kind of exposure helped us to rethink and diversify our risks across the world. Our
risk management perspective is no longer country-based, or regional-based. It is a global risk
framework that we are operating on. The crisis also caused us to rethink our currency exposure
because, as the crisis unfolded, different currencies behaved very differently. Another issue that
emerged as a result of the crisis is that companies with strong business continuity programmes
seemed to respond to the crisis faster than those without. And that caused us to review our
own ability to respond quickly to unexpected challenges.
PwC: Have changes been made to your business model as a result of the financial crisis?
JM: Equity Bank has proved that profit can be made by operating at the bottom of the pyramid. The
fact that the financial crisis had minimal impact on us suggests that in operating at the bottom of
the pyramid, we are perhaps better insulated from crisis than those operating at higher levels of the
pyramid. That informs our internal debate as to the merits of continuing with our high-volume, low-
margin, bottom-of-the-pyramid business model. We sometimes ask ourselves whether we should
stop thinking of ourselves as an organisation that operates exclusively at the bottom of the pyramid,
and, instead, become more inclusive. At the same time, we realise that different sectors of the
community were affected differently by the financial crisis. The middle and upper income segments
of our society were the owners of assets that were particularly affected by the crisis. But the lower
income segment of the population was most affected by inflation, which increased their cost of food
by almost 70%. So we understand that if we were to become a more inclusive financial system, we
would also become more vulnerable to a wider range of risks and shocks. So our consideration of
what diversification strategy to adopt has been greatly informed by the turn of events.
Dr. James Mwangi, PwC: Has your organisation been constrained by difficulties in raising capital?
Managing Director and JM: Fortunately, on the eve of the crisis, Equity Bank had just raised $185 million. That capital
CEO, Equity Bank provided us with a cushion and enabled us to take advantage of the opportunities arising
Continued
from the crisis. The capital markets continue to demonstrate a lot of interest in Equity. High
performing companies are always very attractive to available capital.
PwC: Will there be increased M&A activity in the banking sector as a result of the financial crisis?
JM: I think banking has been redefined by this crisis, and it appears that size has become a
significant factor going forward. Unless you’re focusing on a clearly defined niche, you can’t
operate in the wider market without having achieved sufficient scale because technology –
which has become a big driver of the banking industry – is hugely expensive and the unit cost is
dependent on the size of the bank. A bank’s attractiveness in terms of raising capital and ability
to absorb shock is again determined by the size of its capital base. You can’t afford to be heavily
capitalised and still remain small because capital is very expensive and needs to be leveraged.
PwC: During the financial crisis, how have you been able to maintain staff morale?
JM: Our people work for the benefit of our investors. But because we have an employee share
ownership scheme, our people also work for the benefit of themselves. In this way, the interests
of our investors and our people are aligned. We also try to promote within our people a higher
calling beyond simply earning a living. We want them to understand that what they do helps
make Africa a better place by promoting the economic and social prosperity of its people.
That higher calling makes them wake up a little bit more motivated.
PwC: In what ways has the financial crisis affected your ability to attract and retain talent?
JM: One aspect in which the financial crisis has worked in our favour is that it has created a wider
pool of available talent. In the last two years, we have managed to attract very significant talent
from both Europe and North America. These are highly experienced people who bring with
them enormous knowledge. And since many of them experienced the banking crisis first-hand,
they also understand how to mitigate such events. That has been a major benefit to Equity.
PwC: As a consequence of the financial crisis, do you anticipate a wave of new regulation?
JM: It’s true that new regulation is on the way. The European Union has already started talking
about what they want to see. Looking at the US, we also see the regulators gearing up. Right
now, I think that bankers lack the moral authority to continue to advocate for self-regulation.
But I also believe that excessive regulation stifles innovation. We need to strike a delicate
balance between self-regulation and external regulation and avoid overreacting. This requires a
reasoned dialogue where people listen to each other without rushing to conclusions. We must
create a clear regulatory framework – but one that provides sufficient space to accommodate
innovation, which is what private capital is best at.
PwC: What sorts of regulation would you welcome?

JM: What I would advocate is the harmonisation of regulations. It sometimes becomes very difficult
to operate within a given region because different regulatory regimes across the region may
address the same issue in different ways. There would be quite a lot of good that would be
derived from harmonised regulation.
Dr. James Mwangi, PwC: How can governments ensure against overregulation?
Managing Director and JM: Stakeholder engagement and involvement is critical. There must be dialogue and an open
CEO, Equity Bank environment that allows give-and-take. And everybody must understand what it is that we are
Continued
trying to achieve. Then we can ask, ‘What is the best way to achieve that end?’ I would say that in
Kenya I am seeing that sort of dialogue take place. I am not seeing any over-reaction, but maybe
that is because we were not significantly affected by the global financial crisis. In Kenya, the
financial sector remains very solid, so there is no overriding reason to call the regulators to action.
In jurisdictions where governments had to bail out the financial industry using public resources,
regulators are much more justified in expressing their concerns and driving their agenda.
PwC: What is your company doing with respect to the issue of climate change?
JM: First, we screen all our lending to ensure we are not funding activities that destroy the
environment. Second, the university students we employ as interns during the holidays are
given training on the issue of climate change and the role the community can play in protecting
the environment. We are also members of a business coalition organised to restore and
preserve the Mau Forest in Kenya’s Rift Valley. I would like to see greater focus by CEOs on
long-term environmental issues. We must not be slaves of the immediate. Otherwise, we will
destroy the future.
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Interview transcripts of Dr. Paul Joseph Reynolds, CEO,
Telecom Corporation Of New Zealand Limited

Dr. Paul Joseph Reynolds is the CEO of Telecom

Corporation Of New Zealand Limited
PwC: What will it take for the economies of your key markets to stabilise?
PR: Telecom New Zealand’s key markets are New Zealand and Australia. Both economies
managed to avoid the kind of damage suffered by other economies around the world. In terms
of assessing the impact of the financial crisis on our business, we generally find that people
continue to buy telecommunications services even in a recession. Within the consumer market
for telecom services, the key factor for our business is the level of employment. If people are
still employed, they’re using telephones and other forms of communication – even if their
overall confidence in the economy is low. Having said that, it is also true that unemployment
is still rising in New Zealand and that could have an impact on our business. Overall, when
unemployment begin to fall back to a more normal level, I think you will see the New Zealand
and Australia economies begin to stabilise.
PwC: Have you seen the behaviours of the capital markets change, and if so, how might that affect
your company’s own capital structure?
PR: Clearly, as the result of the recession, capital has been pretty scarce – particularly in New
Zealand. And that’s why we’ve taken the view that with regard to our financing, we need to
be A-rated so that we’re able to raise debt in international markets – which is very necessary
when operating from an economy like New Zealand. In fact, over the last 18 months we have
had our borrowing requirements covered, so we have not actually had to raise capital or debt
during the worst of the recession.
PwC: Have you seen changes in bank behaviour in relation to your ability to raise capital?
PR: I understand that banks have become much more cautious. But since we haven’t had to go to
the banks to raise debt, we haven’t been affected directly.
PwC: What are your expectations about consumer spending once an economic recovery gets
underway?
PR: New Zealand experienced a relatively modest recession in comparison with other economies
around the globe. Nevertheless, consumers here have cut back, but they’ve cut back on
anticipation of a worsening recession as much as the reality of the recession. In fact, we are
already seeing some signs of bounce-back in the New Zealand market. So I do expect a
recovery of consumer spending.
PwC: Do you, however, expect to see any lasting changes in consumer spending habits?
PR: As far as the domestic telecommunications market is concerned, I expect a return to normality
amongst New Zealand consumers. However, what is less certain is whether there will be
sufficient confidence in the economy to support a return to the normal numbers of foreign
tourists coming to New Zealand, and similarly, the number of New Zealanders travelling
overseas. That inbound and outbound travel generates inbound and outbound telephone
traffic, which has a significant impact on our revenues.
PwC: As the world emerges from recession, do you expect to see structural economic shifts in your
key markets?
PR: The Australian and New Zealand telecom markets are experiencing very significant structural
shifts as a result of government investment in and regulation of the telecom sector.
The impact of those government actions will result in new opportunities, new services, and
innovation in the marketplace. But it will also mean intensifying competition. So going forward,
I do expect four or five years of very intense activity in the telecom market both in Australia and
New Zealand
Dr. Paul Joseph Reynolds, PwC: Has the financial crisis undermined the public’s trust in the private sector?
CEO, Telecom PR: I have not seen significant trust issues in my industry or in this market as a result of the
Corporation Of New recession.
Zealand Limited
Continued
PwC: Nevertheless, in the context of the financial crisis, has your company become more conscious
of protecting its reputation?
PR: Telecom New Zealand has initiated a very significant programme to improve its reputation in the
marketplace – not specifically in response to the recession, but because we think that reputation
is a critical marketplace factor for us. Over the next four or five years the structure of our industry
and the way this industry is regulated is going to go through some dramatic changes. And as
these changes unfold, we feel that reputation will provide us with the continuity we need to
maintain and strengthen our position in the marketplace. So yes, reputation is a huge issue for us
and we are working extremely hard on it. But it hasn’t been driven solely by recession.
PwC: Has the financial crisis had an effect on your company’s operations or strategy?
PR: We took very specific cost-reduction measures in response to this recession. For example, we
froze salaries across the business, and we significantly reduced the number of contractors and
consultants we use. But we’ve also been investing heavily in the belief that, as the crisis fades,
there is a big market opportunity for us. At a time when some of our competitors have cut
back, Telecom New Zealand has been investing aggressively so that, as we come out of this
recession, we are poised to take advantage of opportunities.
PwC: As a result of the global financial crisis, has your board of directors become more involved in
issues of strategy or risk management?
PR: The board of Telecom New Zealand has been heavily engaged in strategy and risk management
over the last year. I feel confident in saying that never in our company’s history has our board
been more involved in these issues. But that involvement has much more to do with the huge
structural changes taking place in our industry rather than issues related to the recession.
PwC: Has the financial crisis constrained your company’s ability to raise capital?
PR: We have not experienced any constraints in raising capital or debt in the last year.
PwC: Did the economic crisis reveal any gaps in your company’s risk management?
PR: I don’t think the financial crisis in New Zealand revealed much of anything of significance to
us. Naturally, it did cause us to pay extra attention to operations like credit management, debt
management, collections and so forth. But we have good controls in those areas and a very
detailed risk management plan. Of course, the pressure of the financial crisis caused us to re-
examine and refresh some of our practices. But I would not say that the recession surfaced any
major risk exposures.
PwC: The financial crisis has prompted a call for new regulation. Do you see any positives that might
result from new regulation?
PR: There is a need for regulation. But there’s also a need to give closer scrutiny to the way in
which regulation is developed. One of the significant issues we face in New Zealand is how to
institutionalize a merits-based review of regulation. I don’t think regulation should be designed in
secret. The process should be transparent and open to scrutiny – the same way that many business
processes are. So I think we should work to refine our model of regulation whereby a merits-based
review becomes part of the regulatory process and acts, if you like, as a self-managing check over
the scale and scope of regulation and whether or not it’s achieving its intended outcomes. In our
particular industry, telecom operators are looking for the opportunity to earn a reasonable rate of
return on their investment capital. Consequently, we must have a schedule of regulated pricing that
appropriately reflects the degree of risk that telecom operators must take on – and, in the past, that
has not always been the case. But I am hopeful of more transparency in this area in the future.
Dr. Paul Joseph Reynolds, PwC: Is there benefit in governments driving a global or regional convergence of regulatory
CEO, Telecom frameworks?
Corporation Of New PR: There are very definitely opportunities for regulatory harmonisation across Australia and New
Zealand Limited Zealand – particular in the telecommunications sector. For example, New Zealand already has
Continued
in place an equal-access model whereby all telecom companies have equal access to the
infrastructure of the incumbent operator: Telecom New Zealand. That being the case, Telstra,
the Australian telecom incumbent, has open access to our network. On the other hand, when
Telecom New Zealand operates in Australia, we do not have the open access to Telstra’s
infrastructure on equivalent terms, which I don’t think is very helpful. So there is certainly scope
for harmonisation.
PwC: Do you see governments taking steps to achieve regulatory convergence?

PR: I am aware that meetings have taken place to discuss harmonisation, but I have seen no
action. Politicians, policymakers, regulators and industry people across Australia and New
Zealand come together and talk about these issues. But I have yet to see concrete action by
government or regulators.
PwC: Are there lessons to be learned from the global financial crisis?
PR: I think the big learning point we are all looking for is one that has to do with organizational
agility. In response to the economic crisis, most businesses took action appropriate to a more
difficult trading environment. But the real trick is how to get the balance right between hunkering
down through tough times and investing in a way that will prepare you to make the most of
opportunities that begin to materialise, post-recession. That’s the big lesson – getting the
balance right and being sufficiently agile to take advantage of chances for growth and expansion.
PwC: What action might government take to address the risk of climate change?
PR: I think governments need to give industry some clear guidelines as to what they would like
industry to contribute and achieve. In the context of climate change, the telecom industry
is in a relatively strong position in the sense that we provide services that can reduce the
carbon footprints of others. For example, telecom services can reduce the need for travel and
increase the ability to work from home. To the extent that governments encourage companies
to adopt energy saving policies – including the use of telecom services – the telecom industry
can help support those policies by developing capabilities, including strong broadband-based
communication tools that reduce the carbon footprint of thousand of businesses.
PwC: What is your company doing to address the risk of climate change?
PR: Our company is a significant consumer of electricity, and so consequently, we have a strong
focus on making sure that our infrastructure is comprised of energy efficient equipment.
We expect our vendors – for example, the manufacturers of our servers, switchers, and
transmission equipment – to continuously improve the efficiency of their products so that our
infrastructure as a whole consumes far less energy. And as we function in a more energy-
efficient way, we simultaneously operate more cost effectively.
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Interview transcripts of Eduardo Elsztain,
President, IRSA Group

Eduardo Elsztain is the President of IRSA Group

PwC: What will the economies of your Group’s key markets need to achieve stability, if they have not
yet done so?
EE: The injection of liquidity in developed economies has achieved some degree of stabilisation of
the crisis. What we experienced in the last quarter of 2008 was one of the greatest shocks ever
felt in the whole of economic history. I think the global economy is now starting a process of
recovery, but the greatest challenge will be the way in which this mega-issuance of money and
debt will be absorbed, and it is here where I see a very bright warning light, because I look at
the situation with Argentine eyes, and we are very well aware of the cost of resolving a crisis by
means of the printing of money. I see a world returning to growth, but I think that the medicine
that was needed has been used and will continue to be used, and it remains to be seen how we
emerge from this medical treatment.
PwC: Are there specific indicators that the recovery has begun?
EE: Consumption is on the rebound, credit is gradually picking up, markets are stabilising and stock
markets are looking better. The injection of money into the economies halted the financial panic.
My impression is that the world is now beginning to expand again at a slower rate; the United
States and Europe are beginning to show slow growth, while emerging markets are doing so
at a faster rate. I think that this crisis will double the speed at which emerging economies are
going to grow. We will see a world with less fear than in 2008, but the biggest question to be
answered will be the effect of monetary emission.
PwC: How are things going for Argentina in this context?

EE: In the case of this crisis, comparatively the largest of all both systemically and globally, Argentina
was better prepared. Bank balance sheets were stronger, and in the case of individuals, few had
borrowed. Activity levels were impacted somewhat in the last year, but the situation was not
serious. I think that in our case, in Latin America, as we have gone from one crisis to the next in
the last 30 years, we were prepared for the current one. In addition, as Argentina has recently
gone through a big crisis, it has in fact absorbed better the impact of this last one, and I believe
that in 2010 the country will grow by 3% to 5%, perhaps closer to an annual 5%.
PwC: Will there be more protectionist barriers?

EE: This is a very important matter, and is a question that should be asked of the leading economies.
Job losses in markets such as that of the US have not yet resulted in protectionist barriers, but
they have led to a slower pace of accession by new countries to free trade agreements. It is clear
that when there is a crisis, there is a strong obligation to protect employment.
PwC: How might capital flows and capital markets change, and how would such changes affect your
capital structure?
EE: The most probable scenario is that barriers will be imposed on capital flows, and I foresee a
more regulated world. For example, Brazil has set a 1.5% tax on ADR conversion transactions,
and signs such as this are beginning to reveal some of the secrets as to how regulations are
going to be added. In the next 10 years I can envisage a business environment with a more
regulated capital market, with a tax on permanence, for example. This will no doubt not be
decided on by a single country but, there will be greater overall attention to such matters.
Eduardo Elsztain, PwC: Are you able to detect business opportunities?

President, IRSA Group EE: Difficulties generate skills, and we have 20 years of experience in volatile environments so that,
Continued
as a management team, we are well-prepared to face critical situations as well as those of a
stable and growing market. In the last six months we have acquired a 10% interest of Hersha
Hospitality Trust, a chain of 70 hotels in the US, with an option to purchase an additional 10%.
For us, having experienced all the crises we have gone through in Argentina is of real value:
to understand how to operate in a stressed financial situation, how to deal with high leverage,
restructure debt, invest in a market that has ground to a halt with collapsing stock market
prices… All this has now helped us to open the door to the US. This is a market that a few
years ago would have been inaccessible to us, and today represents a lesser risk within our
structure. In the last year we have expanded our real estate business into the US and in the
agricultural sector we have expanded into Paraguay and Bolivia; and we are making inroads into
the Brazilian market. Having a market team that is trained for crises allows us to do all this at the
most critical moments.
PwC: Once the recovery gains strength, what are your expectations regarding the return of
consumption?
EE: Consumption is strong in Argentina at present, although personal and mortgage debt is
extremely low. In the case of the US, indebtedness is much higher, so I expect increased
savings levels and a greater contraction of consumption, with a lower level of luxury item
purchases. The good thing is that the increase in per capita income in the BRIC countries,
especially because of salary improvements that take place with the opening up of new jobs,
have a profound impact on living conditions in such countries.
In emerging countries a small increase in per capita income generates deep changes in the
global economy. We have followed this same philosophy for 20 years. We know the great
impact that produces a US$50 increase in a citizen’s income of an emerging country. The first
thing they will do will be to spend it on food, on eating better: meat, fried rice and more dairy
products. And that is where we in Argentina benefit spectacularly, because we are in a position
to produce seven times more than what we consume. And we produce a product that will be in
high demand for the next 50 years. Consumption in developed economies will be less dynamic,
and BRIC countries, consumers will gain in income levels and consumption capacity, so that
their markets will become very strong.
PwC: What were the most significant changes in strategy, business model or organisation that you
made in response to this economic crisis?
EE: We made no changes in product and continue to produce basic agricultural commodities: after
the crisis, the demand on what we produce is even stronger. If we have one aim, it is that our
agricultural company (Cresud) should become ‘feeder of the world’. There are few regions like
Latin America where there is so much concentrated potential for the exploitation of agriculture.
What the region needs to take advantage of is a complete production cycle, so that value can
be added to gross product.
PwC: Do you consider that there will be significant structural changes in economies when they
emerge from this recession?
EE: I think that in the case of the emerging countries there will be a greater commitment to
infrastructure investment, at least in Latin America. This will be a smart thing to do, because it is
very much needed. Some work is being seen, but much more is required. Globally, the world’s
leading economies need to deal with their deficits.
Eduardo Elsztain, PwC: Some analysts consider that the economic crisis has undermined public confidence in the
President, IRSA Group motivations of the private sector and has damaged the reputation of entire industries. Would
Continued you agree?
EE: I believe there has been a lot of damage to reputations, particularly in the financial industry,
but I do not foresee the disappearance of it. When there is a system that makes such a huge
collective mistake, people register the impact and there is still a feeling of fear. What happened
will have its cost and the greatest indication of this is the firmness shown by the price of gold,
which continues firmly upwards because people are seeking refuge in it. Recovery will be
possible, however, as happened in Argentina, where there was a confidence crisis in relation
to banks and the financial sector; once everything returned to normal, people went back to
making use of the banking system.
At the time when Argentine credit dried up, we as a company were in the midst of the
development of a major shopping centre (Dot Baires). Sometimes being brought to a halt in
the middle of such projects can be very costly, particularly when trying to start up again later,
and it was a difficult time. The matter was dealt with at three board meetings and we decided
to go ahead. Today we can say that we are glad we did so, because the mall is among the top
three, when ranked by sales on a daily basis. Our company had and has a low debt level in
comparison to peers from other countries, but maintaining a conservative financial structure
was a lecture we learnt from the 2001 Argentine crisis. We leveraged that knowledge to keep
our commercial and financial commitments during this last crisis.
PwC: There is talk of a generalised crisis of confidence. What individual responsibility is borne
by companies?
EE: Each company is responsible for doing its businesses well and in an honourable way.
I consider myself to be an entrepreneur and when an entrepreneur spots a flaw in what
he is doing, he notes it, learns from it and corrects it for not doing it again.
PwC: As a result, what types of adjustments are being made?

EE: The major adjustments were made at the time of the crisis in Argentina in 2002, when we
restructured management and made use of human resources in an integrated manner across
all the companies in the group... All these more drastic restructuring actions had therefore
already been taken during the last global crisis. The most difficult year for us in this regard was
2002, because office occupancy levels dropped, as did shopping mall revenues. This situation
made us take drastic actions, including 20% wage cuts to our top management. Banks
were closing, rental income dropped to zero and the overall scenario was very tough, but we
decided to hang on to our people. We began a programme to reduce our borrowing, issuing
convertible debt for our companies, and all the measures that we took at that time, seven years
ago, have enabled us to take advantage of the current situation to expand our business.
PwC: Which of these measures do you intend to keep in place?

EE: We will keep our debt low, with a large liquidity cushion. We continue to be very rational
in relation to our management team and we have incorporated control of expenditure as
something absolutely essential. One very new step that we are implementing is to grant key
people a greater stake in the company.
There has been a kind of magic scenario in the corporate world, with executives being
offered derivatives, stock options, phantom stock plans and other possibilities. However, I
believe that managers will show you whether they truly believe in the company or not when
they receive shares and maintains them in the long-term. I think this will be a new trend in
management compensation.
Eduardo Elsztain, PwC: Have you made changes to improve the situation, or have you decided on a totally new approach?
President, IRSA Group EE: We faced the crisis as an opportunity. We have bought back shares and debt off our own Group;
Continued we bought other assets in the country at a heavy discount. Moreover, we took advantage of the
current situation to expand internationally. The Argentine real estate sector is going to remain firm
because local mortgage borrowing is one of the lowest in the world. Prices per square meter are very
inexpensive, close to cost, and there is a very substantial housing shortage. This is a market with little
risk of a downturn and it is possible for us to gain access to long-term finance in Argentina.
In the agricultural sector, the Latin American region will have the responsibility of continuing to
produce food and incorporating technology to face the growing protein demand of emerging
countries. Land prices will remain firm and there will be considerable investment, with many
new players. However, many of them will be financial investors that will have problems of lack
of experience in a market that is blissfully unaware. As to investment trends, I believe that
bonds, derivatives and options are tough bones to chew on. Investment funds are beginning
to show interest in real assets and I think this trend will gain strength. These are products for
which consumption will be firm for the next 50 years.
PwC: Looking forward, what emerging or systemic risks [climate change, pandemics, natural
disasters] are you making preparations for?
EE: There is a responsibility to care for the common good. Governments should back up international
agreements that promote actions and commitment for the preservation of the environment.
Our company has developed actions to reduce the consumption of energetic resources
through the diverse endeavours it faces. These actions are backed up by internal and external
communications to our stakeholders. On the other hand, I consider that in the midst of this
financial crisis there is another crisis, one that has to do with the difficulty faced by a large
percentage of the population in gaining access to basic goods.
This crisis brought up another insight about business. It drove us away from the fact that when we
do business with other individuals or companies, the existence of tension, negotiation and conflict
is natural. But when you live in a world in which secured Swiss derivatives are swapped, and a safe
return is sought in paper, then there is no tension, but there is also no care for the other individual.
That is why, if you look at this financial collapse in a certain way, it is also a blessing, in particular
because it breaks up the world of reckless revenue-seeking to leave behind only that which is
basic and essential. It is obviously so much easier to build up a structure of investment papers and
derivatives, and it takes less time. However, in that scheme the human being is not considered.
The basic principle behind money is that it has to do with doing something with another to mutual
benefit. Dealing with another is always difficult, but it is a natural process.
PwC: How have you been able to recruit and retain talent in these times?
EE: I have been in business for 28 years and I have seen that people who enjoy what they are
doing always stay. And if they are not enjoying what they do, they have the option to change
their job within the same ecosystem formed by all our Group companies. We have an extremely
high talent retention level. In Cresud we have three generations of employees working for us
and the average length of employment in the Group is much longer than the one in the market.
I believe in the value of our human capital; their welfare is essential.
PwC: Have you been able to maintain productivity?
EE: We have already lived in times of crisis in many occasions. We have been well-trained for it all
our lives.
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Interview transcripts of Gerolamo Caccia Dominioni,
CEO, Benetton Group SPA

Gerolamo Caccia Dominioni is the CEO of

Benetton Group SPA
PwC: What will it take for the economies of your key markets to stabilise, if they haven’t already?
Are there specific signals that will indicate, or have indicated, to you that recovery has set in?
Global trade is famously sensitive to the global economic cycle. When recovery sets in, will
global trade return to levels seen before the crisis? Will the patterns of trade differ?
GCD: Benetton works in 120 countries, taking an innovative approach geared towards anticipating
a presence in emerging markets. In these markets there are positive signs of a recovery of
the financial sector. However, there seems to be convergence as regards the consumer crisis
which is affecting both the emerging markets and the regular markets. The unemployment
rates, in particular in the regular markets, continue to worsen and we cannot see any
improvement for 2010.
Benetton’s positioning in what we like to call, ‘democratic fashion’, is helpful in facing the
crisis, however; the consumer on average is spending less and more shrewdly. Spending a lot
is less trendy than it has been in the past and consumers prefer to buy greater quantities of
products at the same price rather than a single ‘designer’ product. In this sense, the excellent
price/quality ratio that characterises Benetton has attracted groups of consumers who formerly
focused on higher-end sectors of the market. Finally, one consideration on protectionism:
in general, governments tend to defend local production and facilitate consumption of
products made in their own country. This is a trend that may have an impact on the model of
consumerism which emerges from this crisis.
PwC: How might capital flows and capital markets change, and how would these changes affect
GCD: Benetton has limited indebtedness and a sound asset structure. The credit crunch has not
damaged us. It has however had repercussions on our partners who manage points of sale, in
particular the smaller ones, which therefore have less contractual power over the banking world.
PwC: In the economic crisis, consumer demand fell in many key markets. When recovery sets in,
what is your expectation about whether consumer spending will return and whether purchasing
behaviours will resemble those seen in the past? How will that affect your strategy or your
product and service mix? What kinds of strategic or operational changes have you initiated
in response?
GCD: Our opinion is that consumption will not recover substantially in the next 12–24 months. In the
emerging markets, in particular India and China, there will instead be a greater acceleration
due to the need for status symbols. We are aiming to widen the sales network, which is closely
connected to local issues of consumer recovery.
PwC: Does the label MADE IN ITALY help as regards consumer choice?
GCD: Benetton, as it chooses to be transparent in its communications with the consumer, includes
the product’s country of origin. We have labels in 17 different languages so the consumer
can be a little confused because they have in their heads an Italian brand and then they find
that the country of origin is somewhere other than Italy. However, we think that ‘made in’ is
not exclusively associated with the geographical place of production, now managed on an
international scale, but it represents the place where the product was designed, the type of
quality control which is carried out and, in general, the high-quality standards of the product.
Gerolamo Caccia PwC: Are you anticipating major structural shifts in economies as they emerge from this recession?
Dominioni, GCD: As I said before, we are expecting to enter emerging markets. Internally, we are concentrating
CEO, Benetton on issues of efficiency and human resources management. We are, for example, reviewing our
Group SPA creative choices in order to reduce the number of articles in each collection, which will bring
Continued
a benefit in production management terms. Finally, we are working to make our shops more
attractive. In short, we are implementing a series of considered and thoroughgoing measures
at various points in the value chain from product conception to point of sale.
PwC: Some observers believe the economic crisis has undermined the public’s trust in the private
sector’s motivations and the reputations of entire industries. Do you agree? If so, what are
some specific things your company is doing to restore either the public’s trust in the private
sector, in general, or the reputation of your company and industry?
GCD: O
n this point, Italy is very different from other countries. We privatised a lot during the boom
years and now there’s a sense that we are turning back towards forms of greater public
presence in business. I think that this is one effect of the crisis, but at least in the Italian
banking sector the balance hasn’t changed substantially in this context.
PwC: Do you feel that your organisation will be stronger coming out of this crisis than it was before?
If yes, in what way?
GCD: The easy answer is ‘yes’; qualifying this response, we should consider that Benetton works
within the Italian system. We need public intervention, in terms of new rules and laws, lighter
bureaucracy, to improve competitiveness, which is becoming ever fiercer from other systems.
If we look at the Italian fashion system, however, the production chain is changing. There is a
new, more flexible way of doing business and some areas of the sector (for example, textiles)
are no longer competitive.
PwC: What are the most significant changes – in your strategy, business model or organisation –
that you initiated in response to this economic crisis?
GCD: We are mainly working on optimising costs in all areas in order to generate efficiency.
In particular, we are working both on issues of internal organisational structure and retail
streamlining. We must aim at positioning in terms of profitability of our shops, renegotiating
prices and costs. The issue of risk management is significant in a company like ours in which
the shareholders are present and stand shoulder to shoulder with the management in the
making of strategic decisions. This type of structure tends to be able to seize opportunities
more rapidly than traditional multinationals. This is a strength which must be preserved....
we need to balance the issue of risk management in an organisation that tends towards better
discipline and timely reactions to outside events in order to seize the opportunities they offer.
PwC: What gaps in risk management in your company or your industry were exposed by the
economic crisis? Did you make incremental changes to address them or are you initiating a
whole new approach to risk?
GCD: Benetton’s risk management has benefited from the diversification of the risk itself being
distributed between various partners with which we work to develop the distribution network.
Nowadays, taking into account that our business is based on a wholesaler sales structure,
the main element in risk management we have to face is that involved in changing from a
prevalently sell-in to a sell-out management.
PwC: The economic crisis has been stressful for most employees, many of whom have been asked
to accomplish more with less. How have you been able to maintain morale and motivate
staff? What kinds of models or arrangements will help your company achieve productivity
improvements in the future?
Gerolamo Caccia GCD: Local focus is a strength in moments of crisis, to give an example, but it is a weakness as
Dominioni, regards professional growth. Therefore we have preferred to focus our investments more
CEO, Benetton towards professional growth, organising a series of training courses. We have also tried to
Group SPA strengthen one of the issues that I consider to be fundamental, and that is to encourage people
Continued to be open in their attitude and not to be inward looking, which is a trait of companies that are
very local in their outlook and character. Therefore, on the one hand, an element of positivity
regarding localisation, but on the other hand it is essential for us to invest more in growth,
in training, in opportunities… which, in fact, are in a way challenging management or the
organisation regarding the balance of global stability.
PwC: How can governments ensure that new regulation does not become over-regulation?
GCD: I think that for us this is not an insignificant problem: we have a public sector which does
not make things easy. I will give you an example: we have now succeeded, working in close
collaboration with customs, in obtaining this certificate known as AEO [Authorised Economic
Operator]. The benefits associated with the obtaining of such certification, in which we have
invested time and human resources include, among other things,: a speeding up of customs
procedures and checks (currently more than three checks per week); an improvement in
relations with the customs authorities; and recognition by foreign authorities as being
‘above board’.
This is a first step in a different relationship with the public authorities, a different relationship
which must presuppose the fact that if we want to maintain distributive reality as we have
in Castrette, we have to distribute 150 million items throughout the world; we must also
consider that if we operate in a location which is not ideal, if the transport routes are such as
they are, if regulations do not make things easy for us, if customs obstruct us, if…, if…, if…,
you understand that in the end we arrive at a point at which we say ‘how can I sustain this
production system?’ Therefore, there is certainly a need among the regulators in general for a
different level of concern for the manufacturing world. It isn’t limited to the issue of the car; you
can’t just give incentives to cars, the car +32%, and everyone is happy. This is an old system
of financing that is somewhat outdated.
PwC: The tendency will be to increase regulation in general, which was one of the preoccupations
of the CEOs in the last survey – do you see opportunities anywhere in the world or are there
merely barriers to entry or obstacles for the type of business you have?
GCD: We are a company that has chosen the route of transparency, has selected the way of
international-level competition, which has always gone into the arena without looking for
protection. Unfortunately, we rely more on ourselves than on others. It is clear that there is
cause for debate, whether shops open or don’t open on Saturday or Sunday, if in some zones
they can open and in other areas they can’t. And we can’t succeed in agreeing although today
the system of commerce is a free system throughout the world, and I believe that even in Italy
it would be opportune to fall into line in this sense.
o some extent governments could favour and facilitate ... take the example of the renewal
T
of the commercial contract, bearing in mind the Italian issue now on the table for next year.
I believe that, with reference to flexible working, tax cuts on Christmas bonuses to favour
consumerism, investment incentives for anyone who wants to refurbish in some way or
investment incentives for small entrepreneurs who are in commercial business, these are all
issues in which we could say ‘remember that we aren’t just a highly centralised economy of
big companies, but have a network and a presence in important local territory that we have to
maintain and protect’.
Gerolamo Caccia PwC: What one thing could governments do to stabilise the financial sector and minimise the risk of
Dominioni, another meltdown?
CEO, Benetton GCD: I think that this is a very important issue. Not only governments but everyone in general has
Group SPA a duty to realise that we should include in the scope of our life plans, our management plans
Continued
etc., social values that we didn’t consider before. The issue is that we should no longer be
evaluating our performance and our results only on the basis of the bonuses we are earning;
we must evaluate them on our contribution to growth in the quality of the life of the system.
And quality of life means so many things: it doesn’t substantially mean only consuming, but
means re-valuing on the one hand the public as a support for the company, and on the other
hand the company as a socially useful tool for the growth of not only economic values, but also
cultural and social values. I think that this would avoid, in future, recreating a situation in which
we lose sight of the social objectives for which we exist. The bank has a social purpose which
is that of financing the system’s growth. Ultimately, that became irrelevant. What became
relevant was what mechanisms one could put in place to try to earn more. What is the purpose
of an audit company? It is substantially to ensure to third parties a system of transparency.
PwC: Have you therefore thought about sustainability projects to give greater transparency to the
type of business you are doing?
GCD: I believe that we have always been interested in moving in this direction. But even for us,
even in this, it is important to get ourselves up to date and therefore perhaps to become less,
I would say, provocative/challenging and a little more specific.
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Interview transcripts of Graham Mackay,
Chief Executive, SABMiller plc

Graham Mackay is the Chief Executive of SABMiller plc

PwC: Has dealing with the global financial crisis over the past 12 to 18 months been a tough personal
challenge for you?
GM: Obviously, the global financial crisis has affected the business climate and changed the
trajectory of our own business. So, yes, it has been a pretty testing 18 months or so. Having
said that, beer is a relatively resilient category. If you look at our performance, total volume
growth has gone from the upper single digits to about flat, or perhaps, -1%. That’s not an
enormous swing – companies in many industries were hit much harder. On the other hand, the
beer business requires an immense physical infrastructure and that makes its economics very
dependent on capacity-utilisation. It only takes a relatively small decline in service volumes to
make quite a big difference to the bottom line. So utilisation is quite important. In addition, the
start of the crisis caught us while we were in a pretty substantial capacity expansion mode, and
we quickly had to scale back. But the financial crisis has affected us more in terms of currency
movements and commodity cost fluctuations then in actual trading volumes. Still, scaling back
our capacity expansion programme, scaling back working capital from inventories, managing
the demands for increased credit from distressed distributors – it’s all been pretty demanding.
In the end, however, we’ve been able to take some costs out of our system. All in all, we’ve
come through pretty well. The real question is: Where is the economy headed? Is it bouncing
back? I don’t really see that it is.
PwC: Is this financial crisis different from previous ones you’ve experienced?
GM: Yes. It’s different because it’s global. In the past, we’ve had ups and downs across individual
regions. But for the entire world to be affected by the same crisis more or less simultaneously
– that puts us into an entirely different territory. Having said that, the crisis did have different
impacts across the various regions in which we operate. Central Eastern Europe was extremely
affected. South Africa, too. The rest of Africa – not nearly as much. Neither Latin America nor
the US was terribly hard hit. And China – hardly at all.
PwC: Do you see any signs of an economic recovery?

GM: We don’t see signs of a recovery, per se. We do see some parts of the world where the decline
may be over and slow growth may be returning. I think it would be premature to say that we’re
seeing a general recovery.
PwC: What signals would indicate to you that an economic recover is taking hold?
GM: Sales volume, basically. I’ve always regarded beer as an excellent concurrent indicator of
consumer economic activity. Generally speaking, beer volumes have stopped sliding and, on
balance, I think we’ve reached some kind of bottom. But until unemployment starts to come
down, I don’t think we’ll start to see a convincing economic recovery.
PwC: So you expect a slow recovery?

GM: Very slow, yes.
Graham Mackay, PwC: As a consequence of the financial crisis, do you expect to see fundamental changes in
Chief Executive, consumer behaviour?
SABMiller plc GM: One reads about how consumers are re-assessing the value equation and how their buying
Continued
habits will never be the same again. I don’t know whether that’s true or not and, quite frankly,
I don’t think anyone knows. Our industry is an old one – beer has been around for a long
time. What we do see is more down-trading to discount economy brands. That’s a clear trend
that’s been occurring throughout the world. But it’s really an extension of a more fundamental
dynamic. As markets mature, mainstream, standard-price beers eventually come under threat
from premium brands at the top and discounters at the bottom. The middle gets eroded.
Now, in some markets, it may be the case that the consumer drift towards discount beer is
accelerating while – for the time being – the consumer drift towards premium brands has
slowed. Nevertheless, in most markets it’s still quite possible to have high-end brands that
grow – and grow quite well. Consumers will often buy whatever brand is on discount, but also
take a couple of carry packs of a top-end import or craft beer as a special treat for themselves.
That sort of consumer behaviour is a well-known and understood.
PwC: How does your company address those various patterns of consumer purchases?
GM: We respond by offering products at all points on the price ladder in order to capture consumers
as they drift up or down from the middle. In most markets, that’s our strategy.
PwC: Has the economic crisis undermined the public’s trust in the private sector? And, if so, what is
your company doing to rebuild that trust?
GM: Whether there’s an erosion of trust generally in the private sector, I’m not sure. We are
perhaps a bit different from many other companies in that a lot of our business is based in
poor countries. And in those countries, the private sector – and the multinational corporation,
specifically – is viewed as a bastion of wealth, power, and influence. Consequently, we are very
conscious of public opinion and go to great lengths to protect our reputation and build the trust
of the local community. Quite frankly, if there’s any clear erosion of trust, I think it’s directed
towards the political establishment.
PwC: Do you see a role for the private sector in helping governments enact smarter regulation?
GM: As far as regulation is concerned, I think we need to ensure that governments understand
the distinction between the financial sector and companies like ourselves. There’s a tendency
by government to tar every company with the same brush. Certain regulatory reforms, useful
and necessary for financial companies – new approaches to risk, remuneration, or corporate
governance – would clearly be intrusive if applied indiscriminately to business as a whole. I
think there’s absolutely no justification for that, and making those sorts of distinctions is an
important job for the private sector.
PwC: Has the financial crisis constrained your company’s access to capital?
GM: Not dramatically. Obviously, we watched very carefully how the banking crisis might affect
us in terms of credit lines and so on. In the event, we weren’t particularly affected, and
managed to roll over various debt lines when we needed to. As it happened, we were able
to do that after the worst of the crisis had passed, and so avoided punitive interest rates. In
fact, our coupon has come down. Of course, we were helped by the fact that we aren’t highly
geared to begin with – and also because we’re a very big company. I think the reluctance of
the banks to lend wasn’t directed towards companies like us. It was the smaller, medium-sized
enterprises that felt squeezed.
Graham Mackay, PwC: Did the economic crisis reveal any gaps in your risk management?
Chief Executive, GM: Not particularly. The operations of our company are spread out around the world and, as a
SABMiller plc result, our risks are widely spread, too. We will have a particular risk in any given a country. As
Continued
an example, let’s use Russia where, during the financial crisis, there was something of a credit
crunch amongst the wholesalers because they could no longer fund their stocks and working
capital. So we stepped into the breach to extend our wholesalers more accommodating terms
– essentially keeping them in business. Now, there was an operating risk in doing that. But that
doesn’t aggregate to an operating risk at the global level because conditions from one country
to another differ very, very widely. So while the financial crisis may have been global in scope, it
generated, for us, localised risks only.
PwC: How is your company addressing sustainability issues and the question of climate change?
GM: We manage the business with the intent of continuously reducing our impact on the
environment. In essence, we always try to do more with less. To that end, we’ve established
a 10-point sustainability score sheet to monitor our performance and set targets for
improvement. A number of those 10 items – carbon usage, for example – have a direct bearing
on climate change. As far as the climate-change debate is concerned, our company doesn’t
play a particularly active role in that – nor do I think we necessarily should. I have my own views
on things that are being proposed in governmental and intergovernmental circles, but they are
personal views, not company views.
PwC: What action might government take to address the risk of climate change?
GM: One thing that governments can do is to make it a great deal easier to build nuclear power
stations. I think that’s the elephant in the living room that – for many, many years – governments
have been reluctant to acknowledge. I’m an engineer by background and I take an interest in
these matters. Speaking personally, I think the intense focus on renewable sources of energy is
misdirected. Relative to the scale of the problem, a couple of wind farms off Kent simply won’t
make a difference. Huge volumes of raw, bulk energy are what’s required. I think it’s a disgrace
that in the UK, decades have gone by without investment in nuclear energy as opposed to the
investments France and other countries have made. We’re essentially being held ransom by
special interest groups, which the government hasn’t been prepared to take on.
PwC: Do you think that consumers expect your company to be active on climate-change issues?
GM: I don’t know that consumers as a whole do. I think that certain interest groups pay attention to
that. But there’s a huge amount of misinformation being circulated. Take, for example, this concept of
“carbon footprint”, which leads to pressure to buy “local.” In the case of beer, one might argue that
imported brands from Italy or the Czech Republic have an excessive carbon footprint because of their
associated cost of transport, and one should, instead, buy local brands. In reality, the transport of that
imported beer incurs a tiny carbon footprint compared to the construction of the supermarket itself
and having all those shoppers drive their cars to the store. That’s where the carbon footprint is.
Take another example: returnable bottles. Retailers don’t like returnable containers because
they’re a hassle. And so they’ve forced the beverage producers to develop disposable packaging,
which, in environmental terms, is much more expensive than returnable packaging. In the debate about
sustainability and climate change, there’s a great deal of misinformation and special interest at work,
which I think is part of any political process. It works its way out in time.
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Interview transcripts of Hartmut Ostrowski,
Chairman and CEO, Bertelsmann AG

Hartmut Ostrowski is the Chairman and CEO of

Bertelsmann AG
PwC: The first questions deal with the economic conditions following the financial and economic
crisis. With this in mind we have ascertained that numerous governments have supported
many of their key industries, for examples in Germany, the USA and France where scrapping
premiums were provided to stimulate the automobile industry. Worldwide banks were protected
from collapse. What measures, if any, should be introduced to stabilise your markets?
HO: I can only speak for the media and services industry, of course. The media industry doesn’t
need any particular stimuli. As a general rule, the media should be free from government
influence. What is important for us is that we have as much freedom as possible.
PwC: Related to this, it would be interesting for us to know how Bertelsmann’s financing structures
have changed due to the crisis and if you have noticed financial restraints on the market?
HO: Our long-term financing structures haven’t changed, and our financing is absolutely stable.
We have been concentrating on capital market financing for some time now. In a forward-
looking move we issued a new bond at the beginning of this year, to make sure that we have
sufficient liquidity even in tough times.
PwC: How do you view the topic of ratings?

HO: Ratings will remain important in securing access to the capital market, which is essential for a
privately owned company such as Bertelsmann.
PwC: During the economic downturn consumer demand has sunk in many key markets and
advertisers have cut their marketing budgets severely. What effect has the crisis had on
your industry?
HO: We have to differentiate between two areas here: consumer spending and ad spending.
Consumer spending has been less affected by the crisis. And as for Bertelsmann’s products,
our customers can always afford a good book or a magazine. Advertising has been hit much
harder. But Bertelsmann’s portfolio is well-diversified – we’re less dependent on advertising
than other media companies. And in general we can say that, compared to other sectors, the
media industry has been only moderately affected by the crisis. Our industry has shown that
it can respond very well – and quickly – as a whole. And the media industry still generates a
good return on sales, which in times of crisis provides a solid foundation.
PwC: We would now like to turn our attention to the subject of strategy. How you have positioned
Bertelsmann to weather the crisis. We are particularly interested in your opinions on strategy,
risks, investment and personnel. Do you think that Bertelsmann will emerge from the crisis
stronger than before?
HO: Yes, definitely.
Hartmut Ostrowski, PwC: What are the most far-reaching measures that you have implemented from a strategic and
Chairman and CEO, AG organisational point of view, also pertaining to your business model, in order to react to the
Continued economic crisis?
HO: We analysed different scenarios and implemented an extensive program in spring 2009,
called ‘2+5’. It is based on two guidelines: first, a decentralised approach and delegation of
responsibility, and secondly, continuity and value creation. As a very decentralized media
company, we can make decisions quickly and with great flexibility Our executives have great
freedom to operate, and we grant them a lot of responsibility. They know what is good for the
business in each particular situation. Our decentralized structure therefore enables us to react
quickly and appropriately. This is always vital but especially in times of crisis. The programme’s
five work packages entail the following: First, safeguard liquidity and stable financing.
Secondly, we carefully examine the possibilities for saving costs in all our businesses.
Thirdly, we demand leadership and responsibility from our management, especially during
the crisis. Fourthly, we are examining our complete portfolio. Sometimes when the economy
is good, we will pull an ailing business along – something we cannot afford to do in times of
crisis. And finally, we strive to use every possible opportunity for growth, while also staying on
the lookout for new technological developments and lines of business. We have made excellent
progress on implementing these five work packages, and have already seen some very positive
effects in the second half of 2009, so we will continue to forge ahead with all of them.
PwC: That’s easy to say but probably not as easy to realise?

HO: Absolutely. The particular challenge here is that we are working on all five areas at the same
time. But our management team is highly motivated, and the programme has unleashed the
full potential of our decentralized organisation. The challenge was to act in a decentralized
manner and still maintain some supervision over the process. We have achieved this by
setting up control boards.
PwC: In this context it is also interesting to know whether your supervisory body in times of crisis
had a deeper dialogue with you regarding questions of strategy, risks and management
behaviour. Was this the case?
HO: The supervisory board has certainly asked more questions during this phase. Bertelsmann
has always had a very proactive, entrepreneurial supervisory board, and we have a tradition
of close and trustful cooperation. It is vital that our supervisory body is involved in strategic
decision-making processes from a very early stage, and we continually communicate with
each other in that spirit.
PwC: Let’s talk about the financial market and the effects of the financial crisis once again.
Are you encountering problems procuring outside capital at the moment?
HO: We are not listed on the stock exchange and therefore have natural limits on our equity.
So we have to cover our financing needs via internal growth, profitability and debt capital
markets. As mentioned earlier, we were able to issue sizeable bonds despite the uncertain
times in spring 2009. Therefore we haven’t encountered problems raising outside capital,
but it has been harder. Our group’s conservative and long-view financing policy has been
a great help, as have our credit ratings and transparency.
PwC: The economic crisis has certainly been nerve-racking for many employees. At Bertelsmann
how have you managed to keep your employees motivated?
HO: We have a strong corporate culture of partnership. Partnership means jointly looking for
solutions and finding them. This is not always simple but certainly worth doing. Bertelsmann
has always been an advocate of a good corporate culture, and we have nurtured this culture
over the decades. We communicate openly and comprehensively, give our employees a lot of
autonomy and let them participate in the company’s financial success. This increases motivation,
identification, and loyalty. And our culture has proven very crisis-resistant. Partnership pays off,
especially in tough times.
Hartmut Ostrowski, PwC: In the last few years 72% of CEOs were of the opinion that personnel are a critical factor in
Chairman and CEO, AG long-term success. Do you agree with this point?
Continued
HO: Definitely. This is especially true for the media industry, because it is a people business.
As a creative company, our success is absolutely dependent on our employees, their ideas
and intellectual resources.
PwC: Many observers assume that there will be more regulation in the future, even though our
experience always shows that CEOs think that over-regulation substantially endangers growth.
What do you think about this?
HO: We certainly don’t need more regulation in the media industry overall. In general, markets have to
be free. But we’ve also seen, in other industries, what can happen when freedoms are abused or
when there is too little regulation. There have to be rules, and these rules must be binding for all
players in the market.
PwC: Finally, let’s talk about Copenhagen and the question of how to protect our environment and the
topic of corporate responsibility. With the reduction of CO2, do you see branches of business that
would be of interest to Bertelsmann?
HO: First, I’d like to note that the outcome of the Copenhagen Summit is truly disappointing,
especially since climate change is one of the biggest challenges facing society in the twenty-
first century. This challenge not only has vast implications for global political decision-making,
as seen in Copenhagen, it also demands a broad-based response from business.
Though the media industry may not be one of the biggest polluters, we acknowledge our
corporate responsibility to deal with the issue of climate change. At Bertelsmann, responsibility
towards the environment is part of our corporate culture and, as such, is included in our
company’s value system. With this in mind, Bertelsmann’s executive board has issued a
climate strategy, and as a first step we have just completed an analysis of our global carbon
footprint in 2008. Based on this, we will identify opportunities for reducing CO2 emissions and
will engage and motivate current and future employees to tackle the issue of climate change.
We also realize that it makes good business sense to find innovative solutions to this issue
and to create ‘green growth’ long-term. We see a growing public interest in ‘green topics’ and
sustainability, which is catered for by our books, magazines, TV programmes and also in our
printing business. Overall, we will further explore the market for green products and services.
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Interview transcripts of Huang Tianwen,
President, Sinosteel Corporation

Huang Tianwen is the President of Sinosteel Corporation

PwC: How was the Chinese steel industry affected by the global financial crisis?
HT: The global financial crisis had a significant impact on the Chinese steel industry. In October
2008, steel prices, including iron ore prices, began to plunge, and within China, demand for
steel dropped dramatically. Now, a year later, it’s difficult to say whether or not the steel industry
has emerged from the financial crisis. Certainly, many types of enterprises are beginning to
recover, but others are still struggling with a dramatic drop in profitability. During 2009, the
market for steel has been quite uneven – often low, but occasionally high. In any case, demand
is unstable. Additionally, steel prices fluctuate frequently – along with the prices of downstream
and upstream resources, especially products associated with raw and secondary materials.
So, the entire steel industry supply chain has been greatly affected by the financial crisis.
PwC: What steps did Sinosteel take in response to the crisis?

HT: We adopted a series of guidelines that can be summarised as follows: pay close attention; stay
calm; strengthen confidence; be cautious; and be prepared to adjust. Let me explain further.
We pay close attention to all marketplace changes. We stay calm in the face of pricing volatility.
We take strength and confidence in Sinosteel’s contribution to the long-term development
of the Chinese economy, integration into the global economy, and growing resilience to
market fluctuations. In order to avoid risks, we must be more cautious in making financial and
operational decisions. And lastly, we should adjust our management structure and business
practices to best suit prevailing market conditions. Using these guidelines, we took a series of
measures that helped us to achieve our aims. Those aims were to ensure the financial stability
of the enterprise; keep our core business basically stable; and, when considering questions of
employment security, to balance our need to generate financial returns with the responsibility
we bear to the larger society.
PwC: It sounds as if 2009 was a challenging year for Sinosteel. Can you tell me more about your
experience of the year?
HT: Two unusual things occurred in China’s steel industry this year. First, even though market
demand was weak and unstable, steel output exceeded last year’s level by 10%. This was
in stark contrast to most forecasts, which anticipated a dramatic year-on-year decline in
production. This increase in production is attributable to a series of rescue measures undertaken
by the Chinese government – and also various steel companies – to expand domestic demand.
The other unexpected event is that during 2009, China went from being a net exporter of steel
to a net importer. That is, the volume of imported steel products during 2009 was larger than our
export volume. Again, this contradicts our estimates prepared at the beginning of 2009.
PwC: Can you give us an overview of Sinosteel’s performance so far in 2009?

HT: As of October 2009, Sinosteel has accrued sales revenue of RMB110 billion. Overall sales
revenue is down by about 20 percent from the same period last year. However, our production
volume – including that of iron ore, steel products, and chrome ore – is up 20–40% from the
same period of last year. This seeming discrepancy – a decline in revenue and an increase in
production – is explained by the substantial fall in steel product pricing. Profitability has also
declined dramatically from last year. The overall situation may turn positive in the future. But
right now, the dynamics of the steel industry are very unstable.
PwC: Would you say that the financial crisis has passed?
HT: Not yet. But the worst has passed, and the economy is beginning to gradually recover.
Huang Tianwen, PwC: Have you learned any lesson from the financial crisis?
President, Sinosteel HT: Yes, we have learned some lessons. Most importantly, we learned that we must further strengthen
Corporation our internal controls and risk management capabilities. The financial crisis has made it clear that
Continued all enterprises must be better prepared against future risks. In terms of Sinosteel, we will focus
on improving three specific ‘abilities.’ The first is our predictive ability – to understand where the
market is headed. The second is the ability to quickly adapt operations to changing market events.
And the third is the ability to change our business model or management structure to better suit
conditions in the marketplace. Of course, no organisation can expect to be totally precise in its
predictive ability. But what one can do is to continuously recalibrate one’s forecasts and analysis
on the basis of unfolding events in the marketplace. I recognise that it’s difficult to make accurate
predictions about markets and products. However, in order to improve our ability to understand
how the market will develop over the long-term, we can strengthen our analysis of macroeconomic
trends and changes in supply and demand curves. What about our ability to adapt quickly to
changing market conditions? When the market is good, we have lots of business and profitability
is excellent. This is very normal. But under the current situation, demand changes every day, and
enterprises need to adapt rapidly. In fact, wide fluctuations in market conditions have become
very normal and we must be ready to respond to a whole range of possible conditions: low market
prices, strong demand, or no demand. The third ability requires an enterprise to improve its core
competencies, find a firm footing, and survive and develop in a changing market. When the
market changes, you cannot simply follow normal procedures or maintain outmoded strategies,
management structures, or market positioning. New conditions dictate a quick response.
PwC: In response to the financial crisis, do you expect government to enact stronger regulation?
HT: We can see from the financial crisis that all governments are strengthening regulation. This is to
be expected, since the crisis could easily escalate if regulation is not enhanced. However, this
normal response by government may lead to over-regulation, which can already be seen here and
in other countries. This kind of over-regulation may be necessary in the short-term, but over the
long-term, it is unsustainable. If imposed over the long-term, market economies cannot work well.
China’s 30 years of economic reform and opening-up to the global economy has achieved great
success. Reform – opening up – unleashed the people’s energy. Now, state-owned, private sector,
and overseas investors can all have a role in the Chinese economy. And following our reform and
opening up, it’s proper and necessary that marketplace behaviour be regulated. Good regulation
provides the foundation for a market economy. So in my view, it is understandable and appropriate
for the short-term to rely on government stimulus. But over the long-term we need to expand
domestic demand. Governmental stimulus is not sustainable and the government’s financial
resources are limited. Viewed from the perspective of a market economy, and based on historical
experience both in China and abroad, it is correct to say that the government is less efficient than
the market. The government’s ability to allocate resources efficiently is not ideal and will result
in waste. Markets – when they are working well – are much more efficient in the allocation of
resources. So, yes – in times of financial turmoil, it is necessary for the government to strengthen
regulation. But if we over-regulate markets, it will have a negative effect on market efficiencies
and the natural development of markets. And in the end, it will also erode the core competencies
of businesses competing in those markets. If businesses lose their core competencies, and rely
instead on regulation, everything will go back to the planned economy. In my opinion, if reform and
opening-up can be further deepened, and if we can maintain the momentum of our 30 years of
economic reform, China’s economy will maintain a rapid and sound development. And if China’s
process of urbanisation continues, the domestic consumer market will have huge potential.
PwC: What measure should be taken by government to mitigate the risks of climate change?
HT: In my opinion, three measures can be taken by government. First, government can help form a
national consensus that climate change is a problem that affects everyone – not only people in
the US, but also those in China. If we don’t pay attention to climate change, sooner or later it will
affect the lives of everyone living on the planet. Second, the government should formulate strict
emission standards and implement them robustly. Existing standards are not systematic and are
often contradictory. If strict standards can be formulated for every industry and implemented
by every company, that will have a positive impact on climate change over the long-run. Third,
the government can provide guidance as to which industries will be encouraged on the basis of
their sustainability and contribution to society, as well as which industries should be phased out
because of their damaging effects on the environment and society.
Huang Tianwen, PwC: What steps did Sinosteel take during the financial crisis in order to retain employees?
President, Sinosteel HT: We took a number of measures. Most importantly – even in the face of a deteriorating economy
Corporation – we made sure that the salary levels of our employees remained relatively stable. In terms
Continued
of maintaining company morale and cohesion, our approach was three-fold. The first was
to preserve the confidence of our people in the long-term development and success of our
company. If the company continues to be well-managed, if we can demonstrate ongoing client
loyalty, if we keep on expanding overseas, then our employees will still believe in the future
of the company – even during tough times. So confidence is important. The second factor is
making sure our employees understand and embrace the company’s goals and strategies. This
is crucial to enhance company cohesion and retain talented people. The third factor is corporate
culture, which can help the company persevere during difficult periods. Culture communicates
the company’s purpose and values to its employees and that helps hold people together.
PwC: Will China lead global economic recovery?

HT: During the financial crisis, China’s economy proved to be more resilient than any other
economy in the world. And many Chinese enterprises are among the best performing
companies in the world. Nevertheless, China’s economy faces many uncertainties. Although
China is playing a more and more important role, we still cannot assume that China will take the
lead in the global economy or become its engine. The influence that China’s economy has now
cannot compare with that of the US. In terms of ‘engine of the global economy’, China still lags
far behind the US. It is true that as the result of the financial crisis, many American enterprises
face problems and some have even declared bankruptcy. But even in good times, many
American enterprises declare bankruptcy. In the US, it is a normal for the market to allocate
resources and maintain a balance in this way. In contrast, the Chinese market still cannot
fully exert its role in terms of resource allocation. Those sorts of market-based mechanisms
have not yet been completely established here. For example, state-owned enterprises enjoy
preferential policies. So there is a big gap between the current market system and our ultimate
goal. In the long run, it’s important that all Chinese enterprises – whether they are state-
owned, private, or foreign funded – compete with one another on an even playing field. In
this way, good enterprises have the chance to develop and bad ones become bankrupt. So,
although there are a lot of problems in the US economy, my personal view is that we should
never underestimate its strength. The US economy has an effective mix of market-based
mechanisms and good external regulation. During the financial crisis, the US government
did apply a stimulus package. But the stimulus package will eventually end and, sooner or
later, the American economy will get back on track. The US economy has a great capacity for
self-balance and self-adjustment and the society is comfortable with questioning and debate.
These capacities are what China lacks and, consequently, our core competitiveness still lags
far behind that of the developed countries. The overall competence of China’s entrepreneurs,
including their inventiveness, management capacity, and strategic judgement is almost equal
to that of executives in the world’s largest international enterprises. The key problem China
faces is the government’s administration of the economy, which has, to a large extent, limited
the creativity and innovation of Chinese entrepreneurs. If there is programme of major reform
to address this issue, I believe that the creativity of Chinese entrepreneurs will be unleashed. At
the same time, China must remain sober-minded and should not overestimate itself.
Rethink
Workforce
motivation
Reshape
The talent
pool
Result
Business
alchemy
Interview transcripts of Ian Bremmer,

Ian Bremmer is the President, Eurasia Group, US

PwC: When thinking about the global economy, what indicators are you watching that will tell you the
shape of recovery in key markets?
IB: First of all, I’m pretty confident whatever sort of recovery we get is going to be jobless. But
that by itself doesn’t really tell you how we’ll know we’ve turned the corner. For that, we
need to see more confidence from the private sector. We’re not there yet. There’s still an
enormous amount of uncertainty out there and we should recognise that. There is still a lot of
disagreement even over the key indicators we need to look at. Is it the strength of the dollar? Is
it productivity numbers or employment numbers? Is it growth numbers? Is it the equity market?
Since I started as an analyst some 20 years ago, I’ve never seen so little consensus amongst
key industry players – whose decisions will determine what kind of a recovery we’re going to
have – about the direction they’re taking for the next year. Are they going to invest? Are they
going to lay off more people? Just as there has been no consensus about the shape of the
recovery, there has been no consensus about how confident businesses feel. So what I’m
watching, quite frankly, are things like the results of PwC’s Annual Global CEO Survey. I don’t
mean to say that in a cute way.
PwC: Is that lack of consensus just in the US or is that a global phenomenon?
IB: That uncertainty is true in most of the developed world, with the exception of Canada and
Australia, two countries that are both significant commodity players. Australia can take
advantage of Asian growth because of its location, and Canada, with a smaller number of more
consolidated banks, has not been as exposed to the financial meltdown. But, leaving those
two aside, the uncertainty remains throughout the Eurozone, the United States and Japan. And
it is a completely different story in major developing markets
PwC: Global trade is famously sensitive to the global economic cycle. When recovery sets in, will
trade return to the levels and patterns we saw before the crisis?
IB: I don’t think it’ll return to quite what it was before the crisis. The ability of Americans to consume
the way they were, particularly with the relatively weak dollar, is not going to be anywhere near
what it was. China may have a harder time exporting to the US. Still, we are also going to see
more South-to-South flows, and as a result, some of those exports are going to go to other
markets. The emerging Indian middle class will have an appetite to buy reasonably high quality
manufactured goods out of China, and we will see more consumption coming out of Brazil. The
other thing we will see is more regionalisation of trade and capital flows. For example, you’re
going to see a lot more intra-GCC investment and trade within the Gulf region. You’ll see a lot
more intra-Asian trade. That is a trend that I think is just beginning, but frankly will become a
major challenge to the globalisation trends that we’ve seen in the last 30 years.
PwC: Cross-border capital flows were estimated to have fallen by 82% in 2008, and capital controls
appear to be coming back into fashion. Will international capital flows return when recovery
sets in?
IB: It comes down to who’s making the decisions. The Chinese recovery is not a consumption-led
recovery, it’s an investment-led recovery – and that investment is being determined by Beijing.
A lot of that investment is, of course, inward, and you’re seeing that focus not only in terms of
where they’re putting money, but also the way they’re thinking about stockpiling commodities
and setting other sorts of policies. Those are decisions that political leaders are making primarily
for purposes of the strategic stability of the country, and not to maximise short-term returns.
So, as a consequence, you’re going to see less of those cross-border capital flows. What’s
happening in China is also happening in places like Abu Dhabi. It’s happening and has been
happening in places like Russia. There are similar trends directionally at least in places like the
United States, but it’s much, much smaller. The US government, of course, has had a major
impact in terms of stimulus, but its spending is much less structural and much less strategic.
Ian Bremmer, PwC: What about private investment? Do companies see overseas investments as attractive as they
President, were before?
Eurasia Group, US IB: First of all, let’s be clear that there isn’t always a bright line between public and private. What is a
Continued private investment when it comes from China or Saudi Arabia? It may be a private company, but
the ties to the state are very different, and the ties to strategic initiatives are often very different
than when investments come from companies in the United States, Japan or the West.
With that as a caveat, I would say Western multi-nationals are still very, very attracted to
international investments. In some cases, they’re even more attracted, because emerging
markets are where they see the big growth opportunities. Some of those investments will be
more challenging now, because there are going to be much tougher domestic competitors in
those spaces. The trend towards capital controls may constrain that investment over the long
term. But we likely won’t see much impact of that in 2010.
PwC: Consumer demand fell sharply in the US and other key markets during the crisis. Will that
spending return?
IB: I think it’s pretty clear that consumer demand won’t come back. So much of American
consumers’ capital was locked up in homes that were basically annuities where value was
going up every year. A lot of that value has been destroyed and it’s not coming back. That will
allow for younger people coming into the workforce to buy property and you’re going to see a
re-distribution of wealth in the US that over the long term will probably serve America well. But,
it’s not going to re-build consumer confidence tomorrow. We are definitely going to be in an
environment where Americans are going to be spending an awful lot less. Savings rates in the US
three years ago were -1.5% – that clearly wasn’t sustainable. Wage expectations for the average
American are not coming back. And, with financial regulatory reform probably coming in the early
part of 2010, you have to assume that credit is going to be handled differently than it was. Some
might argue that the investment banks have not fundamentally changed their structure, but that
does not mean that the days of easy credit are coming back. There is some cyclicality to it in
the US, of course. There’s no question that spending is going to come back from what it was in
2009. But, I don’t think the excesses that we saw in the last few years will come back. And we’re
talking about a global environment where most of the world is looking to the United States, the
world’s largest economy, to do the consumption.
PwC: What might take the place of American consumers as the engine for global growth?
IB: The US as an engine for global growth is going to be replaced to a degree by China. But China
is a much smaller economy. China’s consumption is undergoing a slow and gradual structural
change; it’s probably the biggest one in the world. They’re building extraordinary cities, and
creating an expanded and educated middle class. That is going to lead to more consumption,
year after year. The numbers aren’t in yet, but China was probably the world’s largest market for
automobiles in 2009. And not many Chinese can afford automobiles yet. So that is where their
consumer growth is going to come from.
But, let’s keep in mind that household consumption is 35% of China’s GDP and in the
United States it’s almost twice that. It’s not as if, suddenly next year, China is going to be a
consumption-led economy. It won’t. Consumption was actually larger a few years ago: in 2004,
it was about 40%; in the early 1990s it was about 50%. The Chinese save about 25% of their
income and they’re not going to change and become Americans overnight. There’s going to
be a very long-term gradual shift. But, they’ll never become Americans in their consumption
patterns, in my view. So consumption patterns are changing and they’re changing faster than
they would have without the global recession.
The real structural driver is China’s investment of state and private capital into building
infrastructure. Twenty-three per cent of the world’s nuclear plants that are either presently
under construction or approved are being built in China, for example. It’s one of the big
structural changes that we’re seeing in the world economy right now. It’s not the Chinese
consumer replacing the American consumer, it’s Chinese investment replacing the American
consumer. That is the difference in the world between 2010 and 2008. Which of those two
things is bigger? We need to recognise that China’s investment is not on the same scale as a
driver of global economic growth that the American consumer was over the last five years.
Ian Bremmer, PwC: What strategies or operating models have to change as a consequence of those trends?
President, IB: First of all, you’d better not rely on the US consumer coming back the way they were.
Eurasia Group, US American auto-makers have had this great bail-out, for example, and GM says they’re doing
Continued
so well that they don’t need to sell Opel. I hope they don’t believe that the Cash-for-Clunkers
programme is a structural fix, because that short-term stimulus isn’t coming every year. The
same will be true with all sorts of durable goods going forward. Certainly, I hope that a lot of
multi-nationals recognise this and are adjusting their consumer models. Beyond that, CEOs
have to recognise that a lot of their long-term planning needs to be tossed out of the window.
In this environment, we’re seeing such an extraordinary geo-political and geo-economic
change away from the United States and towards China, away from consumption-led demand
– which is easier to project – towards investment and in many cases state investment, which is
much more opaque and potentially much more volatile and subject to policy shifts. There has
to be a lot more volatility built into your modelling; your ability to do your three- and five-year
planning in that kind of an environment is diminished. You have to be much more tactical. You
have to plan with a readiness to make changes on short notice, and you probably need to
revise strategic plans much more frequently, with new assessments of the global environment,
than you did before this crisis hit.
PwC: Are CEOs changing how they make their resource allocation decisions?
IB: What I see right now are CEOs who have gone through major restructuring in the last year.
They’ve gone through major downsizing and now they have some money to spend. Their
productivity numbers are up and they’re saying, ‘Where are we going to deploy that cash?
Where are the opportunities? We want to go in.’ Their behaviour in that regard reflects the
business cycle. They’re not saying they need new processes to figure out how to deploy that
capital. You don’t make the structural changes in your decision-making process unless you’re
facing absolute cataclysm, and most of these corporates are not facing cataclysm. They’ve
gotten through it, or they believe they’ve gotten through it, and now they’re ready for business-
as-usual. That’s where I would say most CEOs are, although they certainly are more humble
and more cognisant of uncertainty.
PwC: Are CEOs more aware of strategic risks because of the crisis?
IB: The crisis has opened CEOs’ eyes to strategic risk from their own policy-makers. I think every
corporate in America right now is aware of the fact that the tax structure may change, for
example, and that labour is more influential. But they might be missing the bigger picture.
When a big crisis hits, you focus on the things that just went wrong or are potentially going
wrong for you right now. You don’t necessarily look at the other basket of factors that haven’t
hit you, but are looming on the horizon.
It strikes me that one of the biggest risks out there for American multi-nationals is their ability
to compete effectively in markets that are driven by the state, and markets where the state is
not only the principal arbiter, but also the principal actor in the economy. I don’t think that’s
understood. Multi-national corporations ultimately need access to global consumer markets,
global capital flows and global labour to succeed. In a world that is not led by the G7, where
state capital is as viable an economic model as a regulated free market is for many states,
multi-nationals will not have that access; they will be constrained. For me, this is the single
biggest global change that we’ve seen in the last year. The same thing that has happened to
international oil companies in the last 30 years is now happening to companies across a large
number of sectors. And, I do not believe that CEOs have woken up to that reality.
That is kind of a new world-environment for these multinationals. You’re interviewing a lot of
CEOs, but I’d be very surprised if these themes come up over and over again. I think they’re
thinking much more about their own internal issues – we’ve hired a lot of people, we need to
make our numbers, we need to deploy capital. I think that’s what they’re thinking about.
Ian Bremmer, PwC: How do you compete in this kind of new world environment?
President, IB: If companies are operating where the state’s investment role is decisive, or even in countries
Eurasia Group, US where the state is becoming more important as a driver, they need to think about what their
Continued
relationship with government actors is going to be. If you’re investing in infrastructure in the
United States, what’s your relationship with the national and state governments that are critical
to those decision-making processes? If you are investing in a place where there are growing
competitors that have links to government or are government-owned – in China, Russia, the
Gulf or even in places like Brazil, which hasn’t historically been thought of in that category but
is moving in that direction – who are your partners? As you become more profitable, are you
going to be seen as a profit centre that these states want to have for themselves, or are you
truly partnering with the government? What makes that relationship durable – if you’re valuable
to them now, are you going to be as valuable to them in three years?
Think about what firms like Toyota are doing in China right now. If there is a sufficient amount
of new technology they can continue to share with the Chinese, it will make the Chinese want
to partner with them. If not, what are they going to offer that makes them indispensible? Don’t
fool yourself: just because you’re indispensible today, don’t think that you’ll be indispensible
tomorrow. Take a hard look at how indispensible you are likely to be to your host government
in these markets, in six months, in 12 months, in three years. And if that answer is changing
even a little, you better have contingency plans. I don’t think that companies are good at this
and I don’t think CEOs are good at this. They don’t like to respond to impending troubles that
are growing gradually.
PwC: How do companies become indispensable partners?

IB: If you want to be indispensible you first need to understand very well what your partners want
and what they need. You need to look at the cold reality of these investments much more
honestly and not just talk of partnerships, commitments and long-term relationships. And you
have to look at it from the eye of your partner. I know a lot of corporates that are investing
in Africa, and they see the Chinese coming in and buying everything. How do you make
yourself indispensable to a country like Kenya, for example, when the Chinese are offering
billions of dollars of aid to the government? Look at what the Kenyans need most: jobs. The
Chinese export labour in addition to capital. So if you’re investing in Kenya, you focus on how
you’re setting up jobs both directly with your investments, and also maybe through some
NGO funding or other things that you’re doing. In other words, where do you have a strategic
advantage that your competitors don’t.
I think about a company like Starbucks operating in China right now. Does China really care
that much if there are additional places for high-end coffee? Maybe not that much. But they
really care about new advanced agricultural techniques to improve the quality of their coffee.
If Starbucks can give that to the Chinese, it makes them indispensable. But they also need to
find a way to give that to the Chinese in a way that doesn’t just last for six months before the
Chinese can do it themselves. It has to be sustainable for the long term. So, you have to first
find out what they want, and then you have to find out what they’re going to continue to want.
This is not easy, and it is harder now than it was five years ago. But it’s also more critical now
to get it right than it was five years ago.
PwC: Is becoming indispensable to government the only key to success?

IB: The other thing big corporations need to do when the environment is getting more challenging
is to know what your leverage is with your own government. Industry’s relationship with
Congress is going to become tighter. There is going to be a nativist reaction in the United
States – one portion of it will be anti-immigration, one portion of it will be protectionist. But
when everyone is expecting 10% unemployment or 17.5% under-employment to continue
for some time, there will almost certainly be a policy reaction that tries to do something about
America’s role in the world. Industry needs to understand how they want to approach that with
their local Congressman or Congresswoman, and with the Administration.
Ian Bremmer, PwC: Does your ability to partner with governments depend on public trust?
President, IB: First, it depends on the country. How much does public sentiment in Russia really impact
Eurasia Group, US decision making in the Kremlin? Not a huge amount. There’s an enormous amount of top-down
Continued
decision making that occurs for all but the most public of brands in Russia. So you worry about
being made the next Yukos, but you don’t really worry about large demonstrations against
your brand. Secondly, it depends on how close you are to consumers, as both Carrefour and
Starbucks found out in China. Third, it depends on the host country of the company that’s
investing. We have to recognise that there are some places in the world where being an
American company, for example, is not an advantage. When Bank of America took over Merrill
Lynch, it certainly would have been my strong advice that it maintain the Merrill brand in Russia
and not become Bank of America, because it wasn’t going to help them there. And, after
the enormous flap in the Islamic world over the cartoons depicting Mohammed in a Danish
newspaper, suddenly every Danish company operating in Islamic countries had a very real
vulnerability. And that’s a big deal.
PwC: You’ve written about the rising influence of state capitalism. What elements of that trend will
persist and what elements will fade?
IB: What we’ve seen over the course of the last 30 years of slow, steady growth is that emerging
markets have become more important and accessible global energy supplies have come
increasingly from more unstable parts of the world. During that period, state entities have
become more significant in the world economy – that’s true of national oil corporations, of
state-owned enterprises, of privately-owned national champions linked to many states, and of
sovereign wealth funds. The global economic crisis has sped that up dramatically. Now, instead
of one system in which you have regulated free markets, you see some free-market countries
and some countries where you have state capitalism, and some countries which are more or less
in the middle. That will lead to lower global economic growth because state capitalism is less
efficient and less coordinated, and to the regionalisation of capital and trade flows.
Multinational corporations are going to be increasingly challenged in the state-capitalist
environment. And I do not think those things will go away in a year; those things will become
more significant as we move into the post-recession geo-economic system. Maybe the first
indication of that was the Obama trip to Beijing [in November 2009]. It was a very different kind of
diplomatic back and forth than we were used to seeing.. There’s going to be a lot more of that.
PwC: If more state capitalism will lower economic growth, will it also lower volatility?
IB: On balance, it probably will, although that needs to be mitigated against the fat tails that come
from non-traditional sources. In other words, the pure economics may become somewhat less
volatile, but the factors that impact economic outcomes are becoming more diffuse, and those
two forces are not moving in the same direction. So, for example, a major climate catastrophe
in a region or a country could play out in climate policy mechanisms. The same might be true
for a nuclear incident, or a terrorist incident, or other similar sorts of events that come out of
non-traditional areas. But, from a purely geo-economic standpoint, yes, I suspect there might
be a little bit less volatility as a consequence of state capitalism.
Ian Bremmer, PwC: The G20 is emerging as an influential forum. Will the G20 lead to more policy coordination
President, among nations?
Eurasia Group, US IB: No. I think there will be less policy coordination in the G20 – probably much less. If you talk
Continued
to the organisers who are responsible for working with the ministers and heads of state
during G7 meetings, they would say that organising those meetings was like herding cats,
because you had so many different national cultures and perspectives. But the reality was that
the G7 countries all basically share some fundamental values. The G20 is not just a bigger
coordination problem; it’s not just herding more cats, though that would be more difficult. The
G20 is herding cats along with animals that don’t like cats. There are a number of countries
in the G20 that fundamentally disagree that a regulated free market system is the way to run
an economy. They fundamentally disagree that democratic institutions are the most effective
way to run the polity. And, now that those countries are of increasingly comparable importance
on the global stage, we need to recognise that free market and state capitalist systems are
at some level fundamentally incompatible. Does that have an impact on policy coordination?
You bet. Whether we’re talking about climate change, or collective security in Iraq and
Afghanistan, or nuclear non-proliferation, or the global financial regulatory framework, or trade
and protectionism, there are going to be fundamental disagreements within the G20. So the
G20 will increasingly look less like the G7 and more like the UN Security Council. And that
means there’ll be wonderful flowery statements that will be painstakingly crafted to show that
everyone is committed to free trade, or to climate change agreements. But the reality will be
very far from that.
PwC: So is the G20 more of a symbolic forum?

IB: It is. I don’t think that’s well understood right now, because in the context of the response
to this unprecedented global economic crisis, all of the actors in the G20 are showing how
seriously they’re taking the response, and how it is something everyone wants to see succeed.
But as we get out of this global recession, however anaemically in some countries, that will be
shown to be a façade that does not represent the reality of the absence of global governance
that we increasingly see on the world stage today.
PwC: Are there other ways in which more policy coordination among nations could take place?
IB: Yes, first of all, I think that we will see more regionalisation of policy coordination. If the United
States pulls out of Iraq and is unable to stop Iranians from developing nukes, the Gulf states
will become more coordinated in that region. We’ve already seen a lot of statements about the
creation of an East Asian community along the lines of the EU model. I think it’ll be hard to do
and there will be tough negotiations about Japan’s role and about America’s role. But all of this
is an indication that we will see more regionalisation of policy in places like Asia. I think you’ll
also see more coordination of financial and monetary policy among the troika of the ECB, the
Fed and the BoJ, because in the context of this changing world, like-minded actors will have
more reason to be transparent with one another and to coordinate their activities. But if you’re
asking whether there’s going to be something in addition to the G20 that really creates policy
agreement among the world actors, I would say that would only happen on a thematic basis.
And it will probably only happen in response to crisis. Unfortunately, by the way, my definition
of ‘crisis’ is a more significant event than what we’re presently seeing.
PwC: How big does a risk have to become to be enough of a ‘crisis’ to spur policy coordination?
IB: Well, climate change clearly is not seen as an adequate enough crisis to lead to policy
coordination, at this point. Iran going nuclear is not enough of a crisis; we may call it one and
it may sell more newspapers, but the reality is, it is not considered a sufficient priority to create
effective global institutions and mechanisms.
Ian Bremmer, PwC: What’s one thing that governments can do to stabilise the global financial sector and minimise
President, the risk of another meltdown
Eurasia Group, US IB: Well, they’ve done a lot already. In the United States they’ve put an enormous amount of
Continued
money into it, and basically said some institutions are too large to fail. They’ve created a lot
of confidence; some would say too much confidence, given how the markets have run up
over the last three or six months. Europe and Japan have also acted effectively. So, if there’s
one thing policy-makers have done right, it’s stabilised the major financial players. I suspect if
additional hits come from commercial real estate or from consumer lending on the credit card
side, governments will step back in. They understand the financial markets need to run. So,
I think that’s the one piece of the global recession that’s been dealt with. In fact, they dealt
with it so effectively that some believe that nothing further is needed. As a consequence, you
may not get the structural financial regulatory reforms, like bringing back the Glass-Steagall
Act in the United States, which people such as Paul Volcker believe are needed. There might
have been a willingness to do that had it been higher on the agenda than healthcare in the US,
which took a lot longer than expected. Financial reform is not that sexy; it’s hard to get people
to understand it – lots of lawmakers don’t understand it – but there would have been more of
an opportunity to get something done had it been part and parcel with the financial stimulus
package right from the beginning. There are a lot of things on Obama’s plate and it would’ve
been difficult to get this perfect, but in hindsight, doing healthcare first probably was a mistake.
PwC: Do you think more structural reforms are needed in the financial sector?
IB: I’m generally with Volcker, yes.
PwC: What’s the one thing governments should do to successfully address climate change?
IB: Well, it depends on what you’re trying to accomplish. If you’re Japan and you know that the
US isn’t going to get anything done soon, you can put forward policies that you know you
can’t implement because they sound good. In the absence of consensus, you simply position
yourself better with your own domestic constituency – which will do well for you politically, but
doesn’t help get to the resolution that you actually want. So, it’s a tough situation.
The big problem right now is in the US, with Obama trying to get the Senate to actually pass
something. Obama has been successful in taking some of the heat off Copenhagen by getting
all the international players to recognise, ‘Okay, we’re not going to get a treaty.’ But he’s not
going to have a free pass for 2010. All he’s done is forestall the issue a little bit. Obama is
going to have a very tough time in 2010 overall: Afghanistan is more of a crisis, there’s high
unemployment, mid-term elections are coming up, and then there’s climate change. It’s going
to be a much harder year for Obama than 2009, which is sort of unfortunate if you think about
what he inherited. But it’s the reality.
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Interview transcripts of Ken MacKenzie,
Managing Director and CEO, Amcor

Ken MacKenzie is the Managing Director and

CEO of Amcor
PwC: Is there something about Amcor that others might find of particular interest?
KM: I think what makes Amcor interesting is that we operate in over 30 countries. We’re in both
North and South America, and in Eastern and Western Europe. We’re in Australasia, as well as
in Asia. Overall, roughly one-third of our business is in the Americas, one-third is in Europe, and
one-third is in Asia. As a result, we’ve got good insight into what’s happening in both mature
markets and emerging markets around the world. That being said, we are largely a food and
beverage packaging company. We don’t have as much exposure to the general economy, as
some other companies may have. However, we do have very good global exposure.
PwC: How would you describe trading conditions over the past year or two?
KM: In a word: ‘tough.’ We’re in the packaging segment for food, beverages, healthcare, and
tobacco, and those are relatively defensive sectors. Our volumes over the last 12 months are
5 to 7% below where we were trading prior to the economic crisis. So we’re defensive, but not
completely immune. And it’s been interesting to watch how the economic crisis has unfolded
around the world. We saw it begin first in Europe, in early 2008, where it manifested itself as a
slow and steady decline. In contrast, in North America we saw the crisis start in October and
November of 2008 – and there it was a much more dramatic destocking event, a much more
precipitous drop in economic activity. In the emerging markets, we really haven’t seen much
downturn at all; those markets have been robust for the past 12 months. Finally, in Australasia,
where the economic downturn first appeared in early 2009, we saw a more precipitous drop
than in was Europe. The crisis in Australia was shorter and sharper than it in other parts of the
world.
PwC: Do you see signs of a recovery ahead?

KM: We get that question a lot. Generally, in our own business, we are now seeing a return to
stability, but at a level of activity 5 to 7% lower than prior to the economic
crisis. We are not seeing growth, but we are also not seeing any further deterioration in
economic conditions.
PwC: Are you anticipating a timely return to growth?

KM: I think growth will return. That said, it will be a slow process. We are expecting more of a
‘U-shaped’ economic recovery rather than a ‘V-shaped’ one. We see conditions remaining as
they are for the next 12 months, then slow growth returning thereafter.
PwC: Do you foresee structural changes arising in your industry as a result of the economic crisis?
KM: No. We have seen some drop-off in the discretionary-end of food and beverage consumption.
But in general, we have not seen any large structural shifts that will affect our industry.
PwC: What about structural changes arising in the capital markets?

KM: Conditions have been very fluid in the capital markets. During the first quarter of 2009 it was
very difficult – bank debt was the only debt available. But conditions today are much better.
Much of the private placement market is now open, and so one of our key objectives is to try to
lengthen our debt maturity profile.
Ken MacKenzie , PwC: Is it your view that the economic crisis has established a ‘new normal’?
Managing Director KM: There’s been a lot of talk about the new normal. But I think you have to ask the question ‘What
and CEO, Amcor was normal before?’ I subscribe to the theory that the economic activity we saw in 2007 and
Continued
2008 was overly buoyant – and that drove overly buoyant consumption. The pendulum has now
swung in the opposite direction. From a debt-pricing and risk-pricing perspective, I don’t think
we will or should go back to where we were in 2007 and 2008. At the same time, I suspect that
to some extent, the pendulum has overcorrected. But I don’t think we’re going to go back to the
conditions that we saw in 2007 and 2008.
PwC: Has the crisis affected the ways your company takes on debt and considers risks?
KM: Prior to the crisis, we had already taken the business through a pretty comprehensive
restructuring programme to improve our cost position. The programme came about in response
to events during the period 2000 to 2004. During that time, the company had undertaken a
number of acquisitions and repositioned itself as a global packaging company. We had done
a lot of right things strategically, but the company’s financial performance still deteriorated. So
the programme we established was really about returning Amcor to a stronger financial position
and making it a higher performing company. We’ve reduced our workforce by about 10% and
divested about $1.5 billion of non-core assets, using those proceeds to strengthen our balance
sheet. By August 2008, we were feeling pretty confident that our programme was working and
announced to the market that we had refocused the business into core segments and, going
forward, would look for acquisition opportunities. That’s when the Alcan opportunity came along.
PwC: The timing of those actions seems prescient. Did you see storm clouds?
KM: I like to think that we were that clever. The reality, however, was that we were taking the
company through a programme that we thought appropriate at the time. The business wasn’t
performing and needed to improve. And as part of that effort, we saw the benefits of re-focusing
the company on its core product segments and growing those strong market positions. Where
we didn’t have a strong market position, we made the decision to either fix it or exit it. In fact,
we did exit a number of segments. In hindsight, we appeared to have exited those segments at
the top of the economic cycle.
PwC: What was the rationale for the Alcan acquisition?

KM: The rationale was pretty clear. The businesses that we are acquiring from Alcan – flexible
packaging for healthcare, food and tobacco – fall exactly within our own core product segments.
So the Alcan acquisition is right on strategy for us and it occurred at exactly the right time. We
had been divesting assets at the top of the cycle and then we moved to a more growth oriented
phase when asset values started to be more in line with what we thought was reasonable.
PwC: Will further growth for Amcor depend on economic recovery?

KM: From our perspective, we see recovery being a slow return to growth over the next 12 to
24 months. Nevertheless, in terms of profit growth for Amcor, that’s going to come from the
Alcan acquisition and the $200–250 million of synergies that we will realise in putting the two
companies together. So, regardless of what occurs in the general economy, we’ve got a great
growth opportunity to work on over the next 12 to 24 months.
PwC: What goals are you setting for the Alcan acquisition?
KM: With respect to the Alcan acquisition, we’ve set out a very clear target: $200–250 million of
synergies. We’ve also put time horizons around that target: 35% in year one, a further 45% in
year two, and a final 20% in year three. And we will report progress to the market as we move
along our journey.
Ken MacKenzie , PwC: One of your key programmes is ‘Value Plus’. Could you explain its intent?
Managing Director KM: Value Plus is a very important programme. It’s fundamentally about improving our sales and
and CEO, Amcor marketing capability across all our businesses. Value Plus has three components. The first is an
Continued
economic model that allows us to understand precisely our product and customer profitability.
The second is improving the talent in our sales and marketing area. Over the last three years
we’ve probably turned over about 35% of our sales force and really upgraded the talent there.
The third component is the implementation of sales metrics that are aligned with our product
and customer profitability model. As we put the Alcan and Amcor businesses together, Value
Plus is going to be essential in positioning the combined strength of Amcor and Alcan for the
benefit of our customers.
PwC: Has the economic downturn exposed weaknesses in the way Amcor is managed?
KM: I think the short answer to that is ‘no’. Amcor had previously gone through a well-publicised
trade practices crisis in 2005 that precipitated the departure of the previous CEO. That event
really focused us on our risk management processes and, when I became CEO, gave me
the mandate to do a review of those processes. That review focused on two risk categories:
operational risks – which you can think of as safety and occupational health; and strategic
risks. Our operational risk processes have always been fairly robust, but we’ve done a lot of
work on strategic risk management. When considering strategic risk we map a risk’s probability
of occurrence against the impact it would have on the business and we formally review this
once a year. Once we complete that review, we enter into a cycle of continuous improvement
of our mitigation plans. That’s a journey we’ve been on for the past two or three years and we
feel that our control posture is much improved as a result. And that’s helped us come through
the global economic downturn really well.
PwC: Are there lessons you’ve learned along the way?

KM: Yes: Processes need to be simple if they are going to be effective. And they need to reflect a
combination of both bottom-up – in our case, that means having our business groups around
the world identify risks in their local market – and top-down, which looks over the horizon at
future risks on a macro-level. If you can bring those two approaches together, I think you end
up with a fairly robust process.
PwC: What are some of those macro-risks that Amcor considers?

KM: There are a number of particular risks that we track more closely than others. Typically, in our
business, environmental risks are at the top on our list. But with risk comes opportunity and
we see the whole environmental agenda as a terrific commercial opportunity. We see changing
consumer behaviour around issues of sustainability as an opening to develop new products
and differentiate ourselves from the competition.
PwC: Are you committed to environmental issues because that makes sense as part of a
business strategy?
KM: First and foremost, it’s at the heart of our social licence to operate, which calls for operating in
a way that has the least possible impact on the environment. On World Environment Day in
2008, we launched a programme called EnviroAction, which set sustainability targets for our
operations. Targets call for a 10% reduction in our greenhouse gas emissions, a 30% reduction
in waste to landfill, and a 45% reduction in water consumption in water-stressed regions, such
as Australia. We’re well on the way to achieving those targets. Sustainability also has a
commercial dimension. One of the things we’re doing in that area is looking for opportunities to
introduce biodegradable materials into our packaging. We’ve done a lot of work in that area.
Additionally, sustainability, I think, is going to provide us with some ‘white space’ opportunities,
the sorts of new business opportunities that are now largely unrecognised and underserved.
Ken MacKenzie , PwC: Has the downturn resulted in a loss of momentum around sustainability issues?
Managing Director KM: I think that in 2009, sustainability has been less front-of-mind. But I have no doubt that as
and CEO, Amcor we move through the current global economic crisis and we start to get back to the ‘new
Continued
normal’, sustainability issues will become front-of-mind again for the consumer. As for Amcor,
an ambitious sustainability agenda is still very much a part of our strategic platform. We’ve
had to make tactical choices in the short-term, and clearly we’ve been much more focused on
making sure that our balance sheet is in good shape. But we are still moving forward with our
sustainability agenda.
PwC: In the face of the downturn, what have you been doing to help maintain morale at Amcor?
KM: In January, at the height of the global economic crisis, we launched a programme called
‘Being Amcor’. We had a good debate within the management team as to whether it was an
appropriate time to launch a global programme that talked about our beliefs and values, our
operating model, and the core disciplines of our business. We came to the conclusion that
a difficult operating period was exactly the right time to talk about what’s important to us as
a company and how we expect our people to behave. The programme was extremely well-
received by our employees. In hindsight, I think it was the right message sent at the right time.
PwC: With respect to climate change, do you think that the private sector must act irrespective
of regulation?
KM: I absolutely believe that industry has an obligation to act independent of government
regulation. At Amcor, we haven’t waited for government regulation. We’ve launched our own
carbon pollution reduction programmes. We believe that’s part of our social licence to operate.
PwC: Looking out three to five years, what does success look like for Amcor?
KM: For Amcor, the best is yet to come. Back in 2005 and 2006 we had an underperforming
business. So we made the decision to reshape our portfolio, sell $1.5 billion worth of assets,
and focus on the financial performance of our company. That agenda has gone very well for us
over the last three or four years. As we emerge from the global economic crisis, I think we are
in a position of strength with respect to acquisition opportunities. That being said, we will not
acquire opportunistically, and the Alcan acquisition is right on strategy. In Amcor and Alcan we
are putting together two fantastic packaging companies, both well-respected leaders in the
healthcare, food and tobacco packaging segments. The really exciting part of this acquisition
for me is the opportunity to create an unbeatable value proposition for our customers. We’re
going to have a significantly larger geographic footprint than we have today. That’s going to
allow us to service more customers in more locations. It’s also going to allow us to have more
contingent supplies – if we have an issue in one part of the world, then we can seamlessly
transfer customers’ requirements to another part of the world. And we’re creating deep
resources, focused around an in-depth understanding of customer requirements, so that we’re
in a stronger position to develop new customer-driven products. Moreover, because of the way
we’ve funded this transaction, we’ll have the financial strength to follow our customers into
new markets and selectively invest in new technologies.
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Interview transcripts of Michael I. Roth,
Chairman and CEO, Interpublic Group

Michael I. Roth is the Chairman and CEO of

Interpublic Group
PwC: What will it take for the economies of your key markets and those of your clients [advertisers
and marketers worldwide] to stabilise, if they haven’t already? And are there particular signals
that will indicate, or have indicated, that a recovery has set in?
MR: Well, I think the first sign of a recovery will be the level of [consumer] confidence. That
confidence has to come initially from the consumer and then the business sector. We’re starting
to see some of that coming back. We’re not there yet, but without that type of confidence,
people aren’t going to spend any of their dollars. This is an interesting environment, because
a lot of our clients have a lot of cash on their balance sheets. It’s not that this is a depression,
where there’s no money to be spent. People are being very cautious about how they spend
their dollars and when they spend them. So once we start seeing more confidence in the overall
stability and recovery, then I think we’ll see clients, as well as consumers, start to spend again.
PwC: With regard to an eventual business recovery among IPG’s diverse US clients, how might
capital flows and capital markets change? And how would those changes affect a resurgence
in advertising and marketing activities among your clients?
MR: The capital flows have already changed; there’s no question about it. What’s happened is, the
risk profile of lenders has changed dramatically. As a result of that, all of our clients, as well as
IPG, have to focus on the financial stability of their own organisation so that we can have access
to the capital markets and that the funds will flow freely on a global basis. The reality is, this is
a global environment. It’s not just one capital market that we’re looking at. We see it in our own
share positions, as well as our own debt offering. It’s a global offering. The capital markets are
certainly looking on a global basis, and people are not willing to take the risk that they’ve taken
before, given what’s happened in the capital markets. So there is a lot of concentration on lower
risk, higher strength organisations. Unfortunately, what happens in that environment is that the
people who don’t need the money are the ones who have the money easily available to them.
But eventually it’ll trickle down, once risk profiles become more tolerable.
PwC: In looking at that global environment, do you see that governments may, in a recovery, erect
barriers to foreign advertising and marketing activities?
MR: This is a global environment. To the extent that governments erect barriers, I think they’re doing
their own country a disservice. So I don’t expect to see barriers in terms of capital markets.
If anything, the capital markets are more global than they’ve ever been, and therefore there
should be freedom to pick and choose which capital markets you want to have access to. It’s
encouraging to see governments starting to talk to each other about it. We’ve seen the G7
expand, if you will, and I think that’s a recognition of the fact that this is a global economy and
we have to have access to all the different resources that are present.
PwC: In this economic crisis, consumer demand has fallen in many key markets, which obviously impacts
the business not only of your clients, but your own overall business. When recovery sets in, what are
your expectations about whether consumer spending will return, whether purchasing behaviours will
resemble those seen in the past and, and how that will affect the advertising industry?
MR: Well, certainly consumer spending is a key component of a recovery. In our business, since a
lot of clients are spending behind their brands, you want to see consumer behaviour increase
in terms of their spending. There’s no question that there’s a change in the buying patterns of
the consumer. The days of freely spending money, I think, have passed. People are looking for
value for their dollars, and even if you can afford to spend more money, it’s appropriate to think
about how you spend your dollars.
You see it in advertising, as well. A couple of years ago, advertising was focused on feeling
good and exciting and so on. Now it’s value for your dollar, price-conscious spending, as
well as functional spending, efficiencies and things like that. There has been a fundamental
shift in how consumers will spend their dollars, as well as the ecological effect of the spend.
Consumers are looking for a ‘green’ effect, I think appropriately. Our clients have to recognise
that and are, in fact, changing the way they do business, as we are.
Michael I. Roth, Deputy PwC: How will this affect your strategy, and what kinds of strategic or operational changes are you
Chairman and CEO, making in response?
Interpublic Group MR: Well, the changes we have to make are to really have a think tank on consumer insights.
Continued
So we’re spending a fair amount of time on our own, as well as with our clients, to make sure
that we have the consumer insights to help get the messaging out there that’s appropriate.
In certain segments, a green environment is critical, therefore we have to have the insight
into what consumers are looking for – whether it be recyclable types of products or
energy-efficient products. All of these things go into the consumer’s psyche that we have
to be able to respond to.
PwC: Is it any more difficult, given the depth and breadth of this economic crisis, to measure that
kind of consumer response and behaviour?
MR: Yes, it’s difficult to measure, because a lot of it is geographic. Remember, some countries are
evolving, and they’re aspiring to the good old days of the United States, where people would
spend lavishly and so on. Therefore, they’re going to be looking to accomplish that, whereas
other countries, which are already there, are looking to pull back. So the insights are really
geographic. You have to be able to tap into the markets that you’re in, as opposed to just one
global approach to it. It’s pretty challenging, but we have the resources to do that.
PwC: Are you anticipating major structural shifts in economies, both in the US and key international
regions, as they emerge from the recession? And how might those shifts affect your business?
MR: The structural shifts have already begun. The emerging markets, if you will, are a critical
component of the business environment that we have to compete in. So whether it be the
BRIC countries, where we have to have a strong presence, our clients are demanding that we
be in emerging markets. Brazil, Russia, India, and China are markets that we are investing in.
We have a very strong competitive position in those markets, and we will continue to grow
it. That doesn’t mean that the United States is not going to grow, as well. It’s just a question
of the rate of growth. Certainly the emerging markets seem to have the ability to grow more
rapidly than a more mature market, such as the United States or Europe.
PwC: I want to move on to some questions related to how you are positioning IPG to succeed in
the post-crisis environment. We’re most interested in your views on strategy, risk, investment
and talent. What are the most significant changes in IPG’s overall strategy, business model or
organisation, which you initiated in response to this economic crisis?
MR: Well, like any other good business, the first thing you look at is costs. If you’re not looking at
your cost structure in this environment, you’re asleep at the switch. If the revenue isn’t there,
in order to protect margins, you have to take a look at your cost profile. So IPG, like all other
companies, has been doing that since the end of 2008. As a result, we’ve already seen a 9
to 10% reduction in our overall employee base, and we will continue to look at our ratio of
cost-to-revenue as this goes forward. Certainly when the recovery comes, then we’ll look to
reinvesting in our talent.
That doesn’t mean to say we’re not reinvesting in talent now. What you do in this environment
is add to your talent base and reposition your talent to be more suited for the challenges that
are ahead. We see a lot more people, for example, on the digital side being added to our
talent base. Even though we’ve had a 9 to 10% reduction in terms of staffing, we’ve also had
increases to invest in those markets and resources that are necessary to be competitive. We
continue to invest in digital media in certain geographic areas.
Michael I. Roth, Deputy PwC: How much, if any, leverage did individual units within IPG have in initiating changes like this?
Chairman and CEO, MR: We manage our businesses from two perspectives. One is growth revenue and margin. Each of
Interpublic Group our business units has the opportunity to get to a margin target, and they can get there either
Continued
on the revenue side or on the cost side. That’s how you manage the business end, and in this
environment, since the revenue isn’t there, they have to take action with respect to their cost
profile. They have to do business more efficiently, with fewer people and in geographic areas
that are more prone to the recovery when it comes. So the leverage, if you will, is across the
board. It’s up to our business unit heads to manage it, and we’re there to make sure everyone
is marching to the same drummer.
PwC: From both a philosophical and a practical standpoint, how did you address the age-old
conundrum of convincing clients to continue advertising and marketing activities during an
economic downturn?
MR: Well, it’s kind of interesting. I used to be on the other side of the table, and I was one of the
first to say, ‘Look, if we’re challenged from a margin perspective, let’s cut our advertising
budget.’ The reality is – and I know this sounds self-serving – that clients and corporations
have to invest in their brand even in a downturn. Studies clearly show that in order to keep
your brand, you have to invest behind it. Otherwise you lose market share. And, certainly, if
you want to gain market share, you have to spend behind the brand. So the evidence is there;
we can present the evidence. The enlightened clients understand the importance of spending
marketing dollars even in a down market.
PwC: Is the push-back that you traditionally get from that kind of thinking any different or a little
tougher this time around?
MR: It’s actually a little easier. It’s tougher because the economic environment is causing them to
protect their own balance sheet and their own P&L. But it’s easier because we have more tools
available to show that what we’re doing moves the needle. It’s that kind of dialogue that we
have to have.
PwC: Is IPG’s ability to respond to emerging opportunities, including the growing importance of
social media and mobile technology, constrained by difficulties in raising capital? And what
kinds of adjustments, perhaps in unconventional financing or new ways of tapping into capital,
are you making as a result?
MR: We’ve been fortunate. We had started repositioning our balance sheet a number of years ago,
and frankly our balance sheet right now is as strong as it’s ever been. We’ve recently raised
$600 million dollars. We’ve extended our maturities. We have $1.8 billion in cash, and therefore
we’re not constrained in terms of capital at all. In fact, we have enough cash and financial
support on our balance sheet that we don’t need to access the capital markets on a short- or
a long-term basis. We’re in a position of strength in terms of being able to invest in people and
resources, and that’s what we intend to do.
PwC: What gaps in risk management in your company and its affiliates were exposed by the
economic crisis? Did you make incremental changes to address them, or are you initiating a
whole new approach as a result?
MR: I wouldn’t call them gaps as a result of the economic downturn. What happens is, like
everything else, when things are more difficult, you have a microscope view of costs and
profitability. What this caused us to do is, go to the next layer of operations to make sure that
we’re not running businesses at a loss. That we’re structured appropriately, and that we’re not
spending money in a way that ultimately doesn’t prove to grow revenue. This environment has
just caused us to look a little deeper and a lot harder in terms of our expense profile.
Michael I. Roth, Deputy PwC: The economic crisis has been stressful for most employees, many of whom have been
Chairman and CEO, asked to accomplish more with less. How have you been able to maintain morale and
Interpublic Group motivate your staff?
Continued
MR: You know, the morale issue is a tough one. My view is that everyone likes to cross the street in
a crowd. If everyone is having a miserable time, it’s somewhat helpful to know everyone else
is miserable. So I think people had that kind of attitude. It’s a tough environment. We have to
suck it up and we have to get through it. It’s not that we’re in one position and the rest of the
world is in another. I think that’s helped. In terms of the morale, I meet with clients, I meet with
our people, I send out communications. As long as our people are informed in terms of what’s
going on with our clients and with our company, that’s what you have to do. Everyone knows
we’re in this boat together, and we have the resources to get through it. We all just have to put
our heads down and do what we do best. Like I say, it’s not that others are doing great and we
have a problem. That’s a big difference in terms of the environment.
PwC: Recognising your industry’s unique dependence on creative individuals, in what ways has the
financial crisis affected your ability to recruit and retain creative talent?
MR: Well, it’s a mixed bag. On one hand, it’s a difficult economic environment, so people aren’t
likely to go out looking for jobs elsewhere. You know, it’s the old adage: ‘It’s good to have a
job.’ That’s helped on the retention side. It’s hurt on the recruiting side, because the other side
of that is true. Where we have had needs, if you will, we have not had any problems recruiting
very solid talent for those spots. We’ve added some senior people at our company in this
environment, and I’m very pleased with the type of people we’ve added and our ability to
recruit. So it’s good and it’s bad. It’s good in terms of, there’s talent out there that we can tap
into. It’s a little more difficult, but it’s okay.
PwC: Some observers believe the economic crisis has undermined the public’s trust in the private
sector’s motivations and the reputations of entire industries. Considering how IPG overcame its
own problems, what advice would you offer to other CEOs with regard to restoring public trust?
MR: Public trust is a real issue for big business, not just in the United States, but globally. I’ve been
through a couple of turnarounds now, and my philosophy on that is pretty straightforward, and
that is transparency. If all the constituents, whether they be investors or employees, are aware
of what’s going on and they feel that you’re being transparent with them, they give you some
slack. It’s those companies that are very close to the vest that leads to this type of distrust.
And, of course, governance is critical. One of the things I’m very proud of at IPG is that from
a governance point of view, we consistently get the highest ratings in our industry in terms
of what we’ve done as a public company. I believe communicating is key, so I get out, I meet
with our clients, I meet with our people. I have open dialogue and an open door. That lends
itself to trust. But there are companies out there, there are individuals out there, who view this
as an opportunity. Most companies operate in a very sound financial and trusting way. It’s
unfortunate that there are those companies that have caused distrust to exist. What we have
to make sure is that we don’t overreact to the ones who have caused this. The Enrons of the
world, if you will, ultimately gave rise to the Sarbanes-Oxley provisions, which you can argue
went too far or not. That being said, we viewed Sarbanes-Oxley as an opportunity to get our
house in order. It gave us much greater visibility in terms of how we managed our business.
Whether it was the most cost-effective way to do that or not remains to be seen, but that’s
behind us now. We have the controls that are necessary to have that kind of transparency.
Michael I. Roth, Deputy PwC: This last set of questions relates to the relationship between the public and private sectors.
Chairman and CEO, Soaring healthcare costs and wasteful spending are universal concerns, regardless of which
Interpublic Group side one is on in the US healthcare policy debate. Do you believe the current reform agenda is
Continued sufficient in tackling this fundamental problem in our healthcare system?
MR: There are personal answers to that and there are business answers to it. Healthcare reform,
I think, is a requirement. There are too many people who don’t have appropriate healthcare,
and therefore it’s our responsibility to make sure they have it. Costs have gotten out of hand.
One of the single biggest issues we have is how we manage our healthcare costs and how
much sharing with our people should we put in. We want to make sure that we’re fair, we’re
competitive and that our people are being adequately protected from a healthcare point of
view. But the costs are rising at a rate that is not consistent with the way the overall businesses
in the economy are growing. Therefore something has to be done.
Whether you go out and drastically reform the entire healthcare field, I seriously doubt that can
work. What we should focus on are those people who need healthcare, and how we can help
them and make the other systems we have work better, as opposed to starting with a clean
sheet of paper. It’s a pretty difficult thing to do. Ultimately, it may make sense to start with a
clean sheet of paper, but as a practical matter, I don’t see it happening. We’re spending a lot of
time debating it, rather than focusing on getting something done and accomplished that has an
impact. That’s what we should be doing.
PwC: Given the structure of your organisation, have you thought about or looked at how healthcare
reform might affect IPG?
MR: Right now we’re going through our budgets. We’re looking at our healthcare costs. We’re
looking at our options for our people in terms of our healthcare insurance. We’re looking to see
how to maximise the benefits, as well as minimise the costs, in terms of the options. Certainly
we look at how healthcare legislation may impact that. But right now, what I’m interested in is
the immediate cost of it and making sure that our people are adequately protected. That’s what
we do. As the legislation emerges from Washington in this case, then we’ll have to deal with
it. But right now, we have plans in place. We have costs that we have to deal with and we’re
managing that.
PwC: Considering the current legislative debates regarding not only healthcare, but also energy and
financial reform, are you concerned that there is a risk of over-regulation in the US? And in what
ways could businesses help governments make regulation smarter?
MR: I’m on a lot of boards and partnerships that address the Washington business relationships. I was
concerned initially in terms of the backdrop of an overreaction to big business in Washington and
taking legislative action that I felt was too restrictive in terms of how we manage our business.
That’s lessened a bit, but I do get concerned when I see too many legislators trying to manage
our business, whether it be through compensation or accountability.
We do a very good job of having an independent board of directors that is very actively
involved in the management and frankly of oversight with respect to what management
is doing. That’s where the battle should be fought. That is, are companies being properly
governed from a management point of view? And if the answer to that is ‘no’, then something
should be done about it. But as far as having legislation that brings them [government
regulators] into the boardroom, I think that’s totally inappropriate. I know that’s self-serving,
but in the long run, that’s the way businesses should be run. Those businesses that are
transparent and governed properly usually do better and outperform anyhow, so eventually
the markets will take care of that.
Michael I. Roth, Deputy PwC: What one thing could governments do to stabilise the financial sector and minimise the risk of
Chairman and CEO, another meltdown?
Interpublic Group MR: In terms of stabilising the financial sector, I don’t think there is a silver bullet. What we saw
Continued
never happened before. There isn’t one solution out there that’ll fix it. We did what had to be
done in terms of putting up safety valves and providing financing when the financing dried up,
and I think it worked. We’re seeing somewhat of a loosening of the credit markets, and financial
institutions are performing better. There should be government oversight of financial institutions
through the regulatory bodies, but we’re seeing some of that already take hold. Therefore, we
should step back. I don’t think we should step forward and tighten the regulations more.
Certainly regulations are made to ensure that things are adequately monitored. In the insurance
industry, there are state regulators that have been managing insurance companies for years.
Now, if those regulations are not operating effectively, then they should be changed. But that
doesn’t mean they have to go beyond their original charters and go into other businesses and
other industries. We had a unique circumstance; we had a perfect storm. We reacted to it, and
now we should let capital markets do their thing. Ultimately that’s the way to get through this.
I believe in the free market system.
PwC: One last question: About which of all the issues that we’ve discussed here would you most like
to learn what your peers, other CEOs, have told us?
MR: Obviously the big question for my peers is, how do they see the recovery? How do they see it
evolving? What areas do they believe are going to be the quickest to recover and what they’re
doing about it? I’m always interested in other perspectives. I’m open to listening to people who
may know more about it than I do, and learning from it. An open forum and an open dialogue
on those issues are critical.
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Interview transcripts of Mikael Mäkinen,
President and CEO, Cargotec

Mikael Mäkinen is the President and CEO of

Cargotec Group
PWC: What will it take for the economies of your key markets to stabilise, if they haven’t already?
Are there specific signals that will indicate, or have indicated, to you that recovery has set in?
MM: In general I would say that it has stabilised, but at a low level. I think it would be fair enough to
say that is where we are. It’s not going down, nor is it going up either. One of the first indications
of it going up in our type of industry is investments … that we could see investments happening
somewhere in the world. And that drives, then, transportation. But I think the market is very
mixed in that respect. If you read the newspapers and look at what the banks are saying one
would believe that everything is back to normal. For us, being back to normal means we are
getting orders. If we don’t get big numbers of orders it has not returned to normal. That is a fact.
PWC: I noted that you have about half of your business in Europe, about 30% in APAC and the
balance in the Americas; as far as capital investment is concerned, do you see recovery in one
market before the other, or will it be pretty much uniform?
MM: My guess is that the earliest recovery is already underway in Asia, to be followed by the
Americas and then Europe. So, Europe will be far behind these other regions.
PWC: How might capital flows and capital markets change, and how would these changes affect
MM: Capital for our own company is available if we need it. As far as our customers are concerned,
capital is available, but not to everybody. That’s a huge difference now. Most of our ‘key risk’
customers do get capital. However, a few years back, you could see all kinds of companies
popping up like mushrooms and starting up businesses – that capital is not available today.
That should mean it is a better foundation. The sources of capital that our customers go to are
being much more selective than before. That is a huge change.
PWC: In the economic crisis, consumer demand fell in many key markets. When recovery sets in,
what is your expectation about whether consumer spending will return and whether purchasing
behaviours will resemble those seen in the past?
MM: I believe we have reached the bottom, but I think the recovery will take a long time – longer
than we have seen in the past following similar recessions. Part of the business, which is a
truck-related business, will return to normal during the second-half – the third quarter – next
year. The other parts of our business will stay on a lower level still, at least a year. We also
have to remember, that despite what everyone says, there was over-investment before this
crisis. Which means, even if it normalises, we spent too much. There is excess that must be
worked off. For example, someone may have needed 70 terminal trucks but over-bought by
buying 100. Even if the market normalises, they still have 30 trucks to carry them for the next
half of year. That is what, in my opinion, will prolong the recovery period. The highest level of
investment was artificial.
Mikael Mäkinen, PWC: How will that affect your strategy, or your product and service mix? What kinds of strategic or
President and CEO, operational changes have you initiated in response?
Cargotec MM: There was not just over-investing, but also over-spending, which means in this case, over-
Continued
specifying. What does that mean? You asked how that changes our product mix and strategy.
I think that everybody is taking away from whatever equipment they buy the ‘nice-to-have’
part. You know, everybody wanted to have air-conditioning in their equipment and maybe it
was not necessary. This is a big change, and that is what’s changing our strategy. I think that
in the future a ‘good-enough’ product is good enough. So, I think this over-spending led to
over-specifying – taking all the extras that were available. Everyone was saying there would be
growth and more growth. And let’s say there is a crane, or whatever, that can last for 20 years.
Before, nobody wanted to buy a crane that lasted for only 10 years because the money was
available. But I think in this new world, the money is not available. So, you have to buy two lots
of the 10-year product, rather than buying once for 20 years. And this, in my opinion, is a very
big change across the world.
People are thinking more about cash flow. If it lasts for 10 years, I have to take equipment
for 10 years. This means that I do not spend 100% of my capital needs now; it means that I
spend 50% now and 50% in 10 years’ time. This is affecting the strategy on all of our products.
We have to go to ‘good-enough’ products instead of always the best. This does not mean we
should lower the quality of our products – you shouldn’t tell your customer it lasts for 20 years
when it will only last for 10.
PWC: Are you anticipating major structural shifts in economies as they emerge from this recession?
MM: I believe that not only production but also the consumption of products are shifting to Asia
and South America. It would have taken longer without this event, but now it will happen more
quickly.
PWC: Does this affect your investing going forward?

MM: Yes, definitely. It drastically shifts the investments from Europe to Asia and the Americas.
And investment is, of course, production facilities, but it’s also people. It’s also shifting the
decision-making on, for example, what type of products we are to make in Europe and Asia. As
things have been, 50% of our business has been in Europe, so our products were designed by
European engineers for European customers and also sold in Asia. The shift to Asia will mean
that more emphasis will be on Asians to say ‘this is the product we need – we don’t need your
European-designed product’. So, I would anticipate in the future that there would be more R&D
centres – one in Europe, one in the Americas and one in Asia. And I think that this is a huge
change which the politicians have not understood in Europe – that after the recession we will
not go back to the old way of doing everything in Europe. I think this is a fundamental change
in our business.
We have had to reduce our payrolls by more than 3,000 people and, if we include contractors,
the total cut is over 10,000 jobs in the Nordic region. If we move to Asia, we are not going to buy
the components from Sweden. If we move the factory from Sweden to China, we will source our
components in Asia. This is what I think people have not yet understood. This is a huge change.
There have been a lot of interpretations about what the market recovery is going to look like on
a graph … some say there will be a ‘W’-shaped curve, others say an ‘L’-shaped curve. I think
that after this, you will just need to turn the page … it will be something totally new.
Mikael Mäkinen, PWC: Some observers believe the economic crisis has undermined the public’s trust in the private
President and CEO, sector’s motivations and the reputations of entire industries. Do you agree?
Cargotec MM: Of course, we are going to be blamed because as I said we have had to reduce our employment
Continued
by 3,600 people. That has nothing to do with the public’s trust, but rather the employee’s trust. It
is easier to explain the loss of jobs due to the recession but, as I said earlier, after the recession it
is a new page in our industry. We have employed more than 1,000 people in these other regions.
So that is the difficult part. We have not added in Europe.
Also, firing 3,600 people has changed our own company. It is very difficult for us to say that we
will employ you for a lifetime. We cannot promise that any more. We also, as an employer, have
to accept the fact that we cannot expect employees to stay with us the rest of their life, which
means a more competitive recruitment market. Maybe we have to offer employees something
more, whether it is training or whatever, than before this crisis to keep them in the firm.
PWC: … If so, what are some specific things your company is doing to restore either the public’s trust
in the private sector, in general, or the reputation of your company and industry?
MM: As a company and an employer it is very much a question about values; you at least must have
some written values and work according to them. I think that is very important.
PWC: What are the most significant changes – in your strategy, business model or organisation – that
you initiated in response to this economic crisis?
MM: Everybody has be leaner and place more emphasis on being closer to the customer, which in
our case means moving away from having everything in Europe. That’s an organisation change
and a business model change. An example is that we have closed five factories in northern
Europe and have added two in China, one in the US and one in Poland, which is a low-cost
part of Europe. Also, there is the employee shift that I mentioned. And also the decision-making
is shifting, with more emphasis on deciding and designing products in markets outside of
Europe. This is also reflected in our top management. When I started (two years ago), everyone
was from Finland. Now there is one from the US, one from Holland, one from Germany, one
from China and the rest from Finland. Fifty percent from the Nordic region have been replaced.
PWC: Has your board become more engaged with strategy, risk, leadership development, or
other areas that in the past had primarily been management’s responsibility? If so, in what
specific ways?
MM: Yes, and I underline strategy and leadership development. The board has been more
engaged in these, and has put more emphasis on them than before. As I referred to earlier,
closing five factories and moving in a completely new direction has meant that the board
wants to be assured that those are the right things to do. And hand in hand with that goes
leadership development.
PWC: Is your ability to respond to new opportunities constrained by difficulties in raising capital?
What kinds of adjustments are you making as result?
MM: I think it has put a lot of pressure on brand building. We actually were three companies before
[Hiab, Kalmar and McGregor] – and Cargotec was more like a holding company. We have
amalgamated these three companies, coming up with a new logo, and now everybody is employed
by Cargotec. And that’s very important now in this economic environment when we have had to
move around a lot of people, combine offices in countries, and so forth. It was much, much more
important to do this now than before. We had a three-year plan and compressed it into one year
because of the recession. This was easier to do as our volume of orders went down. We actually
refocused our efforts from delivery and selling to putting our corporate structure in order.
I wanted to do it in one year so that we could refocus the organisation again as quickly as
possible on the outside world. And I think that as the economy starts to grow some companies
won’t grow with it partly because they have been caught up in this internal, downward spiral.
They will still be restructuring when the economy turns around and will not notice that, hey,
someone wants to buy your products.
Mikael Mäkinen, PWC: What are some specific ways in which you have been able to keep the organisation focused on
President and CEO, growth, despite capital constraints?
Cargotec MM: The only point here is that we have not let our restructuring interfere with our customer
Continued
relationships in any way.
PWC: What gaps in risk management in your company or your industry were exposed by the
economic crisis? Did you make incremental changes to address them or are you initiating a
whole new approach to risk?
MM: Two new things here. One is order cancellations. That someone would cancel something
was unheard of over the last 10 years. They would buy it, and they often bought it, even if
they didn’t need all of it. Now, because of cancellations we have to monitor our customers’
behaviour, even after they have placed an order – that’s something totally new. The other
change is that we now have to monitor subcontractors’ risk. Are your subcontractors healthy
enough to be able to provide you with the components? Our factories are assembly factories,
so we make an order and if a subcontractor cannot supply it the whole assembly process
collapses. And this is one of the dangers when the recovery comes. All the market analysts
are focusing on the bigger companies. What lies behind them are the subcontractors. When
the market goes up 20%, you may find your company only going up 10% because your
subcontractors are unable deliver due to their inability to get components.
PWC: Looking ahead, what emerging or systemic risks [e.g., climate change, pandemic disease,
geopolitics, natural disasters, etc.] are you preparing for?
MM: We have started to do scenario planning, which we had never done before. We are trying to
look at various scenarios – the probability of them, how they will affect us. So, I cannot tell
you it is only for climate change. I look at scenarios from our customers’ point of view; how
does the world evolve and how does transportation in the world evolve. From there come the
scenarios. From that we look at the appropriate change.
From the list you have here, I would pinpoint climate change as the biggest one. We use
outside consultants and universities – so we take it to a very high level. What does climate
change mean? OK, the sea rises five metres. You have to rebuild all the harbours … big
business opportunity. But that would mean that it would be forbidden to transport many goods
like Perrier water. Nobody needs Perrier water in Asia. It is totally unnecessary to transport it.
We are in the early stages of this now.
PWC: The economic crisis has been stressful for most employees, many of whom have been asked
to accomplish more with less. How have you been able to maintain morale and motivate staff?
MM: It’s a question of values. You have to tell your own people what the company values are and
why you have had to fire 3,000 people, and still try to keep up the morale of the rest of them.
It is very much about communication. We have done a huge job on the values of the three
different business areas. Altogether we had 10 sessions in which 200 people gave their views
about our values – what they should be, the common values for Cargotec. Then we asked all of
our employees if they had any comments. We got 3,200 comments. Remember, we have 6,000
people with computers – 50% answered!
They already had values, so we had to extract and combine them. We, as top management,
did not try to create new values. We asked, ‘What are those values that we have had for
100 years?’ We had to identify them, regroup them, put them into sentences and then
communicate them. The outcome of this is that everybody understands what this company
stands for. Now, they have to make up their minds if they want to be part of it.
Mikael Mäkinen, PWC: Last year, 72% of CEOs told us that talent was a critical driver of long-term success. In what
President and CEO, ways has the financial crisis affected your ability to recruit and retain talent?
Cargotec MM: This goes hand in hand with the values I spoke of. To employ people you have to show them
Continued
the values – what this company stands for, especially in these times when you have to make
so many redundant. Would you like to be employed by us when one-quarter of our employees
have been fired? Maybe ‘no’, because, as a newcomer, you may be the first to go in another
recession. As I have already said, recruiting people is much more important than before.
At the same time, the business is really globalising, we need to recruit for top positions in
areas outside our home base in the Nordic region. As a result, we really have to think about
our values and how we communicate them because those prospective employees don’t know
Cargotec – they don’t even know where Finland is.
PWC: Most observers believe that more regulation is coming. Yet, CEOs have consistently told
us that over-regulation is a major threat to their growth – including 55% of CEOs last year.
Will new regulation lead to over-regulation?
MM: Regulation affects us all, but the other companies (referring to banks, brokerages, investment
funds, hedge funds and other financial institutions) probably have a better view on this
question. We moved some of the factories that produce products for the US market from
Sweden to the US itself because of concerns over government regulation and the tendency
for them to buy local. We were afraid that one day there would be a regulation that the US
government buy from a US manufacturer. In China there is a similar tendency to buy from
Chinese producers. Having said that, I do not think there will be a kind of protectionism at
large. But there will be countries like the US that prefer to buy from US manufacturers.
This goes for the big nations … nobody could care less what little nations like Finland do.
PWC: What one thing could governments do to stabilise the financial sector and minimise the risk of
another meltdown?
MM: Though I believe that the sub-prime events in the US started the current recession, I think there
were other more important underlying reasons. If a French harbour over-invests, it has nothing
to do with housing in the US. The expansion had been going on so long, that nobody noticed
that it should have stopped for a few years and stabilised – it just went on. There was too
much money available.
What needs to be known is what is behind the available capital … is it real. Not all of it was
‘real’, it was a bubble. That is where the government has to step in, to stop the over-leveraging
of capital. So from that point of view, more transparency could have helped. I don’t think that
regulation helps – some clever guy always finds his way around it. But some transparency
would have helped. Think about the analysts who were saying two years back that you have
to leverage more, that your company is doing things wrong, and that your gearing is not high
enough. If the middle class in Africa had grown at a huge pace, then further expansion could
have been possible. You would have created more consumers. But if you have normal markets
and you just create wealth, then you have to understand that something is wrong.
Mikael Mäkinen, PWC: What one thing could governments do to successfully address the risk of climate change?
President and CEO, MM: The way that I understand it here is that every company has to take climate change into
Cargotec consideration when developing new products. We have been told that climate change will be
Continued
forgotten because we cannot afford it in this recession and so forth. Actually, I do not think
that is the case. There is a lot of pressure in China to accept the climate change case because
there the environmental issues are so big that people in some cases are dying. Here, we may
not have as much snow as we did 10 years ago. But if some members of your family die
because of pollution or because you have floods due to climate change, then it is not an issue
that will go away.
So yes, we have to take it into consideration in the way we operate. Most of our R&D goes into
those environmental issues that have an effect on climate change. All of our big customers
want to be good citizens. And pressure from our customers comes to ensure that our products
are environmentally friendly so they can minimise their own carbon footprint. Also young
people don’t want to work in companies that are not environmentally sound.
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motivation
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The talent
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Result
Business
alchemy
Interview transcripts of Kong Dong,
Chairman, Air China Ltd

Mr KONG Dong is the Chairman of Air China

PwC: Mr. Kong, we know the economy has kept slowing down in the past 12 months. So, my first
question is what effect it may have on Air China’s future development in aspects such as the
strategy and the new passenger source. Could you please share your opinions about that?
MKD: I am watching the development of China’s economy closely, including that of the aviation
sector. The financial crisis should be a test for China’s economy and for us, as part of it. As
an aviation industry leader in China, Air China is facing a very severe challenge. The process
brought us both success that we enjoyed in going through the financial crisis and hard lessons
caused by a lack of preparedness. However, I feel the most fortunate thing is that Air China has
built a very good foundation during these six years of development.
Despite the bad financial performance in 2008, the crisis didn’t hurt our core competitiveness
and actual operation capability. In 2009, our performance has been quite outstanding.
It should be mentioned that the forecast by the International Air Transport Association (IATA)
was very pessimistic, and the original loss estimate even increased to US$11 billion for the
global aircraft industry. Considering the actual conditions in the first three quarters, it also
thinks the prediction is very objective. However, the situation is exactly the opposite in China.
We have the ability, courage and boldness to resist the financial crisis and we have been
supported by some government policies. Under such conditions, I think the performance of
our enterprise is especially outstanding, because we have generated a profit of nearly RMB
3.8 billion in the third quarter.. When I attended a Star Alliance conference and discussed our
development with CEOs of many airline companies, they were envious of our results.
First, these achievements are the result of our determination in carrying out a long-term business
strategy. Since the reshuffle, we have targeted ourselves as an international large hub airline
company. We have worked hard for six years to realise the target. In fact, those foundations
safely carried us through the severe winter of the industry. For example, Beijing Capital Airport
has become one of the best global aviation hubs in the world. We built this very successful hub
with Beijing Capital Airport. The occupancy rate of flights is about 45% in the Beijing hub and,
in terms of the total traffic turnover, we have reached 50% and constructed several flight banks,
connections between inbound flights and outbound flights. Our hubs play important roles in the
domestic market, which is reflected clearly in our operation and production data.
Second, while focusing on building the Beijing hub, we also gave attention to regional
hubs in the southwestern area. In Chengdu, the 12 May Wenchuan earthquake caused great
losses to us last year. In 2009, we worked hard to restore our southwestern hubs very quickly.
Our current production and operation status is better than that prior to the earthquake in
the southwestern area. At the same time, we also paid close attention to Shanghai. We took
opportunities to establish our Air China Shanghai branch rapidly. Our aim is to participate in
the building of Pudong international hubs in Shanghai, which is the most important portal in
China. For long-range international inbound and outbound flights in Pudong, if Star Alliance
companies also counted, we should be competitive and have a large market share.
We also see an obvious production characteristic in the Chinese home market; that is
‘domestic better than international, passenger traffic better than freight’, with which we were
faced during the industry’s severe winter. We also saw unreasonable and imperfect aspects in
the arrangement of stressing the domestic market during those years of development. So we
took the opportunity to set up our new branch company in Hubei, although it was very difficult.
It can support our hubs in Beijing and Chengdu and at the same time improve the future
arrangement of Chinese airports. Therefore, I personally think the success of the hub strategy
is a very important factor in overcoming the influence of the financial crisis.
Another success is that Air China has developed a very strong brand over those years of hard
work. What customers care about most, I think, is the brand of an airline when they make a trip.
And it should be safe, comfortable, convenient and fast. We have been working hard to build
such an environment. As a result, we enjoy good market positions in some major routes in our
dominant cities. As economic conditions change greatly, companies have put their transport
KONG Dong, capabilities back to the home market. A new round of a price war is hotting up, and the supply
Chairman, Air China Ltd exceeds demand as a whole. We must win customers with our brand and cannot follow the
Continued trend to reduce prices. We have our own judgements and opinions. In fact, the passenger load
factor has improved a lot this year. And the effect is pretty good.
Third, our relative cost advantage is outstanding and we have good control over capital
expenditure, fleet expansion and market matching. So far, we own about 250 aircraft. Some old
aircraft have been retired immediately, which not only improves the efficiency but leads to good
results in oil saving, emissions reduction and green operation. So I think the comprehensive
effect of all these factors helped us walk out of the crisis last year and enables us to see
essential things behind it.
Last, I feel we never give up on our goals, and have confidence in ourselves. We believe our
comprehensive strength or aggregative indicator will be in the top 10 among global airline
companies by 2015. There are many comparisons and evaluations, such as only comparing
sales turnovers. However, an enterprise with heavy losses would not be a strong one or a very
vital one, if only sales turnovers compared. In this sense, we say, given our strength across the
board, we will be in the top 10 in the world. This is one of our goals.
Meanwhile, as a central enterprise, we believe our company should go outbound like a national
team and compete with these first-class airline companies around the world. Sure, we might
not win the first place but that is not important as long as we are able to represent ourselves at
a national level. This is where we are positioning ourselves. We are not complacent about being
superior to fellow domestic airline companies; on the contrary, we have always regarded these
international outstanding airlines as examples we shall follow, and as standards we should
reach. So in my opinion, this financial crisis is a great challenge to each international enterprise,
one that tests whether an enterprise leader possesses the tact to manage crises and the ability
to bring confidence to his team. Leaders, in such circumstances, should have the necessary
confidence and pass it on to the staff, making them feel they are able to overcome various
difficulties and finally succeed in their team.
PwC: You’ve just mentioned Green Transport. Environment protection and sustainable environment
protection are both important issues, especially in the aviation industry. One thing we all agree
on is that the development of the aviation industry keeps pace with economic development, so
air traffic will continue to grow as the world’s relations become closer and closer. However, it
will also have great impact on the environment during the process. In this context, what kind of
goals, from your perspective, can be achieved to ensure environment protection by an airline,
a state or even the whole world? As people’s demand for transport continues to increase, the
cost is also one of the factors we should consider in addition to environment protection. How
can we make it a balance?
MKD: The era of high oil prices in 2008 has given us a clear indication that fuel costs will become the
major cost for airlines in less than a decade. It accounted for merely about 20% of the total cost
10 years ago, but the proportion has soared to 41% or 42% in a very short time. The highest
fuel prices once reached about RMB 9,000 per ton of jet fuel, including taxes and other related
costs. Therefore, this is becoming a great challenge for the sustainable and sound development
of airlines. Although we cannot control the movements of fuel prices, as a leader in aviation
businesses, we won’t sit by and watch price increases without doing anything. To avoid price
risks, we are now engaged in hedging. This was a difficult decision for us but one that had to
be made. The CEO of an airline company must always look to the long-term development of his
company. That’s why I’ve just mentioned green management. Here I’ll talk about it in three parts.
First of all, tap internal potential. With current capacity, flight team scale and market demand,
we’ve taken many measures, like using second dispatch to accurately calculate how much
fuel the plane shall carry, shortening the taxi time, and taking measures on APU, etc. There is
significant potential for savings, but this is only a partial solution.
KONG Dong, We have become very interested in the latest energy-saving planes with low-carbon emissions.
Chairman, Air China Ltd For example, our company will be the first user of the Boeing 787. Therefore, we can gradually
Continued replace those aircraft with high oil consumption with more cost-effective and energy-saving
ones. In the development plan of our company, we are preparing to change the main models
of our trans-Pacific long-range aircrafts from 747-400, 747 Combi to 777-300ER. With double
valves, the new aircraft can save a lot of fuel, calculated to be between 10% and 30%.
Therefore, it’s also a good way to reduce carbon emissions.
Ultimately, green management depends on collective awareness, for it has become a challenge
to the whole world, and we are just a part of it. We are, of course, duty-bound to save energy
and reduce emissions. We treat it not only as an issue of enterprise development or cost
control, but also as a kind of social and historical responsibility, as well as a strategic decision
for a cosmopolite. We’ll spare no effort to take effective measures on energy-saving and
emission reduction issues.
PwC: There is no doubt that the aviation industry develops with economic growth in China. With GDP
growing soundly year by year, China’s aviation industry is generally thought to have a bright
future. Comparatively speaking, aviation industries of Europe and the US might have some
pressure due to the economic downturn in this financial storm, which reduces people’s demand
for aircraft. What do you think of their development? Is there a large difference between that of
the long-term and the short-term?
MKD: I went to the Star Alliance CEO meeting in the US not long ago. It enhanced my knowledge of
the Euramerican aviation industry. I found it has developed into a rather mature and saturated
state, so its supply and demand relationship is unlikely to have a sudden breakthrough. By
contrast, China has a lot of potential in this respect. Although China is already a great power
in aviation, it also has a large population and the market is far from saturated. However, we
have to admit our companies are still a considerable distance from first-class Euramerican
airlines. Such airlines attach great importance to the development of the Chinese market. They
urge China to open the skies as they did. But as with our accession to WTO, we need time to
grow up. We’ll not open the skies until we have the strength to compete fairly with them. To be
honest, we are still at a disadvantage in our share of the market in these major routes to Europe
and the US. However, this situation is changing gradually. I have been insisting that China, as
a great power, should have at least one excellent airline company to support such aspirations.
No matter whether it is on the routes to America or the routes to Europe, we should have an
airline company that can compete with the best airlines in the world. Though we are currently at
a disadvantage, we have a lot of customers, most of whom are economy passengers including
Chinese travellers and business people.
I think the economy of Europe and the US will get back to normal development after this
economic crisis. Therefore, we will maintain our transport capacity deployment to the utmost
in the international market and will not withdraw from the market in a hurry. Air China will
not be shortsighted. By making great efforts, we gain a position in the market and we gain
recognition. This can be in our membership of the Star Alliance. We joined the Alliance in 2007
and got about RMB 1 billion from it in 2008. As it should be, we offered some of our customer
resources to Star Alliance partners. Based on this, I have confidence in the international market.
With the improvement of income and living standards of China’s common people, they want
to travel round the globe, and do business with the world. These local customers are our basic
resources. We have the responsibility to carry them to other countries. I still have confidence.
As for the international market, with the recovery of the EU, the US and other markets, China’s
airliners and our partners will see steady development. I have confidence in this too.
KONG Dong, PwC: As Air China the biggest airline company of China, how is its risk and internal control? Have
Chairman, Air China Ltd there been any new developments? What measures do you want to take in terms of sustainable
Continued development?
MKD: The last year has been an unforgettable lesson for me. I frankly admit that our enterprise lacks
the capacity to judge the tremendous change of the macro-economy in terms of our traditional
management. When the forebodings of financial crisis hit last year in the US, we concentrated
on doing our own things – the snow disaster, the 12 May earthquake and the Olympic Games,
which we promised the world to do well. We did not realise that the damage was going to be so
great. What inspires me most is that an enterprise like ours cannot go through such difficulties
by its own efforts or by using a simple form of protection.
Therefore, we are paying more attention to our internal controls and management mechanisms.
For example, our internal control system requires that I personally chair the risk management
committee every month, and control all kinds of risks – political, economic, financial, exchange,
oil, safety, and stability. In addition, we will choose the more important problems and provide
measures for them. We will not let these problems change into crises through negligence. I
think the hedging of oil prices last year was no longer a risk but a crisis for us. We dealt with
the crisis calmly and went through it. Therefore, we have made great progress on internal
controls. We have trained up some experts and young people on the world economy and the
international air transport.
Secondly, I think our systems are stricter than before on issues such as expenditure control
and fleet expansion. From 2008 till now, we have done well in some areas. For example, the
scale of our fleet is the smallest in China and its expanding speed is the lowest. At that time,
the development speed of our fleet was three to four points lower than the point predicted
by Civil Aviation Administration of China for the development of China’s aviation development.
At present, many airline companies think that excessive transport capacity exists, and so most
of them have closed down the operation of some aircraft and have also returned some. These
things don’t occur in our company. In terms of structure, transport capacity is a key factor in
determining the survival of airline companies. It is very difficult to alleviate the situation once
one wrongly judges it and makes a decision too fast for an expected growth rate. Therefore,
leaders in our company, who have experienced good times and bad times, always pay more
attention to internal controls.
Finally, when we face all kinds of crises, many measures are effective and can be run from top
to bottom. These measures can be supported by almost all the staff of Air China. I think this
is something we have gained in going through this financial crisis. When we made plans, for
example, to address the crisis, we urged each department to control internal costs by reducing
expenses across the board. The staff of Air China supported this proposal through their
actions. From all of these things, you can see that Air China’s leaders conveyed a sense of risk
awareness to all staff, who strongly support our plans and requirements.
My understanding is that after an enterprise encounters a major setback, as Premier Wen
Jiabao said, ‘confidence is the most important thing’. If we can maintain the confidence and
the will to overcome difficulties, and take the proper corresponding measures, we can lead
the enterprise out of these difficulties and obstacles. I have emphasised repeatedly that Air
China benefited from the rapid growth and quantum leaps in development of the past five
years. Since 2008, I have changed my tune somewhat; prudent operation and sustainable
development are the most important factors for the development of an excellent enterprise.
This is a shift from our previous view on accelerating the pace of development.
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Interview transcripts of Sunil Duggal,
CEO, Dabur India Limited

Mr Sunil Duggal is the CEO of Dabur India Limited

PwC: Do you see signs of an economic recovery in your key markets?
SD: Our market focus is on 20 countries. Of those, we have noticed that the lower the stage
of economic development, the stronger the optimism that revival and growth will occur.
The signals we are getting from the more developed economies, particularly the GCC
[Gulf Cooperation Council] countries, indicate that recovery is going to be more long-term.
But signals from countries like Egypt or the nations of sub-Saharan Africa, which are lower
down the development index, are far more positive. The same is the case with India. There
are, however, exceptions to this rule. For example, in two countries that are important to us –
Nigeria and Pakistan – the outlook is very different. These countries have gone through a lot
of turmoil. Consequently, the outlook there is negative. Barring GCC, Nigeria and Pakistan,
our markets show positive signals.
PwC: What about Europe and the US?

SD: We don’t do much business there. That’s why I hesitate to comment on those markets.
We have a subsidiary in the UK. But it essentially serves the diaspora population.
PwC: How has India’s competitiveness in the world economy changed as a result of the
economic crisis?
SD: Companies in India may not be as strong today as they were two years ago, but they have
emerged out of this downturn in a far better position than companies in the developed world.
In terms of resources, both human and financial, we are better off vis-à-vis our brethren in the
developed world.
PwC: In what sectors has India emerged more competitive?

SD: India’s competitiveness is stronger in a lot of sectors including auto, consumer staples,
consumer durables, and information technology, all of which have grown at an incredible
pace. Consumer staples and consumer durables are showing very strong growth. I think IT
companies have withstood the storm beautifully, even though they have substantial exposure
to the developed markets.
PwC: In what sectors is India weaker as a result of the economic crisis?
SD: Agriculture is the only sector that has shown negative growth. Perhaps this is an anomaly
exacerbated by a bad monsoon season. However, lack of growth in agricultural produce has
been evident, even in normal monsoon years. So, it may be the case that the Indian agricultural
sector’s yield curve has hit a plateau. This is a cause of concern because a significant portion
of the Indian population depends on agriculture-related activities for their livelihood. Right now,
the agricultural sector is being supported by economic stimuli provided by the government.
But economic stimulus can’t be sustained over a long period of time. One day it will stop.
Barring agriculture, everything else is doing fine.
PwC: How might the economic crisis affect your company’s capital structure and dependence on the
capital markets?
SD: Ours is a very capital-light industry, so capital inflows are completely irrelevant insofar as we
are concerned. We generate levels of cash that are more than adequate to fund our needs.
Any non-linear activity, like an acquisition, can be funded through internal accruals. Since our
balance sheet is so strong and profitability so high, we have not faced any shortage of capital.
We also don’t need to worry about return on capital, since the base is so small.
Sunil Duggal, PwC: There were news reports that Dabur is scouting for acquisitions. Is it true?
CEO, Dabur India Limited SD: Yes. For a capital-light company like us, acquisitions are a very good way of deploying cash.
Continued
Typically, we pay out 50% of our total profitability as dividend and the balance goes into
reserves to fund acquisitions. We are very clear that we will not look for acquisitions in the
developed markets where there are very high levels of competition, entrenched players, few
platforms, and, more importantly, very little growth. Instead, we will continue to invest in our core
markets, which include South Asia, the Middle East and North Africa, and sub-Saharan Africa.
These markets, we believe, offer long-term growth prospects. Regions like sub-Saharan Africa
are 20 years behind most developing countries and we understand very well how to navigate
that growth curve. Additionally, because many markets in Africa are small and volatile in terms of
their socio-political environment and currency, multinationals don’t take these markets seriously.
As a result, the valuations in these markets are sensible. By way of contrast, the valuations in
India are quite stretched. India offers huge upsides in terms of growth, but no acquisition in India
comes cheap as there are too many players that are already eyeing that market.
PwC: What are your expectations about the return of consumer spending?
SD: Our industry has seen no demand destruction in the last 12 to 18 months. Actually, it’s been a
very good period for us. Going forward, might consumer demand contract? Highly unlikely, I
think. Will it remain the same? Quite likely. The best-case scenario is that a revived economy will
stimulate even greater demand and take us to a higher growth trajectory. The future is at least as
good as where we are today, and it definitely holds the possibility of becoming much better.
PwC: From what region do you expect your strongest competition to come?
SD: Fortunately, we do not compete with China. In the creation of brands, China is way behind
India. We play in a sector where technology and manufacturing capabilities are far less
important than consumer insights and brand creation. That’s why our business model is more
enduring. If we were a manufacturing firm – making motor scooters, for example – I would
be very worried about competition from China. At the end of the day, China’s manufacturing
capabilities are a lot better. But in our industry, manufacturing efficiency only gives you an extra
2 to 3% margin. But a branded product can typically command a 20 to 40% premium over
unbranded products and weak brands. Our product platform is based on herbal, non-chemical,
non-invasive products. In all our markets, there is a distinct preference for herbal products. We
also work very hard to build our brands. In overseas markets, our advertisement-to-sales ratio
is 50% higher than in India.
PwC: Are you anticipating structural shifts in national economies as they emerge from the downturn?
SD: As manufacturing moves eastwards, we’re seeing huge economic dislocations in the developed
economies. That’s reflected in the developed economies’ unemployment figures. It’s not easy
to create service sector jobs to substitute for job losses in manufacturing. Moreover, jobs in the
service sector have also been moving eastward. As a consequence, the developed nations are
in a very serious structural downturn, which may be impossible to reverse. Even if it does reverse
it will take a long, long time. The best thing for the developed economies would be to develop
completely revolutionary technologies, such as ‘green’ technologies. In contrast, well-governed
countries in Asia and Africa are on a growth curve that is pretty similar to that of India’s. How
enduring is this growth? Some of these Asian and African countries will grow up to a point and
then pause. But due to its human resources, India will continue to go up the growth curve.
Sunil Duggal, PwC: Some observers believe that the economic crisis has undermined the public’s trust in the
CEO, Dabur India Limited private sector. Do you agree?
Continued
SD: The public’s faith in the Indian corporate sector has not really been shaken. The Satyam
scandal, for example, has not affected everyday life. The failure of an IT company that
derives 80 to 90% of its revenues from offshore businesses does shake the confidence of the
company’s clients and employees, but not that of the common man. If an auto company had
gone out of business and there were a few million cars that didn’t have a back-up for servicing,
the fallout would have been far greater. Globally, yes, the public’s trust in the private sector has
certainly been shaken. But not so in India. Not a single bank in India went bankrupt and not a
single investment house defaulted. So there is a big difference.
PwC: Did you make changes in your business in response to the economic crisis?
SD: We didn’t do anything revolutionary. But when we saw signs of a downturn, we proactively
began to tighten our belts, even though our business was doing well. Fortunately, the worst-
case scenario never happened and we weathered the global downturn. All of that is behind
us now and we are very optimistic about the future. We will be scaling up our investments,
increasing capacity, investing in brands and taking a far more aggressive view of our business,
particularly with regard to our food and beverage and skin care products.
PwC: Is your business constrained by difficulties in raising capital?

SD: We have not faced any difficulties in raising capital. We have had lots of opportunities in the
developed markets, but we have resisted the temptation to buy assets there. You would be
amazed at the number of propositions that come to us from Europe and North America. At first
glance, these opportunities appear attractive from the valuation standpoint, but when you do
the projections, you find that they are actually value-destructive. So we have been extremely
disciplined insofar as the developed markets are concerned. I believe that you should be
faithful to your strategy. If your strategy says ‘do not acquire assets in the developed markets
because they cannot offer you value in the long-term’, there is little sense in succumbing to
temptation – even when assets come cheaply.
PwC: What gaps in your company’s risk management were exposed by the economic crisis?
SD: One area where we did suffer was currency. We enjoyed the benefits of a fairly strong rupee
in the earlier parts of the year. And then the rupee started depreciating at a very rapid clip,
which was inexplicable and unexpected. As a result, we were caught on the wrong foot. The
currency still remains volatile and will always be a matter of concern. Currency fluctuations
are a business hazard. We take positions when there is high visibility in terms of the currency
outlook. Today, the visibility is very poor.
PwC: How have you been able to maintain morale and motivate staff during the downturn?
SD: From a human resources perspective, the downturn has actually benefited us. Our attrition
levels are at an all-time low and the talent pool available to us is a lot bigger than it was during
the upcycle. With respect to employee morale, most workers would give an arm and a leg to be
employed by a company that is doing well and giving out good bonuses. When our employees
see the plight of their peers working in companies impacted by the downturn, they feel quite
fortunate. So employee morale at Dabur is very good – as good as I have ever seen it.
Sunil Duggal, PwC: What investments or reforms should the Indian government focus on in order to improve India’s
CEO, Dabur India Limited competitiveness?
Continued
SD: Education has not received the attention it deserves. There are several public–private
partnership initiatives underway in education in the semi-rural and rural areas, where the
government actually pays private players to deliver skill-building initiatives to under-privileged
youngsters. These are very welcome steps. But more needs to be done. For example,
we should allow foreign universities into India. Why should Indian students go abroad for
higher education when the same quality can be made available to them here? In terms of
infrastructure, the hurdles are visible to all. There are a plethora of laws and bottlenecks that
slow the pace of infrastructure growth. We would also welcome FDI [Foreign Direct Investment]
in the retail sector. Some believe that FDI in retail would be disruptive. But in our view, FDI
will help create better products at lower prices and help small-scale manufacturers get better
access to consumers.
PwC: Will new regulation lead to over-regulation?

SD: In India, barring a few areas like finance, there has not been any significant new regulation.
Having said that, I feel the whole tax-rationalisation process will affect us. For instance,
the goods and services tax [being introduced in India from April 2010] will definitely have a
business impact, but I can’t say whether it will be favourable or unfavourable. Similarly, the
Direct Tax Code [being introduced in India in 2011–12] will have a huge impact on the way
we conduct our business. Generally, I am ambivalent about the new direct taxes, some of
which are at quite worrisome levels. With regard to the US or Europe, new regulatory barriers
enacted there could, in my view, be detrimental to those economies. For instance, if the
US discourages offshoring and European countries encourage it, American companies will
become highly disadvantaged.
PwC: What one thing could governments do in order to successfully address climate change?
SD: The biggest contributor to climate change is population. We may be very sanctimonious in
saying that Indians are very low emitters of greenhouse gases, but when you consider that
our population is growing by 2.5% every year, the figures don’t look good. If India doesn’t
keep its population under control, there will be little it can do to help minimise climate change.
Unfortunately, the Indian government has given up the fight against our population explosion. I
find that extremely alarming.
PwC: What is your company doing to address climate change?

SD: We are trying to make our facilities as environmentally friendly as possible. The first step we took
in that direction was to refit our factory boilers to run on renewable sources of fuel. That effort
has been recognised by the United Nations, and a lot of other Indian companies have followed
suit. Additionally, all our new facilities have been built to LEED gold certificate standards.
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Result
Business
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Interview transcripts of Pablo Isla Álvarez de Tejera,
Deputy Chairman and CEO, Inditex

Pablo Isla Álvarez de Tejera is the Deputy Chairman

and CEO of Inditex
PwC: What would the economies of your main markets need to do to settle down? Is there any sign
of the start of the recovery?
PI: I think the financial mechanisms and the credit sector will progressively return to normality.
I am more worried about other issues, such as the international trade barriers, i.e., the
potential protectionist barriers which may be built among the different countries after this
crisis. Although I have not seen it yet in the 73 countries where we have a presence, I think it
is a trend that could harm international trade. The economists and other experts have shown
that protectionist barriers are not useful measures to cure the economy and preserve growth.
However, I view it as a possible risk in the current economic situation. Globally, I think China
and Brazil are very strong economies with a very high future potential.
PwC: How will financial markets and capital flows change and how these changes will affect your
share capital structure?
PI: I think the financial system will change and a global political economy will arise. I am more
worried about the growing public borrowing and its serious consequences. With all its
seriousness, the crisis has shown us some positive lessons which we should take advantage
of. The situation was worse in 2007, when there was heavy borrowing and a bubble with no
clear end. This crisis should teach us to be more demanding of ourselves. This will affect
products, since consumers will demand more from their purchases. We will also need a more
demanding management style.
Of course, there have been many changes during last year. There is less uncertainty. This crisis
has helped us to enhance our business management, which has benefited the company. The
crisis has caused us to enhance internal management proceedings, increase efficiency levels
and focus on the upgrading of operative effectiveness and the business management as well.
PwC: Consumer demand has collapsed during the current economic crisis in some key markets.
When recovery finally takes off, which will the expectations be in relation to consumer
expenditure comeback? Will their purchase behaviours be similar to the past ones?
PI: After the crisis, consumers will demand a very high level of quality. There are also new
communications technologies to keep in touch with consumers, such as blogs, Facebook and
so on. Inditex has two million Zara users’ fans on Facebook, a completely new and powerful
communications tool.
PwC: What are the most significant changes – in strategy, business model and organisation –
you have implemented in your company as a response to the economic crisis? Has your
ability to respond to new opportunities been limited by these difficulties when raising capital?
As a result, what type of adjustments are you making?
PI: Inditex’s investment policy is more demanding but we have not slowed down our growth
as a result. We are more demanding than ever regarding our growth, looking for quality and
investment return on new locations. Nevertheless, our development strategy remains the same
for the mid and long term.
Basically, our response to the crisis has focused on the upgrade of procedures. This has
allowed us to face the crisis through product enhancement, better manufacturing cycles, and
more internal coordination and so on. We continue growing with no problems since our funding
is based on internal capital flows and so the credit crunch has not damaged us.
I also think that Inditex has never lost its long-term outlook. We have faced the crisis as a way
of enhancing our own business management, always thinking on the long term, keeping our
strategic focus in regions where we are sure we can keep growing. Our business model is also
a major strength since it is based on fashion, reasonable prices, closeness and flexibility to
adapt to changeable consumer demand.
Pablo Isla Álvarez de PwC: The economic crisis has put a great number of employees under pressure because employers
Tejera, Deputy Chairman want more for less. How have you managed to keep staff motivated and encouraged?
and CEO, Inditex PI: We have not noticed major changes in our people or in the awareness of our internal brand.
Continued
On the other hand, we are perceiving that people prefer working at a demanding level: they
do things better. Overall, though, the company has not suffered great pressures nor had any
problem with employees.
Our challenge in the human resources area is motivating, identifying and retaining talent
through internal promotion. The opening of new stores and new concepts represents a good
source of internal promotion and contributes to talent retention. Maybe it is good to have a bit
of concern because this increases the level at which you operate. Being in the comfort zone
makes you behave in a more indulgent way, while more demanding conditions makes you
much more competitive. High-performance people value such motivational conditions because
they know they are going to be assessed by their results. For Inditex, people are its main value
and motivation is always one of its main aims.
PwC: Most experts believe the level of regulation will be higher next year. However, 55% of CEOs
interviewed last year think an excessive regulation framework would be a serious threat for
their companies’ growth. Would a new regulation translate into a regulatory excess?
PI: As I said above with regard to regulatory risks, we are worried about the trend towards
increasing the protectionist barriers to free trade.
PwC: What else should the governments do to face the climate change successfully? Which
measures will your company take to face the climate change risk? How has your company
turned the climate change response into a competitive advantage?
PI: With regard to climate change, Inditex has incorporated environmental considerations in all
the processes of the company; the environment is part of our firm decision making. We have
worked on eco-efficiency issues, energy efficiency and logistics efficiency and we have also
opened some eco-efficient stores, such as our new Zara store in Korai Street, in Athens. This
store comprises the main energy efficiency foundations of the Eco-efficient Store Project, one
of the main initiatives of the 2007-2010 Inditex Environmental Strategic Plan. Thanks to its
design and the use of environmentally-friendly materials, the eco-efficient store is achieving a
30% increase in energy efficiency.
If we look at costs, our environmental policy does not create any increase since the savings
achieved offset the investments we have to make. In relation to other aspects of sustainability,
we have incorporated all labour aspects of our supply chain through a conduct code we
require of all our suppliers. Our position in social and environmental issues is about taking
action rather than talking; we do not want to use it as a marketing tool. We are discreet and, in
general terms, we do not communicate everything we do.
The human factor is key to the environment. Our employees care about the environment
and CO2 emissions; they are proud of our environmental policy and this is one of the most
common comments we receive. For instance, our stores carry out what we call “Japanese
meetings” every day: for 10 minutes before the store is open employees talk about the most
important issues of the day; sometimes those minutes are devoted to new environmental
issues. In this way employees become aware and they feel very proud of it. They are young
people who appreciate these attitudes because they match their values. We have cut down
the electric power we use and we are setting our own restrictions for a proper level of
consumption, also shared by society. Our stores are managing proper and efficient energy use,
taking into account that customers are sharing our thinking.
Pablo Isla Álvarez de PwC: With regard to the Government initiative to give consistency and boost the incentive measures
Tejera, Deputy Chairman for a new economic model in order to overcome the crisis on a sound basis, which aspects do
and CEO, Inditex you think should be considered in the “sustainable economy” as a future option? How should
Continued our economy, labour market, business fabric and productive model evolve?
PI: Firstly, we should analyse which industries are the most and truly competitive and in which we
know how to make a difference. From that starting point, the development of the foundations
of a new industry should be layed on the good management of our already internationally
renowned industries. That way, the tradition and modernity balance should provide the
foundations for future growth. That balance is one of the distinguishing factors of countries
with the greatest economic potential.
The internalisation concept is one of the essential aspects of this modernisation. We must
believe that any traditional business or a future potential one should be internationally
competitive. This is a basic requirement for any business.
From my point of view, we should incorporate administration reform into the debate on
sustainable economy, as it is one of the keys to future growth. In short, I think we should
explore new ways and new industries to lay the foundations of a new and strong economic
model in Spain. However, I believe that it is definitely necessary to manage our current model
in a better way, with some relevant changes.
Rethink
Workforce
motivation
Reshape
The talent
pool
Result
Business
alchemy
Interview transcripts of Pablo Isla Álvarez de Tejera,
Deputy Chairman and CEO, Inditex

Pablo Isla Álvarez de Tejera is the Deputy Chairman

and CEO of Inditex
PwC: What would the economies of your main markets need to do to settle down? Is there any sign
of the start of the recovery?
PI: I think the financial mechanisms and the credit sector will progressively return to normality.
I am more worried about other issues, such as the international trade barriers, i.e., the
potential protectionist barriers which may be built among the different countries after this
crisis. Although I have not seen it yet in the 73 countries where we have a presence, I think it
is a trend that could harm international trade. The economists and other experts have shown
that protectionist barriers are not useful measures to cure the economy and preserve growth.
However, I view it as a possible risk in the current economic situation. Globally, I think China
and Brazil are very strong economies with a very high future potential.
PwC: How will financial markets and capital flows change and how these changes will affect your
share capital structure?
PI: I think the financial system will change and a global political economy will arise. I am more
worried about the growing public borrowing and its serious consequences. With all its
seriousness, the crisis has shown us some positive lessons which we should take advantage
of. The situation was worse in 2007, when there was heavy borrowing and a bubble with no
clear end. This crisis should teach us to be more demanding of ourselves. This will affect
products, since consumers will demand more from their purchases. We will also need a more
demanding management style.
Of course, there have been many changes during last year. There is less uncertainty. This crisis
has helped us to enhance our business management, which has benefited the company. The
crisis has caused us to enhance internal management proceedings, increase efficiency levels
and focus on the upgrading of operative effectiveness and the business management as well.
PwC: Consumer demand has collapsed during the current economic crisis in some key markets.
When recovery finally takes off, which will the expectations be in relation to consumer
expenditure comeback? Will their purchase behaviours be similar to the past ones?
PI: After the crisis, consumers will demand a very high level of quality. There are also new
communications technologies to keep in touch with consumers, such as blogs, Facebook and
so on. Inditex has two million Zara users’ fans on Facebook, a completely new and powerful
communications tool.
PwC: What are the most significant changes – in strategy, business model and organisation –
you have implemented in your company as a response to the economic crisis? Has your
ability to respond to new opportunities been limited by these difficulties when raising capital?
As a result, what type of adjustments are you making?
PI: Inditex’s investment policy is more demanding but we have not slowed down our growth
as a result. We are more demanding than ever regarding our growth, looking for quality and
investment return on new locations. Nevertheless, our development strategy remains the same
for the mid and long term.
Basically, our response to the crisis has focused on the upgrade of procedures. This has
allowed us to face the crisis through product enhancement, better manufacturing cycles, and
more internal coordination and so on. We continue growing with no problems since our funding
is based on internal capital flows and so the credit crunch has not damaged us.
I also think that Inditex has never lost its long-term outlook. We have faced the crisis as a way
of enhancing our own business management, always thinking on the long term, keeping our
strategic focus in regions where we are sure we can keep growing. Our business model is also
a major strength since it is based on fashion, reasonable prices, closeness and flexibility to
adapt to changeable consumer demand.
Pablo Isla Álvarez de PwC: The economic crisis has put a great number of employees under pressure because employers
Tejera, Deputy Chairman want more for less. How have you managed to keep staff motivated and encouraged?
and CEO, Inditex PI: We have not noticed major changes in our people or in the awareness of our internal brand. On the
Continued other hand, we are perceiving that people prefer working at a demanding level: they do things better.
Overall, though, the company has not suffered great pressures nor had any problem with employees.
Our challenge in the human resources area is motivating, identifying and retaining talent
through internal promotion. The opening of new stores and new concepts represents a good
source of internal promotion and contributes to talent retention. Maybe it is good to have a bit
of concern because this increases the level at which you operate. Being in the comfort zone
makes you behave in a more indulgent way, while more demanding conditions makes you
much more competitive. High-performance people value such motivational conditions because
they know they are going to be assessed by their results. For Inditex, people are its main value
and motivation is always one of its main aims.
PwC: Most experts believe the level of regulation will be higher next year. However, 55% of CEOs
interviewed last year think an excessive regulation framework would be a serious threat for
their companies’ growth. Would a new regulation translate into a regulatory excess?
PI: As I said above with regard to regulatory risks, we are worried about the trend towards
increasing the protectionist barriers to free trade.
PwC: What else should the governments do to face the climate change successfully? Which
measures will your company take to face the climate change risk? How has your company
turned the climate change response into a competitive advantage?
PI: With regard to climate change, Inditex has incorporated environmental considerations in all
the processes of the company; the environment is part of our firm decision making. We have
worked on eco-efficiency issues, energy efficiency and logistics efficiency and we have also
opened some eco-efficient stores, such as our new Zara store in Korai Street, in Athens. This
store comprises the main energy efficiency foundations of the Eco-efficient Store Project, one
of the main initiatives of the 2007-2010 Inditex Environmental Strategic Plan. Thanks to its
design and the use of environmentally-friendly materials, the eco-efficient store is achieving a
30% increase in energy efficiency.
If we look at costs, our environmental policy does not create any increase since the savings
achieved offset the investments we have to make. In relation to other aspects of sustainability,
we have incorporated all labour aspects of our supply chain through a conduct code we
require of all our suppliers. Our position in social and environmental issues is about taking
action rather than talking; we do not want to use it as a marketing tool. We are discreet and, in
general terms, we do not communicate everything we do.
The human factor is key to the environment. Our employees care about the environment
and CO2 emissions; they are proud of our environmental policy and this is one of the most
common comments we receive. For instance, our stores carry out what we call “Japanese
meetings” every day: for 10 minutes before the store is open employees talk about the most
important issues of the day; sometimes those minutes are devoted to new environmental
issues. In this way employees become aware and they feel very proud of it. They are young
people who appreciate these attitudes because they match their values. We have cut down
the electric power we use and we are setting our own restrictions for a proper level of
consumption, also shared by society. Our stores are managing proper and efficient energy use,
taking into account that customers are sharing our thinking.
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Interview transcripts of Paul S. Walsh,
Chief Executive, Diageo plc

Paul S. Walsh is the Chief Executive of Diageo plc

PwC: Have the last 12 to 18 months posed a particularly tough personal challenge for you?
PW: It has been tough primarily because of the severity of the crisis and the speed with which it hit
us. It took many businesses by surprise. We consider ourselves a reasonably stable consumer
products business but a lot of the normative data that we were accustomed to seeing changed
very starkly and very quickly, and we found ourselves having to respond rapidly. We’ve had to
take some difficult actions to respond to the new realities – and that creates its own challenges.
And through it all, we’ve had to keep our eye on new opportunities. So yes – it’s been an
interesting year. But the crisis will pass and we need to ensure that we emerge from it stronger
than our competition.
PwC: Compared to previous ones, is there something different about the present financial crisis?
PW: I think it is different. It’s certainly different than the Asian crisis of the late 1990s or the
slowdown in the early part of the new millennium. I would suggest that we’ve had a couple
of things going on that, combined, created the perfect storm. First, the massive run- up in
oil prices. And secondly, the liquidity crisis that afflicted the banking sector. I think those two
factors conspired to magnify the extent the problem. As you know, a year or so ago the whole
banking system came perilously close to closing down. We’ve never seen that in our lifetime.
PwC: What lessons learned would you like to convey to the next generation of business leaders?
PW: Over the past decade, many companies have come to depend on the very attractive growth
rates afforded by developing markets. That’s certainly true in our case. But when those
emerging economies begin to cool off, things can slow down very, very quickly. And that is a
scenario that may be unfamiliar to some younger businesspeople who are used to operating
in the very stable and predictable worlds of Europe, the US, and the more mature Asian
economies. In contrast, if orders to Chinese factories begin to dry up, workers there are very
quickly out of a job, out of money, and they stop spending. So one big lesson learned is
that developing economies simply don’t provide consumer marketers with the kind of safety
net that they’re used to when operating in the developed world. A second lesson learned
is the importance of making sure that you have very clear visibility of the inventory at each
point in your extended supply chain. And a third lesson has to do with consumers’ changing
consumption habits. In our case, we’ve seen the relative share of consumption of our products
in bars and restaurants outpaced by in-home consumption. That required us to develop a
different set of marketing skills better suited to in-home consumption.
PwC: Do you see signs that an economic recovery is underway?

PW: I think it varies dramatically by region. Asia does appear to be coming back – which amplifies
my earlier point that as rapidly as developing economies can crash, so too can they recover
quickly. Likewise, I would suggest that with the exception of some currency dislocations, Latin
America has weathered this crisis well. I think the economic crisis came late to Africa and has
still ways to play out there. Europe is very patchy. The UK: not too bad, France: not too bad.
Germany: OK. Russia: coming back. There are still huge issues facing Ireland and Spain. And
some of the central European countries have not recovered the vibrancy that they had a year
or so ago. The US is the wild card in all of this. If the US economy does not get back its stride,
China will be affected because China, of course, is a major supplier of consumer products to
the US. So while this is a very complex situation, I would say that the US is the lynch pin.
Paul S. Walsh, Chief PwC: In what ways are consumers in your major markets changing their habits and behaviour?
Executive, Diageo plc PW: First of all, we have to recognise that the consumer is a local animal and therefore trends
Continued
do vary market by market. We also have to recognise that if you live in one of the developed
economies and still have a job, you’re probably better off than you were a year ago.
Your mortgage costs and energy costs are down. The price of food and gasoline is down.
You’re probably feeling pretty good. The thing that’s holding you back from spending is
that you continue to see mounting job losses – which I suspect are going to continue. So
in particular markets, certain consumers are better off. But what are the larger trends that
cross over many different markets? First, there is greater consumer orientation around value.
Does this mean people will no longer pay for premium products? No – but it does mean that
as marketers we have to be more diligent in communicating a product’s value proposition.
The consumer’s shopping habits have changed. They seek out the best deal and avoid
displays of ostentatious consumption. Bling is out. Similarly, whenever you have tough times
– be it economic or social – you begin to see a cocooning phenomenon. We saw that after
9/11; people just didn’t want to go out. It wasn’t related to the economy at all. And today,
we’re seeing a renewed emphasis on cocooning – people just want to stay home and enjoy
their families and friends. Fortunately, many people want to enjoy our brands in that home
environment, so for us, there’s some upside.
PwC: How have you addressed the consumer’s re-orientation toward value?
PW: I think it’s a mistake to equate value with price. So what we’ve been doing since the crisis
began is to up-weight our investment in communicating the attributes of our various brands.
Our job now is to reinforce the brands’ quality credentials and remind consumers of the
emotional benefits of those brands. That’s one aspect of what we’ve been doing. But as we
entered this crisis, it was very clear to us that things were not normal and were not going to
snap back any time soon. So early on we also embarked upon a pretty rigorous cost reduction
programme. It’s been hard. But we had to make sure that we had the financial headroom to
protect our margins in an environment where pricing would become more challenging.
PwC: Have any of your competitors made mistakes in responding to the economic crisis?
PW: I never criticise our competitors. I start from the proposition that they are very smart and
are out to eat my lunch. Consequently, we give a lot of credence to whatever they do and
respond accordingly.
PwC: Has the economic crisis undermined the public’s trust in government?
PW: You can look at the role that government plays in this crisis through many different lenses.
But let’s just consider a couple. First, at some point, someone is going to have to pay for the
accumulating deficits and that will drive demand for increased taxation, which I think could
serve to stifle the recovery. Clearly, that’s a very tough balancing act. So taxation – that’s one
lens. Another lens is focused on the banking sector and the reasons for its near-collapse. After
all, banks are a bastion of society, so how were they allowed to fail? There is a sense of entire
communities being let down by the banks. But I think that the public’s disillusionment has
moved beyond the banks to the private sector in general, so that governments are now talking
about more regulation to stop a similar crisis from ever happening again. But hasty regulation
will be bad regulation and my concern is that creativity, innovation, and enterprise will be stifled
at a time when they should be encouraged. So those are the two risks that we run: taxation
and regulation. I invest as much time as I can in trying to convince government officials that
they need to be very careful in this regard.
Paul S. Walsh, Chief PwC: Can you say a bit more about what you’re telling government officials?
Executive, Diageo plc PW: It isn’t necessarily the regulation itself that’s the problem. It’s the law of unintended
Continued
consequences. My company is in a pretty unique situation in that being exporters of Scotch
whisky and British gin we have a considerable operational base in the UK and are therefore
a large contributor to the UK economy – even though our products are sold in many other
communities around the world. Given that, it is important that UK regulations imposed on our
product lines are not seized upon by governments elsewhere to serve as de facto barriers to
entry. So that is one issue that I talk to government officials about – the need to protect free
trade in the broadest sense possible.
PwC: Do you consider your industry over-regulated?

PW: There are some examples of over-regulation and we have made those arguments to the
appropriate officials. But in many ways it isn’t the large companies that bear the brunt of
regulation. After all, the large companies have the infrastructure to handle the regulatory
burden. What over-regulation does is to stifle the start-ups, the smaller enterprises. That’s
where the real issue is.
PwC: What is your company doing to help restore the public’s trust in business generally?
PW: I believe that all you can do is to lay out your business objectives, organisational philosophy,
and corporate values in a very transparent manner and through your actions demonstrate the
sincerity of your dealings. An attempt by business to launch a campaign to restore trust would
very quickly be seen, I think, as propaganda and could quickly backfire. There is no silver bullet
here. We’ve just got to go about our business while trying to up-weight our dialogue with as
many stakeholders as possible.
PwC: Has the crisis affected your company’s access to capital?

PW: After the collapse of Lehman, many companies were wondering if they could fund themselves
and which banks might survive long enough to help them with that process. We were very
fortunate. We had a very good balance sheet, an outstanding finance team, and were able
to float a bond issue to re-schedule debt. Since that time, the capital markets have definitely
eased up. But which ever way you look at it, the cost of capital has definitely gone up. So we
continue to try to level out our investment profile. Right now, we have a third of our business
in North America and just less than a third in Europe. What I would like is to up-weight our
presence in Asia and Latin America so that we have a more even spread and greater exposure
to the emerging markets.
PwC: Did the economic crisis expose any gaps your management planning?
PW: I think we were reasonably well prepared. Of course, it’s difficult to develop mitigation plans in
the abstract – it can become quite an academic exercise. That aside, the processes that we
had set up previously allowed us to address with some alacrity many of the conditions that
did arise. At the onset of the crisis, we put through some organisational changes, downsized
our supply footprint, and did things of that nature pretty quickly. Other steps – such as finding
ways to appeal to the more price conscious consumer – took a bit more time. But overall, I’m
pleased with the speed we demonstrated. I would say that we had the landscape pretty well
charted. We had ideas and were able to translate those ideas into plans very quickly.
Paul S. Walsh, Chief PwC: In general, do you think that most managers tend to under-plan?
Executive, Diageo plc PW: I have no evidence to suggest that. To the contrary, I think there is often a danger of over-
Continued
planning. One can devote a lot of resources to develop plans in the abstract that later fail to
address the reality that actually unfolds. That’s why I prefer to have ideas about what to do
rather than step-by-step plans. After you see the reality of what you’re facing, you can tailor
your ideas accordingly.
PwC: How have you been able to maintain employee morale during the economic crisis?
PW: There are very few companies that have not experienced some fall off in employee motivation.
It’s just not pleasant coming to work when someone thinks that they or a colleague might lose
their job. Our approach has been to be as transparent and communicative as possible about the
reality of the situation. Having agreed on the need to take costs out of the business, we moved
quickly to let individuals know the status of their positions. And we tried to treat those who were
going to be losing their jobs with the dignity that they deserve. That doesn’t necessarily make
it any easier, but at least everyone understood the situation and felt that they would be treated
fairly. So I would say empathy, communication, and speed are the keys. You can’t drag these
things out. In hindsight we were very fortunate to have implemented prior to the start of the
crisis a leadership development programme that touched about 800 people in our company.
Having gone through that programme, our managers were better prepared to make the kinds of
tough decisions that will help us emerge from these difficult times a stronger company.
PwC: What has your company been doing to address the challenges of climate change?
PW: I think all businesses face a threat from climate change and the threat comes in different guises.
One guise is related to the concerns of the environmentally-conscious consumer – the “new
age” consumer. Before they buy your products, these consumers want to satisfy themselves
that your facilities are sufficiently environmentally friendly. In our case, we’ve embarked upon a
programme of equipping one of our new distilleries with an absolutely state-of-the-art energy
management system that will have a massive impact on emissions. It is, in fact, a closed-loop
system by which energy is generated from spent grains originating in the distillation process
itself. This allows the distillery to be virtually self-sustaining in terms of its energy requirements.
It is complex technology but we’re very encouraged by its performance so far and look forward
to seeing it become fully operational during 2010. As a consumer marketing company, our
biggest concern is that consumers will choose not to buy our brands because we have not
done the right thing. But having done the right thing, it’s invigorating to see how that can ignite
the imagination of our employees and the communities in which we operate. It also affords us
the opportunity to get out ahead of regulation.
PwC: Your company is involved in the Water for Life project in Africa. What purpose do corporate
responsibility initiatives like that serve?
PW: Our corporate giving serves two purposes. First, it inspires pride in our organisation and
allows us to be seen as a viable, responsible operator in the community. Secondly, our giving
helps to develop our communities so that their citizens, in turn, can become customers for
our products. In that way, corporate giving acts as a virtuous circle. In the case of Water for
Life, there are many people around the world who lack reliable access to one of the life’s
basic needs – clean water. We felt that helping to solve that problem is the right thing to do.
Beyond the obvious benefits of health and sanitation, making clean water readily available also
promotes education in that it is typically children who bear the burden of harvesting water. And
if children are spending their day harvesting water, they’re not going to school. So Water for
Life is one way we can help to create vibrant communities that have the capability to develop
economically and, perhaps one day, consume our products.
Paul S. Walsh, Chief PwC: Do leaders of global companies have certain traits in common?
Executive, Diageo plc PW: I think, first of all that it’s a privilege to be the CEO of a company such as Diageo. I remind
Continued
myself of that very frequently, and I think many other CEOs feel the same way about their own
companies. Certainly, operating in the commercial arena globally requires a degree of cultural
fluency and a certain inquisitiveness. You need to be able to embrace new cultures and new
ideas. But I think the one thing that most CEOs probably have in common is the recognition of
how critical it is to recruit and motivate great people. The larger your operation, the more you
rely on fantastic people to help run your organisation.
Rethink
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The talent
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Result
Business
alchemy
Interview transcripts of Paul Walker,
Chief Executive, The Sage Group plc

Paul Walker is the Deputy Chief Executive of

The Sage Group plc
PwC: Sage as a business sits across multiple market sectors, so in many ways you’re a bellwether
for how the economy is doing across a number of markets, and also particularly for the small/
medium size enterprise [SME] market. Are you starting to see signs of recovery?
PW: We’re not seeing SMEs indicating that they’re ready to start investing again. As you probably
know we have about six million customers across the globe. So, for example, our most recent
research tells us that approximately 90% of them are indicating that they do not expect to have
more employees in their business in a year’s time; they think it’s going to be flat so they’re not
in recruitment mode. That would indicate that they’re not seeing any major change in market
conditions. Secondly, some of our SMEs are saying there is a little more volume in the market,
i.e., work to go and get, but it’s not got the same value that it used to have. More importantly,
they’re not really prepared to take a risk in expanding their capacity to deal with perhaps just a
little more volume – they are still very cautious.
PwC: And are you seeing much change across your different geographic markets?
PW: Yes, mixed views. We saw places like South Africa gently come down over the last year.
They seem to be following the rest of the world now, as their boom has subsided. Germany
seems a little bit more stable and arguably marginally more buoyant in terms of other European
businesses we’re in. France came into the recession later. We didn’t see the impact on our
French business, a decline in revenues, until around April of 2009. It had quite a good period
up until then. Then it really became very difficult there but equally it seems to have come out
a little bit quicker and is certainly ahead of our UK business which is still having a tough time.
As we all know, Spain is having a very tough time too. And in North America, very similar to the
UK, there are still tough market conditions and rising unemployment; we certainly haven’t seen
any green shoots there.
PwC: More specifically in the UK, where you’re based, in which sectors do you expect to see
green shoots?
PW: We cover a wide section of sectors. We haven’t been able to identify any sector that is showing
more buoyancy than any other at the moment. You might argue that small retailers might start
to see the first impact of consumers starting to spend again, whereas our customers in the
construction industry, where we have quite a big position, they’re always going to lag a little
bit and until there’s that confidence you’re not going to see people building. As yet, we haven’t
seen noticeable change in any of the sectors.
PwC: During the economic crisis, consumer demand fell in a number of markets. You’re clearly
primarily a business-to-business organisation, but what’s your view on whether consumer
spending is going to return to previous levels or whether consumer behaviour will have altered
on a longer term basis?
PW: We think consumer behaviour will have altered, certainly for the longer term, from what it was.
It won’t return to the levels that we saw prior to this recession. The simple reason for that is
that what we’ve been through, particularly with the banking crisis over the last two years, has
inevitably caused people to be a lot more cautious, a lot of young people coming out of the
universities are obviously struggling to get jobs and to be in employment and therefore that
will create a more cautious person going forward. Secondly, I firmly believe that rising property
equity was boosting consumer spending. Clearly, that has changed with the significant
reduction in property prices and I suspect there’s further to go. When you mix all that together
over the next five years we will not return to that boom time.
Paul Walker, PwC: There’s been a lot of talk about SMEs struggling to get the right financing. What have you
Chief Executive, seen in the market? Is that an issue that you’ve observed affecting your customers and your
The Sage Group plc own business?
Continued
PW: Again from our research, over 80% of SMEs surveyed recently said they continue to be very
concerned about the ability to go into the credit markets and raise either additional working
capital or indeed capital for longer term projects. Indeed, the accountants market, which we
service, expressed a similar opinion. However, again, there are two sides to this: even though
only 12% of the people who responded to this survey had actually applied for a bank loan 88%
of these had been successful, with a good business plan, in either obtaining additional working
capital or obtaining loans for expansion or longer term projects.
PwC: And are you seeing differences between markets at all?

PW: No, not really.
PwC: One of the things which we’re certainly hearing is that the issue is shifting from the availability
to the cost. Are your clients starting to look at alternative means of financing? If so, what kind
of options are they looking at?
PW: Let me answer that in two parts. First of all, for our SME customers there are not many options
around finance. The old days of long-term leases, HP on assets, is something either they’re in or
have done or would find more difficult, so a lot of them are restricted to the more traditional markets
of banking. Even some of the venture capital availability for SMEs has probably disappeared so I
don’t think they have the same options as the larger corporates when looking for finance. In terms
of Sage, because of our extremely strong cash flow we’ve tended to be a business to rely on the
traditional bank markets with five-year borrowing to service our acquisition programme. However,
now that the banks have, in effect, specified three-year lending, we are looking at various options to
raise capital instead of just being totally reliant on the bank market.
PwC: Do you believe the economic crisis has undermined the public’s trust in the motivations of the
private sector? If you do, what kind of actions are you considering for your organisation?
PW: I think the diminishing public trust around the private sector is very much limited to the financial
services industry. Arguably through this difficult time, certainly in our industry where we’ve
supported our customers with vigour, I think they’ve actually seen us as a very important,
trusted partner in terms of the support and the business support we’ve given them. So, again,
talking to our SMEs, and I can only really comment about Sage and the SMEs, I don’t think
there’s a mistrust in the broader private sector or entrepreneurship or capitalism. It’s very much
around the banking sector, about the financial services and clearly the greed and the high-risk
approach many of these bank boards took in terms of trying to grow their profits.
PwC: You talked about how you’ve positioned yourself as a trusted advisor to your clients through
the crisis, can you give any specific examples of the kinds of things you’ve done?
PW: In any event we take 35,000 calls a day from our customers where we’re helping them with
either technical or product or business issues; but where we’ve been able to help is by
providing support and indeed software, for example, if they’ve got to make people redundant,
if they’re trying to tighten up their financial controls, if they’re trying to have a better insight
into their financial information, if they’re trying to establish the credit worthiness of their own
customers. Support around those types of areas has made life easier for that SME community.
PwC: Do you think that your organisation is going to come out of the crisis stronger than it
was before?
PW: I think we will come out as a stronger business. It’s allowed us to demonstrate even more clearly
the value that we provide to our customer base and they pay for that, giving us a stronger
position there. Also, recognising that we’ve had to take cost out of the business, this type of
economic downturn is always an opportunity for people to perhaps take a much harder look at
their own operational efficiency and where they could be leaner and take appropriate action.
We’ve certainly done that at Sage. We come out as a business in a much stronger position.
Paul Walker, PwC: You talked about having had to make some hard choices, what would you say some of the
Chief Executive, most significant changes, whether it’s at a strategy level, at a business model level or an
The Sage Group plc organisational level, have you had to initiate in response to the crisis?
Continued
PW: Probably two things; first of all recognising that revenues weren’t going to be growing and that
there was more likely to be a small decline. We didn’t want to see our profit margin decline,
so we looked long and hard, particularly around back-office activities, at where we could use
either additional technology or just be more efficient: we’ve significantly streamlined our back-
office activities and as a result are much more efficient. In terms of strategy, over the years
Sage has been quite an acquisitive company and we decided, going into this recession, that
while we didn’t have a huge amount of debt compared to many people in the UK, we had to be
very focused on cash generation and reducing our debt. We’ve done that over the last 15-18
months, and opted not to pursue an acquisition strategy during this difficult time, given the risk
it would bring to the business. As a result of that, our shareholders certainly have valued our
strategy of reducing debt down to a minimal level because they believe it will put us in a strong
position to look at acquisition targets. When we see the economic upturn we’ll be in a very
strong position to take advantage of that.
PwC: Do you have any sense of when you think you’re going to see that economic upturn?
PW: I’d be very surprised if we saw it in the next 12 months, and I can’t look beyond that at
the moment.
PwC: Through the past 18 months, has your board become more engaged with different aspects of
your business than it was before? What sort of changes have you seen in the board behaviour?
PW: It’s a good question. Because we went into this recession without the high risk debt that
many businesses had and that many people had been encouraged to take on through banks
and through boards, because we didn’t have that situation our board didn’t have the same
sensitivity around a fairly debt-laden balance sheet. However, the board became much more
engaged in discussing how we would maintain our profit margin and how we would run our
business more efficiently in these times and were equally supportive of our strategy not to go
out on the acquisition trail in the way that had been part of our profile for many years. So, there
is no doubt, without giving too much confidential information away, that the board became
much more engaged about the financials of the business, not the debt, but the financials of the
business, and indeed the performance of the business.
PwC: You’ve always allowed your different businesses in different countries a lot of opportunity
to localise and embedded themselves in the local culture. Thinking about what we’ve been
through, has that shifted the balance at all between the local and the centre, and also how
that impacts on the board’s behaviour?
PW: It’s a very interesting point. Our position has been very clear. We think being a highly
decentralised business, and, as you quite rightly say, being very local where we empower a
lot of the strategic thinking and the running of the business in those local markets, has been
a huge advantage during this recession. It’s allowed us to be much more agile in taking cost
out of those local markets – the local businesses have been able to look very specifically at
their own operations to see where they can take cost out and where they need to continue to
invest. That will probably have changed a bit from market to market, depending on where they
are in the sector and, indeed, where the economic cycle was. So, rather than having a blanket
approach we’ve been able to be extremely agile and flexible in looking at our cost structures
on a very local basis. And, equally, we believe that having that local way of running a business
will allow us to react to those local market conditions as and when we see an economic
upturn. So, our decentralised approach has been a huge advantage.
Paul Walker, PwC: You’ve been working to reduce your debt burden. Have capital constraints in any way
Chief Executive, hampered your growth?
The Sage Group plc PW: No, they haven’t because the decision to reduce our debt was clearly a reaction to the
Continued
recession and to the market conditions. Probably it is just as relevant that some of the
valuations of targets hadn’t mirrored where the actual economies were going. So, it wasn’t
the absence of capital because we genuinely believed, given our track record, that if a very
important strategic acquisition arrived on our doorstep we could have raised the cash from our
shareholders. So, as bank refinancing comes up who knows? It’s probably affected our attitude
more than our ability.
PwC: You noted that your decentralised approach has allowed you to be much more agile.
Do you think what we’ve been through has exposed any gaps in risk management in either
your company or in your industry?
PW: In the broader IT industry I don’t think this recession has highlighted additional risks.
Arguably, the important steps made by the IT industry over the last 10 years in providing
better technology, better services for corporates and SMEs, have probably helped us weather
the recession, because businesses are generally are more efficient and have a much better
insight into their data. I don’t think Sage had any major concerns about risk. As a decentralised
business we’ve made sure that the controls around cash collection and ability to extend credit
for customers have been suitably rigorous. None of our subsidiaries have the ability to go out
and borrow. So, because of the nature of our business, we’ve seen heightened risk around our
operations other than perhaps just cash collection and the ability to grant credit to customers.
PwC: Sage, like many other companies, had to make some redundancies through the recession.
What factors guided your approach beyond looking to control costs?
PW: The total number of people who left Sage was probably about 1,000 out of a workforce of about
14,500, so a reasonable chunk, and it varied again from market to market. In the UK we have a
varied workforce in terms of age and we needed to cut 200 jobs. We had sufficient applications
for voluntary redundancy, so we didn’t have to go down that statutory redundancy programme
with a lot of interviews and putting people at risk, and our employees in the UK really applauded
the management team on how it dealt with that rather sensitive and difficult area.
North America was very different. There is significant rising unemployment there and we
just said to some of our businesses, look, revenues are down, we’ve got to take cost out of
the business and we are going to be taking out 500 jobs across what was a 4,500 people
business. Interestingly, I got quite a few positive emails on this from both people who left the
business and people who stayed, who all felt that we had communicated and handled it well
and treated them fairly. So, broadly speaking, our employees, particularly because I think the
communication was handled very well, have understood why it’s happened and have been
quite complimentary about the way it’s been executed.
PwC: In many organisations, the past 18 months have been quite stressful and people are being
asked to do more with less. What are you doing to make maintain morale and to motivate staff?
PW: You make a very good point about stress. It has been a difficult period and stress will rise
as people worry about whether they’ll have a job or not. Being very open and trying to
communicate on a regular basis even if you don’t know what all the facts are is critical.
In the UK, we said, “Look, there are going to be some job losses but with what we know
today, and the current financial state of the business is very healthy, we won’t have to make
anymore unless the economy gets worse”. That was an important message − we’ve made the
redundancies and, broadly speaking, people then can settle back down into their jobs. Senior
management in the operating companies at Sage also found it a very stressful time because,
in the main, they had never experienced a recession before or the need to take some of the
actions that we’ve had to take over the last 18 months. As an executive team, we’ve had to
communicate and guide and talk about how important leadership is in a recession and how
communicating the direction of the business and where it is going is absolutely paramount
to maintain confidence in it in these times. People have to come in full of spirit and vigour to
make sure that the workforce sees that they have strong leadership.
Paul Walker, PwC: What kind of models or changes do you think you’re going to need to put in place to get
Chief Executive, greater productivity in the future?
The Sage Group plc PW: There was a realisation, both in senior management teams and actually down in middle
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management as well, that what happens in a boom economy and a business that’s growing is
that you inevitably get processes and procedures and people building their own little empires.
We have started to challenge them about whether they need that process or procedure, that
extra bureaucracy that creates jobs, saying can we not break down some of these areas and
let’s be a little bit more agile, let’s be a little bit more entrepreneurial; and that can make us
more efficient. And a lot of our employees have been up to that challenge and have probably
quite enjoyed looking at how we can deliver a service to our customers in a more efficient way.
PwC: One of the big concerns we hear is the fear of more regulation and that this is a threat to the
growth of businesses, and this isn’t just from a financial services companies. Do you think that
new regulation is going to lead to over-regulation and how might that play out in your business?
PW: First of all, we operate in an unregulated market, fortunately, and I don’t see that changing.
So, if I apply my mind to regulation from government and from governance and from the FSA
around listed companies, there’s clearly been a review of governance around boards and we’ve
seen some reports come out. I thought the good news was, when I read those reports and the
new combined code, that they don’t seem to have over-reacted from a broader governance
point of view around boards and businesses or, indeed, remuneration as they might have done.
Clearly, after Enron and some of the huge issues in the US eight or nine years ago, Sarbanes-
Oxley completely over-reacted to what had happened in the market and shut the door after
the horse had gone. I get the impression, looking at some of the regulation around governance
that’s been issued of late, that we don’t seem to have over-reacted this time. Where I think
we really have to apply regulation, as I’m sure you hear all the time, is around the banks. That
is clearly where we’ve got to get it right because it’s clear to everyone that a weak financial
system will have a catastrophic effect on the economy.
PwC: And are there ways that you think businesses could actually help governments to make
regulation smarter?
PW: Could businesses make regulation smarter? I’m trying to figure how that would work. I come
from a sector where it’s difficult for me to really have an insight into that. In our industry I can’t
really think of something that would be helpful. Clearly, and this is not about regulation, where
we would like to see a lot of impetus is making sure that SMEs believe that they can get credit
for a good business as and when they need it and that there’ll be the confidence to go out and
do that. So, to some extent that is partly about regulation of the banks and making sure that
they’re doing what they should be doing in any Western world economy.
PwC: One area, when we talk regulation, is the tax arena.
PW: Yes. We’ll see what happens, certainly from a UK perspective.
PwC: The Copenhagen Climate Summit is all over the news [in December 2009], what one thing
could governments do to successfully address the risk of climate change?
PW: I don’t think there is one thing that they could do. The whole issue about climate change has
to be tackled in numerous ways, whether it’s around air travel, whether it’s around just simple
use of effective lighting which they’ve made some good progress on. So, I personally don’t
think there’s one thing that would actually contribute to make a big change… unless it’s just
increasing awareness, although they’ve done a pretty good job about that: most people are
aware about trying to be careful about fuel and recycling products and making sure that they
deal with their rubbish in a certain way. Compared to ten years ago, there’s been a massive
mindset change.
PwC: I certainly see my behaviour changing in little ways.
PW: Yes, I agree. So, I suppose arguably the governments have done a good job in terms
of awareness.
Paul Walker, PwC: This is slightly more personal, but if you look back over the past 18 months, what have you
Chief Executive, personally found most challenging?
The Sage Group plc PW: What I’ve found most challenging is managing a team of people who are used to being in a
Continued
growth business, used to being in a growth sector, and managing their desire in challenging
their own cost base, so that they don’t damage the longer-term value of the business. That has
really been my challenge, to persuade my colleagues and my executive team to balance that
short-term vision of preserving margin and desire to cut costs to make sure we don’t damage
the longer-term value of the business and its ability to grow when the economy comes back.
That’s been a big challenge, particularly managing people who in the main have not been
through a recession before.
PwC: Of the issues we talked about, are there areas that you’d be particularly interested to hear what
your fellow CEOs would have to say?
PW: I’d be very interested in their views on regulation because it’s not something that I’m as close
to. I’d be interested in their views about what they’re seeing in the current economic climate.
Are they seeing things that may be different to me in the sectors they work in? Perhaps people
are servicing the corporate market more than the SME market and starting to see people
starting to become confident and starting to buy again. Maybe people in the retail sector are
getting an interesting insight into what consumers are doing. So, they’d be the areas that I’d be
interested in learning more about.
PwC: Finally, I’d like to open the floor for you to share anything else that this discussion may
have prompted.
PW: I suppose one thing I would like to share is my disappointment with politicians during this
period. Whilst one can argue that they were quite robust in making sure that some of these big
financial institutions didn’t go bust, frankly I don’t think they had any choice in that. Where I’ve
been disappointed is the way this recession has been politicised. Politicians have taken some
actions and have done some things that were purely about politics and playing to the public
around the banks and the economy and around tax. It hasn’t helped people, it hasn’t helped
us move on from the recession and I’ve been very disappointed that they haven’t done what I
think a lot of people in business and industry have done, which is say we’ve got a tough time,
we’ve all got to be in this together, and work through it.
PwC: And your confidence in the future of Sage?
PW: Well, I remain very confident because we have a large SME population of six million customers;
we know there’s a lot of pent-up demand for our products from that base and, indeed, new
customers and when confidence returns to that SME community, when the economies pick up,
we’ll see software growth come back into the sector. So, we remain very confident.
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Interview transcripts of Pawan Munjal, MD and CEO,

Pawan Munjal is the Managing Director and CEO

of Hero Honda Motors
PwC: Are you seeing signs of an economic recovery in your key markets?
PM: We are seeing strong recovery in the manufacturing and infrastructure sectors. Over the last
six months, the performance of the mining, electricity, and construction industries has ranged
from steady to robust. Growth in consumer durables has been extremely strong over the last
few months. So yes, recovery has set in, and it seems sustainable. But the real strength of
the recovery will be tested over the next few quarters when tighter financial and monetary
conditions kick in.
PwC: How has India’s competitiveness in the world economy changed as a result of the
economic crisis?
PM: I do not hold the view that India’s competitiveness in the world economy has changed.
Yes – exports to key Western markets had slumped, but this is because of slowing demand.
Exports decline, in fact, seem to have bottomed, November’s figures show that they started
picking up again.
PwC: Are some sectors of the Indian economy stronger now as the result of the global financial crisis?
PM: I think the recession in the Western economies has prompted Indian IT companies to
re-examine their global delivery model and address weaknesses. And as a result, a number of
these companies have moved up the value chain. Similarly, in the wake of lower demand and
thinner order books, companies in the automobile and engineering sectors have begun to look
inwards with the intent of improving their process capabilities and cost base. Many of these
have become leaner, meaner, and stronger companies as a result – and this is reflected in the
latest quarterly results. While their topline may not have grown very quickly, the profitability
of a number of Indian engineering and automobile firms has risen.
PwC: Are some sectors of the Indian economy now weaker as the result of the global financial crisis?
PM: India’s exports of textiles, leather, gems and jewellery, and petroleum products have been
affected as a result of slowing demand in the West. Many of these are labour-intensive sectors,
and it isn’t easy to move up the value chain – especially when markets are contracting.
However, a number of larger garment players are now turning their attention to the domestic
Indian market. The domestic market is quite large and demand is stable.
PwC: How might capital flows change as the result of the global financial crisis – and how might that
affect your company’s own capital structure?
PM: There are conflicting views as to how much capital India will be able to attract in 2010, given
that the markets have had a very strong run-up since March 2009. My own guess is that while
capital flows will still be positive because of strong growth, investors will be concerned about
expensive valuations. Hero Honda is a listed company, and given our performance, we are
always on the radar of global portfolio investors. We will continue to attract their attention, but
I don’t foresee any changes in our capital structure, irrespective of the ways in which capital
markets behave, as we are a cash surplus and zero debt company.
PwC: Do you expect consumer spending to return to pre-crisis levels?

PM: The two-wheeler industry was certainly affected by India’s economic slowdown. But Hero
Honda managed to buck the trend and posted strong growth – mostly because of our product
mix and solid presence in rural areas, which have been relatively less affected by the global
crisis. Additionally, our extensive pan-Indian network has also helped us tap emerging pockets
of growth. Given the low levels of two-wheeler penetration in India – and with aspirations rising
and incomes growing across the country – we don’t see the two-wheeler industry going into a
period of decline anytime soon. As for purchasing behaviour, we expect to see consumption
levels return to pre-crisis levels in the next one to two years.
Pawan Munjal, PwC: From what region do you expect your strongest competition to come?
MD and CEO, Hero PM: India is one of the most competitive two-wheeler markets in the world. Because of our
Honda Motors Ltd., India favourable demographics and the potential to achieve market depth, virtually every global player
Continued
is in India or planning to establish a presence here. While domestic players will continue to
perform, going forward I expect strong competition from multinational corporations.
PM: There are very clear structural shifts occurring in the Indian economy. In the past year, the
government has stepped up investments in sectors like roads, coal, ports, and power in order to
reduce India’s infrastructure deficit, which is considerable. These investments will continue over
the next five to ten years as India seeks to improve the quality of its infrastructure services. In
recent years, there have also been significant social sector and job creation initiatives targeted
towards rural areas. Such investments will eventually lead to a virtuous circle of prosperity –
which is in the interest of companies like Hero Honda.
PwC: Has the economic crisis undermined the public’s trust in the private sector?
PM: I agree with the view that the recent behaviour and actions of certain company managements
has disillusioned the public. But just as a few rotten apples cannot ruin an entire harvest of
apples, a few unethical acts cannot, and should not, tarnish the reputation of an entire industry.
Hero Honda was built on the principle of trust. And across all categories of stakeholders, this
trust has not once been shaken in our 25 year history. We adopted strong corporate governance
practices before they were mandated by Indian law.
PwC: Have changes been made to your company as a consequence of the economic crisis?
PM: Even though we have not been significantly affected by the economic crisis, we have
implemented new process efficiencies at our plants, rationalised practices along our supply
chain, and reoriented marketing budgets in order to bring down costs. In our business approach,
we always stress the importance of cost rationalisation – irrespective of market conditions. In
lean times, cost rationalisation helps companies make normal profits. During a boom, the same
cost rationalisation helps firms generate super-normal profits. So it is a win-win.
PwC: Has your company’s ability to respond to new opportunities been constrained by difficulties
in raising capital?
PM: We do not face any constraints in raising capital. In any case, we are a debt-free and cash-rich
company, and most expansions are funded through internal accruals. As regards our advertising
and brand-building efforts, while our campaigns are continuously evolving in tune with customer
needs, we also take care to build on our time-tested strengths.
PwC: Did the economic crisis reveal gaps in your company’s risk management practices?
PM: We have always been a financially conservative company, so we have not been exposed to any
major risks during the crisis. Our treasury management is reasonably risk-free, and we have
rarely, if ever, succumbed to the temptation to make a quick buck.
PwC: How have you been able to maintain staff morale during the economic crisis?
PM: Since we performed extremely well during the crisis, the stress level in our company has been
much less than in many others. In any case, we routinely set strong productivity and efficiency
targets in our offices and plants, and by and large, these targets are met. The fact that there was
no job insecurity in our company during the crisis ensured that morale and motivation was not
an issue for us.
Pawan Munjal, PwC: What investments or reforms should the government focus on in order to improve India’s
MD and CEO, Hero long-term global competitiveness?
Honda Motors Ltd., India PM: Wiping out the infrastructure deficit, executing social programs more effectively, cutting down red
Continued
tape, and framing flexible labour policies should be among the government’s top priorities. Of
these, the first has already started, even though there is some ways to go. Red tape is still a huge
problem, although I think with e-governance projects now rolling out across different layers of
government, there will eventually be a reduction in bureaucracy. However, what really worries me
– and where I think India’s long-term competitiveness, particularly as a manufacturing destination
might suffer – is the lack of labour reforms. India’s outdated labour laws – the ones that seek to
protect existing jobs irrespective of market conditions – actually impede the creation of new jobs.
PwC: As a consequence of the financial crisis, do you expect governments to enact new regulations
and might that lead to over-regulation?
PM: I think the issue is not whether there should be less regulation or more regulation. The
central issue is the quality of regulation. In the infrastructure sector – especially roads and
electricity – India needs a better quality of regulation. We also need stricter implementation of
environmental laws. Bharat IV norms [vehicle emission standards] are kicking in from 2010,
but, except in a few cities, how successful will authorities be in preventing pollution? I am not
sure. Rules must be fair, consistent and balanced and apply to everyone. Applying these rules
sensibly is the job of the regulator. Today, a battery of permissions is required to cut a tree. But
if a road has been widened in a city, and trees are in the way, why should it take two years to
get clearance to cut those trees?
Under-regulation is equally damaging. For example, there is much talk about traffic congestion
in our cities. But even as the vehicle population has exploded, virtually no attempt has been
made to control or regulate traffic movement. I think city administrations need to be given more
teeth. Very often city administrations are subservient to state control. Similarly, there is often a
conflict of regulatory interest between the state government and the Centre.
PwC: What is your company doing to address the risk of climate change?
PM: Hero Honda has continuously aspired to become one of India’s most environmentally-
sustainable firms. Over the last few years, the company has progressively eliminated the use
of a large number of harmful substances and materials, including asbestos. Today, every raw
material and chemical we use is thoroughly evaluated for its environmental impact before it is
introduced into a production process.
We have many ongoing environmental projects. For example, the green roof on our third
Haridwar plant helps save a substantial amount of energy by moderating roof temperature
as well as the temperature of surrounding areas. We have also established a “Green Vendor
Development Program” to address the front-end of our supply chain and a “Green Dealer
Development Program” for the back-end. In both of these programs, our partners are
expected to manage their material resources, energy resources, and industrial wastes and
effluents according to a number of pre-determined parameters. We are also evaluating various
proposals for buying renewable energy from various sources. Hero Honda is a zero-discharge
company and we recycle all water used in our manufacturing processes. In terms of rainwater
harvesting, our techniques have been included in a best practices case study published by
the Centre of Science and Environment. And in order to mitigate global warming, we are
developing policies to offset our carbon footprint with carbon credits.
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Interview transcripts of Philip Cox,
CEO, International Power plc

Philip Cox is the CEO of International Power

PwC: Have the last 12-18 months, been a tough personal challenge for you?
PC: Yes, without a doubt. As a CEO in a capital-intensive industry, dealing with a debt market
in meltdown was probably issue number one - focusing on capital structure and how the
business model would work in a totally different banking environment. We do follow the
economic cycle in our market so if demand is down, the right reactions within the business
as to what we can realistically and aggressively do to address efficiency improvements, cost
improvements, are very important, without taking our foot off the pedal in terms of growth.
We operate internationally, which includes developing markets and some of those have
continued to grow well despite the downturn, so it’s not a ‘one size fits all’ market. Parts of
our markets have been strong and continue to be whilst others have not been so strong.
PwC: Would you say that this financial crisis is different to previous ones that you might have
encountered in the past?
PC: Yes, this financial crisis has been bigger and deeper.
PwC: More structural would you say?

PC: I think just the sheer size of the debt crisis in terms of the gap that was created, how much
cash has gone in to support it, and therefore what it means in terms of the timeline to recover
and pay for it is, effectively, a big unknown. But it just seems deeper and longer and far more
serious than anything that we have seen before. The numbers say that just by themselves.
They are colossal in scale.
PwC: So what’s your view about the recovery? Do you think there are signs of recovery on the way?
What signs are you looking for?
PC: One of the things we look at, not surprisingly, is demand for power and demand for gas
products. Both of those came down a lot last year. In our world, the developed world, a lot
means 7%-8%. We’re not the best lead indicator of recovery because we’re one step away
from the end customer in the business. Nevertheless, it seems that there are at least early
signs of levelling out at a low level. That would be true for the US and the UK, two of our big
developed market positions.
When we look at the developing world, such as the Middle East and Southeast Asian
economies, for us it is not China or India but countries like Indonesia, Pakistan, Thailand,
Vietnam and the Philippines that have grown and are continuing to grow. Even through the
crisis they have grown at 5% or 6%. They may have been growing at 10%-12% before but
they are relatively much less affected by the meltdown.
What I mean by that, would you expect greater investment in public priorities like energy
infrastructure?
PC: Yes, but it is difficult to be precise. I think energy is right in the middle of two key debates,
security of supply and climate change. There are two big drivers: one is what is the right
energy mix or power mix in the light of security of supply, i.e. predominantly not being reliant
on imported fuel, oil and gas in particular. And the other, linked to that, is what is the optimum
mix of generation in terms of lower CO2 emissions and environmental emissions. That puts the
power sector right in the middle of the whole political debate about if you’re going to spend
money, where is it best allocated? It would make sense to incentivise power generation in
terms of infrastructure investment. I think power is increasingly coming into that regulatory/
investment mix.
Philip Cox, PwC: Have your strategic priorities shifted as a result of the crisis and what might trigger future shifts
CEO, International as the recovery unfolds?
Power plc PC: I would say there has been no fundamental shift in policy. Maybe there has been some fine
Continued
tuning but our overall strategy is still the same: power generation in both developed and
developing economies. They are both good positions but for different reasons. New capacity
in developing economies but also replacement of older, less efficient plant in the developed
world. In terms of priorities, because power prices are at low levels in the merchant markets,
the developed world predominantly, there is less focus there from a growth point of view when
compared to the developing world. Growth for us is new build, new projects, new capacity,
because that is what the markets need and there is still healthy demand for that. If anything,
we have been more focused in developing economies where there are more opportunities,
and you can get the projects financed.
If you did a deal in the more developed world, the likelihood is short term margins will be down.
Banks don’t like this, as there is not enough security for their lending so this tends to reduce
capacity. This limits how much, even if we wanted to, we could invest. Therefore it’s been
more of a focus on the developing world and more of a focus on renewables in the developed
one, because they fill the same sort of niche in the sense that they are heavily incentivised,
supported by the regulatory framework, which is driving demand. A lot of economies want to
increase their renewable footprint and again it comes back to the financing; because they are
incentivised and supported by regulatory framework, they are able to get finance as well.
PwC: What about the geographic footprint itself? Have you looked at additional markets because
you’ve been relatively, I wouldn’t say conservative, but consistent in a way…
PC: Not as a result of the economic crash. You’re right, we are conservative before we take a view
because we are a long-term business and once you’ve got a power station on the ground you
can’t do much to move it. You need 40 years to get payback, so we’re constantly looking at
potential new markets, North Africa is an example along with Vietnam and the Philippines.
PwC: But that’s not a consequence of the crisis.

PC: It’s not a consequence. The drive would have been just as strong whether the crisis happened
or not.
PwC: There’s been lots of talk about the economic crisis undermining public trust in the private sector.
What’s your view on that? Is it something that you feel in your industry you’ve been affected by?
PC: No, I really don’t. Public trust has been heavily focused around banks and financial services.
I think in the more old fashioned world of power generation there are very real assets. If you
build something you know what it is. You know where you spend your money. You’ve got
something very tangible. People look to us for skills in financing, and in operating and in
project management. Therefore I haven’t felt any lack of trust.
In a sense the very strong drivers that we see in the developing world, particularly in
economies which have been very government focused, government owned – where power
generation has been a government function - are showing more and more openness, to attract
foreign capital. It is very capital intensive and they need more financing. They need fresh
resources to take away that 100% burden on the state, so in places like North Africa and
Vietnam that is part of their strategy.
PwC: That’s interesting because I think there’s been quite a bit of talk as well about retrenching to
more protectionist tendencies.
PC: No, we haven’t seen that. I think it is about skills and finance. Those are the two interests from
their governments’ point of view.
Philip Cox, PwC: Is your company doing anything specific to build trust with your stakeholders? For instance,
CEO, International what the public might think when looking at International Power from this perspective
Power plc might be to make some connection between the amount of carbon that gets pumped into
Continued the atmosphere.
PC: Carbon is a good one. The public’s point of view is ‘you’re a big emitter of CO2. What are
you doing about it? I don’t trust that you’re taking this seriously’. As we’re not a retailer or a
brand that the end consumer is buying from, we are one step away in the consumer’s mind.
But we do take it very seriously. Our approach to environmental management has three major
building blocks – improved environmental performance at our existing assets, the building of
high efficiency plants where we develop greenfield growth opportunities, and the expansion of
our significant renewables portfolio. All these initiatives make very sound environmental and
commercial sense.
PwC: But that’s more business as usual, a long term view, not necessarily exacerbated by the crisis.
PC: These issues are not new ones brought on by the crisis.
PwC: Thinking about changes you may have made to the organisation, has the crisis exposed any
gap in your risk management? Have you used that opportunity to reassess some of the
processes and approaches around your business?
PC: The crisis has not affected our risk management, fundamentally, in terms of how we trade and
sell our output. From a financing perspective, we are taking a lower risk approach. We want to
be absolutely sure our liquidity is particularly strong. If we’re looking to put debt on an asset,
before the crunch we would have probably gone for the maximum. Now, while we would like
to know what the maximum is, we probably won’t go there. We are also more conservative
in terms of allocating capital, what we spend it on from an investment point of view, which
means higher investment hurdles for our growth opportunities. Secondly, slightly away from
the risk point of view, within the business we have much more of a focus on efficiency and cost
reductions but there is a limit on this. A large part of our cost base is fixed because it’s capital
and it’s interest and it’s depreciated, but we’ve done a lot more work on the variable cost.
The other focus is on people and is about performance management. More competitive times
mean that we need to have narrow levels of tolerance between good, acceptable and lower
performance. We are thinking more critically about how we differentiate, how we incentivise,
how we reward top performers and how we identify areas where people who are good can
improve further. A big drive for us this year is ‘how can we be better performance managers?’.
That is not necessarily just downturn related, it’s more about where we are in the maturity of
the company. The fact the market is much tougher has simply put that under the microscope.
PwC: Have you felt at all, the tension between, on the one hand, reassuring the market about the
debt structure of the company, and at the same time, maintaining earnings?
PC: Yes, we’ve had to deal with the trade-off between debt security and growth. For example we
sold our Czech business, but not because we needed to. We’d have been fine if we didn’t.
We did it because it was a fantastic deal and great value for shareholders. The trade-off was
the earnings from that business have gone but we can reinvest the capital.
PwC: So what have you learned through that process?

PC: We know that if push comes to shove, certainty of capital structure comes first. The market
does not like losing earnings but it has no forgiveness whatsoever if you run out of cash.
The very worst thing that we could have done is gone back to the market and said, ‘Sorry,
we did not get our capital planning right and we’re out of cash. We didn’t sell this business
when we could have but now we need a rights issue and we’re cutting the dividend.’ It was a
straightforward decision.
Philip Cox, PwC: Back to your points about communication and refocusing your approach to keeping talent.
CEO, International Have you communicated more to your employees to maintain morale in a condition of crisis?
Power plc Has your approach to that slightly changed?
Continued
PC: If you tell people that you are going to concentrate more on talent and that you want to
keep them, that’s easy to say but it doesn’t really mean anything. What we’ve done is in the
background. We’ve done a lot more work on performance management. We’ve done a lot
more work on what it means in terms of talent identification and management, which we’re
going to roll out progressively, and more work on succession management. We haven’t been
out there beating the drum, because that’s not our style and we’ll tell people when we’re ready.
We’ve done this work with a wide group of people across all of the business – not just one
or two people from HR. We’ve got people across all functions, across all regions, looking at
performance management, talent management and succession so I think the message is out
there in the organisation that there’s a lot more happening.
PwC: What behaviours have you focused on to drive strategy and execution?
PC: It has been a big push. How we do business is extremely important. And consciously I think
one thing that I’ve been pushing much more over the last 12 to 18 months than I ever did
before is delivery and bottom line. We’ve got values for a reason and how we operate, how we
behave with each other, is absolutely key.
PwC: I think you’re selling yourself short here. …

PC: We try very hard to portray the kind of values and behaviours we want. I have a high degree
of confidence that, overall, our teams operate in that way too. I think there are always areas
where they don’t and where we can improve and I would definitely want to raise that level
of consciousness. The companies that survive and do well are the ones that have got good,
strong values which are consistently applied and people know what they are and have got
a good expectation of how you’re supposed to operate and what the company stands for.
We need to do more and push that adherence to values, as an overt part of performance
management bonus allocations.
PwC: Has your board been generally more engaged with risk strategy and leadership development
and again would you necessarily associate that with the crisis?
PC: We have been more focussed on capital structure and the debt market. There are very close
lines of communication across the board in any case. We’ve also addressed leadership
development specifically. The chairman’s been very engaged with this and on succession,
people are happier. I think the board is reassured that there’s more going on but it has not been
quite as overt as the capital market.
PwC: More regulations are coming and yet over the years CEOs tell us that regulation is a major
threat to growth and competitiveness. Government ownership seems to be leading to even
more negative perceptions. What is your view? Will new regulation lead to over-regulation?
PC: The worry for us is that regulation could kill open competitive markets. That is the risk for us in
the power sector. We want regulation to be used sparingly. It is here as a matter of course and
there is a lot of it. Our central theme is, don’t expand what we’ve got. The more you regulate
and either incentivise or dis-incentivise certain parts of the power generation space, the more it
ceases to be an open competitive market and you’ve lost a lot of the benefits.
Philip Cox, PwC: So what part does business have to play to make these regulations smarter?
CEO, International PC: It is incumbent on us to engage as much as we possibly can with government and with the civil
Power plc service. The power sector does not speak with one voice, since it is a collection of individuals,
Continued
all of whom have got a slightly different agenda. I have some sympathy for government and
opposition when they say, ‘what does the industry want me to do here?’ and they get seven
different replies.
PwC: And are you systematically engaging with government?

PC: Yes, we are. We have upped our game on this over the last two or three years and we do as
much as we can. Wholesale power generation has been pretty low down on the radar screen
of government. Three years ago they probably wouldn’t have known who International Power
was. They might have done, but not as they would a Centrica or Scottish Power, somebody
who’s in the retail public eye, in the voters’ eye. But now we are being much more systematic
and heavy duty about engaging with government.
PwC: What is your company doing to address the challenge of climate change?
PC: We are driven by meeting power demand so it’s quite likely that our CO2 would go up year
on year because we are expanding capacity. Our view and our CO2 policy is to generate as
efficiently as possible but we’re still burning coal. If coal is the indigenous fuel in Indonesia,
that is what Indonesia is going to use – but we’ll burn it with the most efficient turbine
equipment possible. Renewables are also important. We had no wind capacity three years
ago. We’ve now got over 1,200 megawatts which puts us in the top 10 producers worldwide
for onshore wind. However, there is a lot more to be done on that. Efficiency and renewables
are two thrusts, plus some specific small-scale CO2 reduction initiatives. In Australia, which
is 95% coal, we’ve got the country’s largest carbon capture plant and we’re working with the
government on test applications to see how CO2 and sulphur emissions can be reduced.
PwC: With governments battling now in Copenhagen, what do you expect to come out of that?
What can government do to help on climate change?
PC: We are not expecting anything formally specific or binding from Copenhagen. There will be
intent but nothing specific.
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Interview transcripts of SHEN Heting, Executive Director,
President, Metallurgical Corporation of China Ltd

SHEN Heting is the Executive Director, President,

Metallurgical Corporation of China Ltd
PwC: What’s your perspective on the global economy and its impact on MCC?
SH: In September 2009, MCC was successfully listed simultaneously in two capital markets. Our
listing signals that a gradual recovery of both the Chinese and global economies is taking hold.
In my personal view, the Chinese economy – aided by national stimulus policies focused on
infrastructure projects and domestic consumption – is recovering steadily and has walked out
the shadow of the global financial crisis. As for the world economy, I also feel it is improving
in both Europe and the US. As a state-owned enterprise, MCC follows central government
policies and guidance.
We believe the next few years will be very positive and I have full confidence in MCC – even
though the Chinese government has announced that the steel, polycrystalline silicon, and
wind-powered electricity generation industries will be restricted. The test for China now is to
restructure its national economy by restructuring individual state-owned enterprises. That means
that MCC will have to reshape its industrial base to match the national economic framework set
by the central government. Despite this, I believe the future of MCC is good. Right now, MCC is
mainly engaged in five business lines. The first is our engineering, procurement and construction
business. With respect to that business, we will focus in the future on modernisation in order to
support the manufacture of innovative, high quality products which we are now working with
steel plants to develop. During the process of modernisation, we will also address issues of high
energy consumption and environment protection.
Our second line of business is equipment fabrication, primarily for the steel industry. As the
economy recovers and we readjust our industrial base in keeping with the national economic
framework, we will develop a new generation of equipment to meet the emerging requirements
of steel plants. Our third business is in harvesting natural resources. In the future, the volume
of natural resources required by China will rise dramatically, and that provides us with a
good foundation for further growth. MCC’s fourth and fifth lines of business are in real estate
development and the provision of related services.
This is a very vibrant sector of our national economy. So all five of our businesses are
developing well and I believe that the prospects for MCC are favourable.
SHEN Heting, PwC: What is your view about the importance of environmental protection?
Executive Director, SH: Environmental protection is both a global issue and one of growing concern within China. The
President, Metallurgical Chinese central government is formulating very robust environmental protection requirements,
Corporation of China Ltd and MCC actively provides environmental protection solutions to other Chinese enterprises.
Continued
Nevertheless, in China, the concept of environmental protection and laws pertaining to it
are still in their formative stage. And while many Chinese enterprises have environmental
protection facilities, these facilities are often underutilised. During an inspection, environmental
protection equipment may be turned on. Following an inspection, the equipment may be
turned off to save costs. This is very common.
With regard to environmental protection, we at MCC see ourselves as having three core tasks.
First, we must actively assume legal responsibility for protecting the environment. That means
we take full responsible for harmful emissions. If something goes wrong, those incidents will be
investigated and prosecuted according to law. Second, we must ensure that our environmental
protection facilities are compliant with regulatory requirements. Third, we must work hard to
improve areas of environmental protection where we haven’t done so well.
I’ve told officials at the National Development and Reform Commission and the Ministry of
Environmental Protection that we assume our environmental protection responsibilities and
will fulfil them. Take for example the project between MCC and Baosteel in Zhanjiang in
Guangdong province where we have invested in state-of-the art environmental protection
facilities. So we do take full legal, economic, and social responsibility to protect the
environment, which – as a by-product – also benefits our public reputation. Compared to
the US, Europe, Japan and other industrialised countries, China still has a long way to go in
terms of environmental protection. Only through relevant laws and regulations established by
government, and voluntary implementation by enterprises of those laws and regulations, will
the goal of environmental protection be achieved.
PwC: What are the lessons learned from the global financial crisis?
SH: One of the main problems exposed is our lack of understanding of financial derivative products
and what constitutes adequate resource reserves. So I believe first of all we should enhance
our knowledge of the financial derivatives industry, for that was where the crisis began. If we
know little or nothing about financial derivatives, how can we confront the present financial
crisis? In addition, we’ve learned which conditions apply to China and which do not. With
regard to this crisis, China is in a relatively advantageous position and I attribute that to
China’s monetary policy. But there are also conditions in China that we must pay attention to.
China’s economic development relies on exports and all over the world we’re regarded as a
manufacturing country. However, the raw material we use is mostly supplied domestically, and
the products we produce are sold relatively cheaply. In fact, the products we sell seldom reflect
a high technical content or value-added. So in my opinion, China should reduce its volume
of exports, but begin to manufacture products of higher quality and higher value-added. That
would contribute substantially to China’s economic development. The core issue is how much
innovation is contained in your products.
SHEN Heting, PwC: Does MCC have any intentions to develop its five business lines overseas?
Executive Director, SH: IWe are considering transforming MCC into a world-class enterprise group or, as it is
President, Metallurgical commonly referred to, a multi-national company. We now have about 36 offices around the
Corporation of China Ltd world. But we need to increase our level of foreign investment. One of our goals is to expand
Continued
our position in the construction steel sector, with Brazil, India, and the Middle East being our
target markets. We would also like to enter the European and US markets. Frankly speaking,
the technologies of European and American iron and steel companies may not be much
stronger than ours.
Thirty years ago, China essentially traded its domestic steel market for technological know-
how. Over time, we digested all that technical knowledge. Now, China commands the world’s
best iron and steel technology. We are a dominant player in steel producing 700 million tons
of a year. At this point, no country can compare with us in terms of steel production. So we
must look outward and invest aboard. Currently, MCC has a total of six overseas projects. I’ve
always felt that no matter what conditions prevail in the marketplace, the intrinsic value of our
products is lasting. If there’s a downturn today, we will not sell products. But when the market
recovers, we will always sell products. I think we still have to step up the development of our
manufacturing capabilities. But that shouldn’t prevent us getting involved in promising projects
abroad. For us, the key to wise foreign investment is good risk management practices. Risk
management is now the primary task of state-owned enterprises.
PwC: What is MCC’s general approach to building strong internal controls?

SH: MCC’s culture is different from that of most other corporate groups. Our upper and lower
channels communicate with one another very well, and this is a distinguishing feature of our
culture. As a result, I think MCC’s internal controls are strong. Of course, we also work hard to
continuously improve our management and control capability.
PwC: How is MCC’s corporate culture promulgated within its workforce?
SH: In 1998 when MCC was established, China’s economic development was still at a low level, as
was its steel industry. In those initial years, our main concern was solving the problems of our
branch companies and building workforce confidence in the enterprise as a whole. Building
confidence is the first important step in building a strong enterprise culture. The second step
involved incentives and rewards. In the early years, our people were hungry for reward, so we
established long-term strategic targets and a good reward system that benefited everybody.
That bolstered the confidence of our people even more. The third step involved the public
listing of MCC. We prepared for our listing very carefully over a two year period in a way that
reflected the cohesion of management and the strength of our internal controls. In finally
becoming a publically listed company, our people recognised that MCC was no longer the
enterprise it was previously. Instead, it was an international enterprise that operated on the
basis of advanced management concepts, procedures, and systems.
PwC: In your view, will the global economic recovery be a ‘U-’, ‘V-’ or ‘W-shaped one?’
SH: I should first say that while I am an economist, I do not have special expertise in macro-
economic issues. But based on my intuition, I expect the recovery of the global economy to
follow a U-shape. People understand that they have spent more than they should have and will
be reluctant to return to previous levels of consumption. On that basis, we shouldn’t expect a
V-shaped recovery. Instead, the economy will recover gradually. It is very normal.
Rethink
Workforce
motivation
Reshape
The talent
pool
Result
Business
alchemy
Interview transcripts of Tigran Nersisyan,
President, Borodino Group

Tigran Nersisyan is the President of Borodino Group

PwC: Following the financial crisis, what sorts of problems is your company experiencing?
TN: We operate in a number of markets including Russia and the CIS countries [Commonwealth
of Independent States]. We are also aggressively expanding into promising African markets.
In terms of the problems we face, the major issue is lack of liquidity and free capital movement.
PwC: Have you seen any signs of economic stabilisation and recovery?
TN: No, not yet. It’s still very difficult to get access to capital and cash instruments.
PwC: What government action might lead to economic stabilisation and recovery?
TN: The most promising development is the low interest rate established by the FRS [Federal
Reserve System] and the ECB [European Central Bank]. The Bank of Russia is also
implementing the same policy and over the past month has lowered its interest rate two
or three times. This is a positive factor for the capital market. Unfortunately, much of this
newly available capital tends to flow to stock markets and only a small part to industry. As
a consequence, there is the possibility of overheated stock markets and new speculative
bubbles appearing. In the meantime, businesses face reduced margins and lack of working
capital and this hinders their cash flow. Businesses are also constrained in their access to
capital because the Bank of Russia puts limits on borrowing from abroad. So for the time
being, we have increased liquidity in the stock markets but a lack of liquidity in the real sector.
PwC: Does the situation you describe present a significant stumbling block to economic recovery?
TN: It’s an obstacle to a rapid recovery. Nevertheless, a slow recovery – aided by greater liquidity –
is underway. Hopefully, by the end of 2010 – as surplus liquidity in the stock markets begins to
accumulate – cash will start to flow to the real sector. But this is going to take time.
PwC: Will the capital markets remain cautious even once the crisis is over?
TN: Absolutely.
PwC: Has the financial crisis resulted in any changes to fundamental business economics?
TN: The main problem is the difficulty of sustaining long-term investments. One of reasons
the financial crisis occurred is that we have forgotten what profit means, loosing the profit
philosophy as it is. Instead of thinking in terms of profitability, we think first in terms of revenue,
DDS, or cash flow – and only then do we think of profit. As a result, business development
is often funded not out of profits but through investments using debt or equity finance.
And while it may take 10-12 years to pay back long-term investments, technology often
becomes obsolete after three years. So investment in new technology may actual hinder
profitability. So a question arises: How can companies shift away from development financed
by investment to development financed by profit generation?
PwC: You say that technology rapidly becomes obsolescent. How does your company cope with
that problem?
TN: The new technologies we implement are either purchased outright or developed in-house.
This reduces our costs. For example, we are investing in African coal mines and, at the same
time, acquiring coal mine engineering companies. We also try to limit our investments. We
hope that a well-qualified and efficient team supported by the right technologies, combined
with careful control over investment costs, will result in a profitable enterprise.
Tigran Nersisyan, PwC: Following economic recovery, do you expect consumer demand to return to pre-crisis levels?
President, TN: The demand is likely to raise sharply.
Borodino Group
Continued The philosophy of saving embraced by our parents’ generation is dying out. As a result
demand is likely to rise sharply. Consumer behaviour today is very different from what it was a
decade ago. Today, regardless of their financial position, people want to spend money. Without
loosing traditional Russian care for children’s and grandchildren’s future, today’s culture is
no longer based though on saving to support them. Our mentality has changed and I’m in
no position to say whether that’s for better or worse. We simply have not invented any other
approach to driving economic development than that of growing consumer consumption.
PwC: Within Russia, what industries are likely to take priority in terms of economic development?
TN: I’m 90% sure that in Russia it will be telecommunications. While we tend to claim that we are
a developed country, we still lag far behind Europe and America – maybe by 10-15 years. Also,
the Russian government has announced plans to support the development of the automotive
and nuclear energy industries. With the rise of innovative nuclear and hydrogen-based energy
generation, natural gas consumption will decline.
PwC: Has the financial crisis brought to light problems in Russia’s largely commodity-based
economy?
TN: In Russia, the crisis immediately made it clear where we had been heading for many years.
Our business group consists of companies located in Europe, Asia and, of course, Russia. No
other country has been as deeply affected by the crisis as Russia. Here, everything came to
a halt thus demonstrating that our economy had been focused totally on the oil and energy
sectors. When consumption slumped by 30-40 percent, our economy spiralled. This is why all
funding today, as far as I know, is going to develop the high technology and telecommunication
sectors. Hopefully, we will be able to turn our economy around and develop 21st century
technologies so we won’t have to import them. So far, Russia has failed to achieve this, under
both planned and market economies.
PwC: Has the financial crisis undermined the public’s trust in the private sector?
TN: I, for one, do not share that view. Even before the crisis there were companies that created
Ponzi schemes and sold mystical housing. And there were banks that took deposits and then
failed to repay them. There will always be such companies, crisis or no crisis. So this negative
perception should not be extended to all businesses. A large number of companies – including
ours – had very honest talks with banks to explain that we were ready to account for every
single ruble of borrowed money. And we have paid interest strictly on time, no matter what it
cost. We did our best to fulfil all our obligations to investors and banks. We had offers to sell our
debt for half price. Now, we have a bond loan currently valued at 98%. There are good and bad
people – and with the onset of the crisis, many companies thought they could go back on their
obligations. But the market soon made it clear that obligations should be met. A company’s
prospects hinge only on its reputation and the integrity of its people. One can cheat once, but
you won’t get away with it again. There were issues with rating agencies when companies with
high ratings went under, but this does not mean that the very system of ratings and audit has
lost its way. There is simply no better model on offer. And we have to try using the existing one.
Tigran Nersisyan, PwC: How did the crisis affect your management of the group and its long-term strategy?
President, TN: As a result of the crisis, we’ve learned to team up as a family might do during hard times.
Borodino Group Now, we meet more often to discuss our problems and share concerns. Previously, our group
Continued
managers preferred not to talk about their business problems or even hid them. Now, we
get together to analyse our weaknesses and identify ways to fix them. Also, we have started
calculating our operating costs and focusing on ways to reduce them. And we have come to
value people who think out-of-the-box. All this is producing results; for the fourth consecutive
month, the company has shown growth and our profit has doubled.
PwC: Have these changes been accompanied by modifications in the group’s organisational
structure?
TN: Yes, they have. We have streamlined management of our business units and each has been set
the task of increasing profitability and cutting operating costs.
PwC: Do you think these sorts of changes will be sustained once the crisis is over?
TN: Yes. Our cost reduction effort represents a significant achievement for us and we are going
to continue to work along these lines. I am aware that during the crisis, many companies
first focused on cutting salaries. But we focused on reducing indirect costs – in particular,
we cut our marketing spend. We concluded that between 30-60 percent of our advertising
budgets failed to provide us with any direct benefit because we had not conducted robust
enough budget estimates and budget analysis. We didn’t consider the actual efficiency of our
spending. So, the crisis has its silver lining in the sense that we were forced to identify these
budgetary “leaks” and bring them under control. Going forward, we’re going to scale up our
new expertise and train managers at all levels to apply it.
PwC: So you have learned some valuable lessons from the financial crisis?
TN: Absolutely, the crisis has been a learning experience. It’s also brought us back to earth and
ended our complacency. Take myself, for example. I used to come to the office at 11:00am.
Now I’m back in form. I arrive at the office at 9:00 am and leave at midnight. The crisis does
not allow me to relax even for a second.
PwC: And the crisis has re-engaged top management?

TN: Sure. We are much more actively involved. Top management has taken responsibility for the
most complex areas of the business. For example, we conduct business in Mongolia building
and selling housing. But because Mongolia has no strict requirements for documentation
of business activities, we chose to prepare only rudimentary documentation. But today we
document projects there in detail – every square meter used and every rouble earned. And we
have implemented tight controls over the whole process, from logistics to sales. I believe that
one of the factors underlying the crisis was loss of control.
PwC: Has the financial crisis had particular impacts on specific sectors of your business group?
TN: In terms of sector-specific impacts, I’d point to heavy engineering and machine building.
Before the start of the crisis, customers such as major aircraft, helicopter, and space aviation
manufacturers used to order ready-made machines from us. Recently, these same companies
have started to bring us certain key components and asked us if we could incorporate
their design into our own products. As a result, these companies no longer need highly
compensated technical staff because we take care of the design customization process from
start to finish. In this way, we are able to offer our clients a comprehensive service and reduce
their design and specification costs.
Tigran Nersisyan, PwC: So you have extended your range of customer services?
President, TN: Absolutely. Now when we take part in tenders, we are treated differently because we do not
Borodino Group sell just a machine or an engine, but are able to customise our products to suit a particular
Continued
client. Of course, in doing this we incur additional costs. But customers are happy to cover
those costs because of the significant saving they incur. This results in an interesting and
fruitful cooperation with our customers. In our food operations, 98 percent of our goods are
produced on a full-cycle basis from raw materials to finished goods. Before the crisis, that
figure was 75-76 percent. So, we now control the whole value chain from raw materials to
sales, and this provides us with a significant competitive advantage. In the construction
business that we are actively developing, we build business-class housing in the Kaluga
Region that costs RUB 25,000 per square metre. I’ve read in a newspaper that according to
the Ministry of Economic Development, low-income housing typically costs RUB 25,000 per
sq metre. So, we can now build business-class housing for the same price. This is all the result
of the crisis, which has focused the group on sharpening the way it thinks, calculates, and
designs. Before the crisis, our project budgets provided for 25 percent more reinforcing steel
and concrete because we hedged against project design mistakes. Now, we have switched
to CAD processes and implemented new technologies including ERP – and with the improved
efficiency that this provides we have managed to reduce project planning timelines and lower
costs and material consumption. We keep saying that the Russian economy is non-competitive
due to it use of technologies, materials, and components that have to be imported from Europe
and, in the process, incur punitive exchange rates. But once we get our cost base right, we
believe that we can help turn that situation around.
PwC: Have you managed to continue investing regardless of the difficulties?
TN: The problem with finance is its 22-25 percent interest rate. Regardless of what newspapers say
about state-owned banks, they have not reduced their interest rates. Even with a 16 percent
rate, bank lending fees can amount to 6-7 percent of the principal. Thus, the overall cost
remains 22-23 percent. But we are managing to invest out of own capital. This year, we have
carried out analyses of our various projects and R&D facilities and now have figures that prove
our capability to develop and produce new commercial technologies. By October 2009, we
had contracts signed with companies in Central Asia, Turkmenistan, Kyrgyzstan, and South-
East Asia and North Africa that are willing to buy our technologies. If we hadn’t worked hard all
year, we wouldn’t have had these contracts. And we invested in these new technologies. As to
our construction business, it continues, but at a much slower pace due to lack of liquidity and
current low purchasing power of the population. Likewise, our food business has neither grown
nor shrunk.
PwC: How did the financial crisis effect your workforce requirements?
TN: I can’t tell you that no Russian company laid off qualified staff. The same is true of our
company. But we did our best to retain our specialists, who are always in demand. To be
honest, just as before the crisis, we still face a shortage of highly trained workers, such as IT
specialists, software developers, and experienced marketing staff. Specialists of all kinds are
in great demand. In manufacturing the situation is worse still because we are implementing
new generation technologies that require highly qualified employees. To that point, we’ve
established close ties with institutions of higher education and sponsor vocational colleges so
that we can develop a pipeline of talent. And in an effort to retain key staff we fund employees’
education and training. However, we still face major HR issues. I spend about 40 percent of my
time on HR policy issues both locally and overseas. It’s impossible to reduce costs or material
consumption without new technologies and these new technologies require highly qualified
employees who are hard to come by.
Tigran Nersisyan, PwC: How does your company maintain workforce morale and engagement?
President, TN: In our group of companies we encourage independent thinking. We do not tell people what
Borodino Group to do, nor do we proceed strictly by job descriptions. On the one hand, this makes the act of
Continued
managing more challenging, but on the other, it also makes it more exciting. So, we encourage
people to act independently and get results. We want results, and the pursuit of results is
what motivates our people. Ambitious people who wish to make good soon find their way.
We have many bright young people, because we require youthful energy and enthusiasm.
But our manager ranks are comprised of many different age groups. The largest proportion of
managers over the age of 55 is found in our construction and project design entities. Operation
managers are largely people in their 20s or 30s. People who run our production facilities tend
to be in their 30s and 40s. Our system is well thought-out and accommodates a good mix of
experienced and younger staff.
PwC: What sort of impact will the financial crisis have on regulatory policy?
TN: In 2003, I received my PhD degree for a dissertation on state regulation of the consumer
market. I chose this subject because it was very topical. I believe that regulation should
be subtle and well-balanced because even slight changes in regulatory policies can affect
the economy and society at large. At the start of the financial crisis, we didn’t expect our
bank r egulator – the Bank of Russia – to act as competently as it did. But from October
2008, banking regulation has been very efficient and without drastic U-turns. And it was
this consistent bank sector regulation that has stabilised the situation in manufacturing and
allowed us to ride out the hard times when banks were demanding repayment of all loans
– even those not yet due – and raising interest rates. So the bank sector regulators acted
wisely. But otherwise, I believe the government should not be involved in regulating the
economy. However, today the government – in the form of state-owned banks and government
corporations – is the central player in the Russian economy. So this is a situation where the
government has essentially ceased to be a regulator and act instead as a market player –
which is a far cry from how a market economy should operate. But what gives us hope is
the president’s pledge that the government will soon withdraw from the major banks, and
government corporations will be restructured along market economy lines.
PwC: Should the private sector cooperate with governments in regional development?
TN: Business can and should help, but only to an extent. Since 1995, we have built three plants in
Medyin, which is in the Kaluga region. We faced an acute shortage of human resources and
so decided to build housing to accommodate specialists that we hired in Siberia. We ended
up investing in the construction of manufacturing plants, housing, and related infrastructure. In
my opinion, this is the best sort of cooperation between business and the government, unlike,
for example, paying fees to a local regional authority. That is money down the drain. That just
makes local authorities complacent. I believe that the system should work like this: If you
employ people at your production facilities, you should invest in infrastructure development,
housing, and amenities such as kindergartens and schools. You should also ensure that your
workforce is adequately compensated.
PwC: What kinds of regulation might avert another financial crisis?

TN: I believe that all restrictions on capital movement should be lifted and customs barriers
lowered. These are a serious hindrance. Regulation must be present, but regulation should
create incentives to encourage certain business behaviours, such as those related to corporate
social responsibility. Regulation should be incentive-based. Business should be encouraged to
invest in social assets and environmental protection. Summing it all up, I’d say that regulation
should based on clear and effective laws that are free of judicial corruption
Tigran Nersisyan, PwC: What, if anything, is your company doing to help mitigate the effects of climate change?
President, TN: We have lost markets due to climate change. Before 1997, we had a big share of the Moscow
Borodino Group soft drink market, especially during the warm season from April to July. We used to have huge
Continued
sales over this period. But, for the last ten years Moscow has had very rainy summers and this
has affected out soft drink business. As to our response to climate change, we haven’t yet
addressed this issue in Russia and are not likely to do so in the next decade. We face so many
other issues that climate change is not a priority.
Rethink
Volatility
Reshape
Strategy
Result
Smarter growth
Q&A: Telling the CEO survey story
19910_CEO_Q&A_Print_v1_SB1901.indd 1 19/1/2010 15:26:53

Introduction Contents
Few, if any, business leaders will forget the past 18 months. The global recession was the Q1: How do CEOs view the global economic crisis? 3
most serious many had ever experienced. Setting a smarter course for growth, the
PricewaterhouseCoopers 13th Annual Global CEO Survey, looks at what measures CEOs Q2: How bad did conditions get? 3
are taking in response to recession, how they view the post-crisis business environment
and what changes they are making to adapt their organisations. We surveyed 1,198 business Q3: Has business turned around? 4
leaders from around the globe from September to November 2009 and conducted further
in-depth interviews with 27 CEOs. Q4: Which CEOs are the most confident? 4
What did we learn? Global business leaders had to make dramatic changes to their organisations, Q5: Is the news all good? 5
including reducing headcount, selling off assets and preserving cash. That painful experience
has led many CEOs to rethink their approach to risk in an increasingly volatile world. It’s Q6: How can CEOs be more confident and more worried at the same time? 5
abundantly clear how quickly a contagion can spread, and how damaging it can be. CEOs
now know they need to plan for volatility, so they can see risks coming, sidestep them, and Q7: Isn’t over-regulation always a concern for CEOs? 6
position themselves for what follows.
Q8: Was there anything surprising about what CEOs weren’t worried about? 7
To do that, CEOs have begun to reshape not only their strategies, but also their capabilities.
It takes strategic flexibility to address risk at a deeper level. And it takes organisational agility Q9: How are CEOs positioning to grow in an environment characterised by 7
to respond to volatility. That doesn’t mean CEOs will become risk averse; rather, they may more regulation and more difficult access to capital?
become more deliberate in examining alternatives, formulating a Plan B, and ensuring they
can execute on it. The result, we believe, will be a smarter course for growth, a resilient
Q10: Is that what you mean by a ‘smarter course for growth’? 8
path that will produce a sustainable long-term upside for organisations – along with their
Q11: Does that mean companies are hiring again? 8
shareholders, employees, customers and communities – while accounting for a range of
economic, social and environmental forces that comprise both threats and opportunities.
Q12: If employment picks up, that bodes well for household consumption. 9
Do CEOs expect consumer spending to return?
This document highlights key findings in the 2010 CEO Survey. Please go to
www.pwc.com/ceosurvey to read the full report, the in-depth CEO story (which summarises
Q13: Were reputations damaged by the crisis? 10
CEO views in the words of those we spoke to), the visual story (which graphically illustrates
our detailed findings) and other online tools.
Q14: Does a climate-change strategy affect a company’s reputation? 10
Q15: What are the major lessons learned from the crisis? 11
2 13th Annual Global CEO Survey – Q&A: Telling the CEO survey story

Q1: How do CEOs view the global economic crisis? Q2
More cost-cutting to come in the year ahead
The crisis will serve as a defining event for many CEOs. The recession in developed nations
was the worst many had ever experienced. Cash preservation was paramount as assets were
divested and jobs cut. Restrained consumer spending, rising unemployment, and regulatory Implemented a cost-reduction 88
initiative 69
reforms remain significant concerns. Business leaders are emerging with a healthy respect for
risk, volatility and flexibility and a different view of the growth imperative. 35
Outsourced a business
35
Entered into a new strategic
The big learning point we are all looking for is one that has to do with organisational agility. alliance or joint venture 46
In response to the economic crisis, most businesses took action appropriate to a more
difficult trading environment. But the real trick is how to get the balance right between ‘Insourced’ a previously
outsourced business
23
hunkering down through tough times and investing in a way that will prepare you to make process or function 17
the most of opportunities that begin to materialise, post-recession. That’s the big lesson Divested or spun-off majority 20
– getting the balance right and being sufficiently agile to take advantage of chances for interest in a business or
growth and expansion.
Completed a cross-border 20
Dr. Paul Reynolds, CEO, Telecom Corporation of New Zealand Limited, New Zealand merger or acquisition 30

Q2: How bad did conditions get? 0%
Have initiated in past 12 months Plan to initiate in coming 12 months

It was worse than many expected. In last year’s survey, conducted at the height of the
financial crisis near the end of 2008, 26% of CEOS told us they expected headcount Q: Which, if any, of the following restructuring activities have you initiated in the past 12 months, or do you plan to initiate in the coming 12 months?
Base: All respondents (1,198). Response of ‘None of the above’ and ‘Don’t know/refused’ excluded
reductions over the next 12 months. Over the past year, just under half of CEOs reported job Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010
cuts. Programmes were often conducted at an accelerated pace; no industry was immune.
Cost-cutting initiatives were taken by 88% of CEOs over the past year and 20% divested
a business. Capital positions became more conservative over the course of the year. People are thinking more about cash flow. If it lasts for 10 years, I have to take equipment for
Many described refinancing to push out maturities, reduced borrowing and other measures 10 years. This means that I do not spend 100% of my capital needs now; it means that I spend
to work down debt in anticipation of leaner times. 50% now and 50% in 10 years’ time. This is affecting the strategy on all of our products.
Mikael Mäkinen, President and CEO, Cargotec, Finland

Q3: Has business turned around? Q4: Which CEOs are the most confident?
There’s a definite sense that the worst is over. This year, 31% of CEOs are ‘very confident’ This year, where a CEO is based, and where the company has operations, has a big influence
about achieving revenue growth over the next 12 months, a significant increase from last year. on confidence. Even before the crisis, it was no secret that emerging markets were of vital
Over the longer-term – a three-year period – CEOs are about as confident of their revenue importance for many CEOs, regardless of where they were based. Now, CEOs’ mindsets
prospects as they have ever been in our survey. are also attuned to the uneven rates of economic recovery found around the world. So, for
example, CEOs based in Latin America and Asia are 11 percentage points more likely to
Q3
be confident about their near-term revenue growth than those in North America and 20
percentage points more confident than their Western European peers. In fact, CEOs are
CEO confidence is on the mend
more confident of their companies’ ability to generate revenue than they are of recoveries in
60 their nations’ economies. It suggests they believe companies are strategically positioned to
capture competitive gains in their markets ahead of a broad-based improvement in demand.
3-year prospects
50
12-month revenue
growth prospects Q4
40
CEOs are confident, despite expectations that recovery will not begin until at least the second half of 2010
30
‘Very’ or ‘somewhat confident’ in 12-month revenue growth prospects

20
100
10 29 15
18

80 31
29
0 37 38
2003 2004 2005 2006 2007 2008 2009 2010 24
60
30
29
Q: How would you assess your level of confidence in prospects for the revenue growth of your company over the next 12 months? 33 28
Q: How would you assess your level of confidence in prospects for the revenue growth of your company over the next 3 years? 40 26
36 35
Base: All respondents (2010=1,198; 2009=1,124; 2008=1,150; 2007=1,084, 2005=1,324, 2004=1,386, 2003=989)
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 21 30 22
20 21
Note: 2
006 confidence question was not asked.
18 18 27
13 18 13 16
0 5 3

We know there’s a lot of pent-up demand for our products from [small- to medium-size Europe America Pacific East America
enterprises] and, indeed, new customers and when confidence returns to that SME community, In 2011 In the second half of 2010 In the first half of 2010 Already recovered
when the economies pick up, we’ll see software growth come back into the sector. So, we
remain very confident Q: When do you expect recovery to set in for your nations economy?
Base: 28-442
Paul Walker, Chief Executive, The Sage Group plc, UK Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010
Production but also the consumption of products is shifting to Asia and South America.
It would have taken longer without this event, but now it will happen more quickly.
Mikael Mäkinen, President and CEO, Cargotec, Finland

Q5 Q5: Is the news all good?
Definitely not. CEOs concerns are up across a range of threats to business growth in our
survey. A protracted global recession remains their biggest worry, closely followed by
6 29 42 23 Decline in
concerns about over-regulation. Concerns over protectionist tendencies are also up ten
Protracted global
recession* 19 3 12 43 42 concern from
2009 – 2010
percentage points on last year’s survey. CEOs in Latin America, Central and Eastern Europe,
Over-regulation 12 27 33 27 and Asia are more likely to be concerned about threats centred on globalisation, including
13 31 37 18 exchange rate volatility, protectionism and macro-economic imbalances.
Lack of stability in 9 32 43 16 Decline in
7 20 42 30 concern from
capital markets* 2009 – 2010
14 31 31 23
Low-cost competition
15 37 31 17
I’ve never seen so little consensus amongst the key industry players – whose decisions will
determine what kind of recovery we’re going to have – about the direction they’re taking for the
17 29 35 19
Energy costs
19 30 33 17
next year. Are they going to invest? Are they going to lay off more people? Just as there has
been no consensus about the shape of the recovery, there has been no consensus about how
15 34 35 16
Availability of key skills
16 37 33 13
confident businesses feel.
Protectionist tendencies of 20 30 32 17 Ian Bremmer, President, Eurasia Group, US

national governments 27 33 30 9

from 2009 – 2010
13 39 37 12
Q6: How can CEOs be more confident and
40 34 19 7
more worried at the same time?
31 32 23 12
Scarcity of natural resources
(e.g. raw materials, water, energy) 38 31 21 9 Perhaps because they are addressing their risk management processes, and making the
26 38 26 9
requisite changes to their strategies and capabilities. Survey responses this year signal
Pandemics and other health crises
50 31 12 6 that risk management is becoming a permanent element of the strategic planning process.
24 40 25 10 More CEOs intend to change their risk management process than any other element of
Security of the supply chain
26 40 26 7 their strategy, organisation or business model. And more boards are increasing their
Inadequacy of basic infrastructure 31 35 22 11 engagement with assessing strategic risk than any other item on the boardroom agenda.
(e.g. electricity, water, transport) 39 36 18 7
For many, approaches to risk are moving beyond controls-based risk management to
Terrorism 33 35 21 10 corporate strategy and financial management.
47 32 14 7
0%
2010
* ‘Protracted global recession’ and
‘Lack of stability in capital markets’
Not concerned at all Not very concerned Somewhat concerned Extremely concerned We did not realise that the damage was going to be so great. What inspires me most is that an
were previously ‘Downturn in major
economies’ and ‘disruption of capital 2009 enterprise like ours cannot go through such difficulties by its own efforts or by using a simple form
markets’, respectively. Not concerned at all Not very concerned Somewhat concerned Extremely concerned of protection. Therefore, we are paying more attention to our internal controls and management
mechanisms.
Kong Dong, Chairman, Air China Ltd, China

Q6 are likely areas where more regulation could harm recoveries underway. CEOs also worry that
regulatory approaches designed to deal with perceived problems in the financial sector will
More CEOs are planning a ‘a major change’ to risk management than other elements of their strategy, organisation or
operating model wend their way through the entire economy.
Approach to 15 43 41
managing risk There’s a tendency by government to tar every company with the same brush. Certain
Investment
decisions
18 48 33 regulatory reforms useful and necessary for financial companies – new approaches to risk,
Responding to changing 17 55 26
remuneration, or corporate governance – would clearly be intrusive if applied indiscriminately
consumer purchasing behaviours to business as a whole.
Strategies for 21 50 29
managing talent
Graham Mackay, Chief Executive, SABMiller plc, UK
Organisational structure 23 49 27
(including M&A)
Focus on corporate reputation 33 43 23
and rebuilding trust
Capital structure 37 44 17 Q7
Engagement with your 42 41 16 Only 15% of CEOs worldwide believe their government has reduced the regulatory burden
board of directors
0%
No change Some change A major change Japan 37
Q: In the wake of the economic crisis, to what extent do you anticipate changes to any of the following areas of your company’s strategy, Korea 30
organisation or operating model?
Base: All respondents (1,198) China & Hong Kong 27

Italy 16
Note: R
Global 15
Spain 15
Now, more than ever, the company and its board have become more sophisticated in
Germany 13
our analysis of risk. It’s an agenda item at all of our board meetings. And we continue not
only to get better at quantifying risk, but also in building right the kind of culture that can India 13
appropriately manage risk over the short- and long-term. Canada 13
Angela F. Braly, President and CEO, WellPoint Inc., US Russia 13
Mexico 13
Q7: Isn’t over-regulation always a concern for CEOs? France 11
Netherlands 7
It is and our surveys have consistently reflected that. CEOs expect more changes to the
Australia 7
regulatory environment are still to come, but this year’s survey revealed both optimism and
pessimism about those reforms. On the one hand, a majority of CEOs now think businesses UK 3
and governments successfully can mitigate systemic risk. This is new and possibly the result
US 2
of the measures governments took to stabilise the banking sector and a recognition that some
Brazil 0
issues are beyond the scope of a company to mitigate by itself. CEOs also favour better
0%
enforcement over new regulation in a number of areas, including financial sector stability.
At the same time, there is an increase in the negative perceptions of the success of Q: Thinking about the role of Government in the country in which you operate, how much do you agree or disagree with the following
statements? % who ‘agree’ or ‘strongly agree’ with the statement, ‘The government has reduced the regulatory burden on corporations’.
government intervention with regards to a wide range of issues. Areas where CEOs are more Base: All respondents (30-1,198).
clearly opposed to new regulations – in innovation, foreign investment and access to capital – Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 Note: Respondents who ‘agree’ or ‘strongly agree’

Q8: Was there anything surprising about what
To the extent that changes in the capital markets dictate a more conservative approach to
CEOs weren’t worried about? one’s balance sheets, I would say that every business in the world has been affected. We plan
In the middle of a financial crisis and following billion-dollar bank bailouts, it may come as to run our gearing at a significantly lower level than we have traditionally. That is not to say that
a surprise that an inability to finance growth did not score among the top-ten concerns for we ran a high-risk strategy previously. But we are feeling as a result of market uncertainties
CEOs globally. But fund-raising pressures typically lag a recovery and capital spending that it is better to be more conservative going forward.
remains subdued in most economies. Moreover, many companies have completed a round Andrew Ferrier, CEO, Fonterra Co-operative Group, New Zealand
of cost cuts and moved to refinance at low interest rates. Currently, companies are relying
heavily on internally-generated cash flow to finance growth.
Look ahead, however, and financing could become a more pressing issue. If liquidity was
Q9: How are CEOs positioning to grow in an environment
‘last year’s problem’, the survey responses suggest that access to capital is a strong contender characterised by more regulation and more difficult
for ‘next year’s problem’ – meaning it will rise in importance as growth spreads in 2010 and access to capital?
beyond, and companies seek more funds to invest. Over half of CEOs expect access to bank
They are focusing on the markets they know best and being more cautious. The largest proportion
financing and credit will become more difficult after the recovery sets in. Forty-five percent
of CEOs (38%) is positioning companies for better penetration of their existing markets. Such
anticipate more difficult access to capital through the debt markets. CEOs are striving to keep
an approach is expected when capital and resources are scarce and business managers have
debt low and liquidity cushions ample: 61% are expecting to change capital structures as
fewer margins for error. But they’re being careful about rationalising their expectations for
a result of the crisis.
growth in different markets as countries emerge from the crisis. And they’re being careful about
risk management and financial health, so they can weather aftershocks from the crisis. They’re
Q8 watching their cost structures carefully, but still investing in areas they deem vital. Really, it’s an
Access to capital is expected to become more difficult extension of the balancing act between short-term necessities and long-term factors that we
found in last year’s survey.
Compliance and Same as before the crisis
reporting to meet 2 10 39 15 28
capital markets requirements Q9
Access to bank
financing and credit
5 16 41 10 26 Existing markets remain the focus for growth
Access to capital
through debt markets
4 17 38 7 29
Access to capital 4 19 32 5 35 Better penetration of existing markets 38

through equity markets
Access to capital from alternative
investors (e.g. private equity or 3 20 30 7 32
New product development 20
sovereign wealth funds)
0%
Mergers and acquisitions 14

Q: For each of the following, how do you expect conditions to change after economic recovery sets in, compared with before the economic
crisis? New joint ventures and/or 11
Base: All respondents (1,198) strategic alliances
0%
Note: R
Q: Which one of the following potential opportunities for business growth do you see as the main opportunity to grow your business in the
next 12 months?

Q10: Is that what you mean by a ‘smarter course for growth’?
We did our best to retain our specialists, who are always in demand. To be honest, just as
That’s part of it. The smarter course for growth involves a better understanding of the before the crisis, we still face a shortage of highly trained workers, such as IT specialists,
consequences of risk, as we’ve talked about, and rationalising growth and investment software developers, and experienced marketing staff. Specialists of all kinds are in great
plans to fit the smarter course. CEOs need to make tough choices about investments in demand. In manufacturing the situation is worse still because we are implementing new
an environment of tighter capital. More than three-quarters of CEOs plan more cost-cutting generation technologies that require highly qualified employees.
initiatives in the coming three years. Yet, while only 40% expect to increase their capital Tigran Nersisyan, President, Borodino Group, Russian Federation
investments (suggesting there’s still over-capacity in many sectors), there are some areas
that CEOs are not paring back, notably, leadership and talent development.
Q10
Q11: Does that mean companies are hiring again?
Absolutely. Our survey shows that more companies will be adding to their workforces (39%)
than will be cutting (25%) over the next 12 months. Companies in India, China and Brazil are
No change
leading in increasing jobs. CEOs are concerned about their governments’ abilities to provide
Initiatives to realise 13 41 37 17
cost efficiencies a skilled workforce, and there is emerging evidence of a growing ‘talent gap’ in a number of
Leadership and
talent development
3 47 21 27 regions – where demand for key skills over the coming decade will exceed the available supply.
Organic growth 1 6 46 18 28 That’s why talent and leadership development are so important.
programmes
Strategic technology 1 6 43 16 32
infrastructure or applications
R&D and new
product innovation
2 6 41 16 32 What you do in this environment is add to your talent base and reposition your talent to be
Advertising and 3 12 35 7 42
more suited for the challenges that are ahead. Even though we’ve had a nine to 10 percent
brand-building reduction in terms of staffing, we’ve also had increases to invest in those markets and
Capital
investments
3 16 32 8 39
resources that are necessary to be competitive.
0%
Michael I. Roth, Chairman and CEO, Interpublic Group, US
Q: How do you plan to change your long-term investment decisions in the following areas over the next 3 years as a result of the
economic crisis?
Note: R

Q11a Q11b Q12: If employment picks up, that bodes well for
Where are jobs being added? Who is adding jobs? household consumption. Do CEOs expect
consumer spending to return?
Brazil 27 7 27 Banking & capital markets 20 16 12
Important shifts in consumer behaviours may be on their way: 81% of CEOs expect some
India 23 13 23 Business & professional
services 14 10 21 change to consumer behaviour and almost half cite a permanent shift in consumer spending
China & Hong Kong 23 17 13 Technology 15 10 17
and behaviour as a threat to their business growth prospects. It depends on the market, of
course. The concern is highest amongst CEOs based in North America, Asia-Pacific and
Korea 30 17 3 Engineering & construction 23 15 4
Africa. The survey shows that 64% of CEOs sense a shift in consumers’ preferences to
Canada 18 15 15 Industrial manufacturing 19 9 13 associate with environmentally and socially responsible businesses.
Australia 30 7 10 Insurance 21 4 15
Q12a Q12b
UK 14 9 19 Retail & distributive wholesale 21 14 5
Technology, entertainment, retail and consumer goods …and they are likely to be changing their strategies in response
US 25 7 7
Global 20 10 9 companies are likely to be concerned about permanent
shifts in consumer behaviour...
Chemicals 24 15
Global 20 10 9
Consumer goods 23 7 8 Technology 66 94 Entertainment & media
Russia 17 13 7
Transportation & logistics 21 10 7 Retail & distributive wholesale 64 91 Retail & distributive wholesale
Japan 29 8
Pharmaceuticals/life science 25 10 3 Entertainment & media 60 90 Insurance
Mexico 23 10 3
Energy 15 15 6 Consumer goods 55 89 Consumer goods
Netherlands 20 7 7
Utilities 21 5 7 Transportation & logistics 54 85 Technology
France 14 5 11
Automotive 22 4 4 Chemicals 52 83 Banking & capital markets
Italy 18 11
Entertainment & media 23 3 3 Industrial manufacturing 49 83 Chemicals
Germany 14 3 10
Metals 12 3 12 Global 48 81 Global
Spain 6 3 0%
Automotive 48 80 Automotive
0% Increase by less than 5% Increase by 5-8% Increase by more than 8%
Insurance 46 79 Metals
Q: What do you expect to happen to headcount in your Energy 44 78 Pharmaceuticals/life sciences
organisation globally over the next 12 months?
Q: What do you expect to happen to headcount in your Base: All respondents (33-1,198)
organisation globally over the next 12 months? Metals 42 76 Engineering & construction
Business & professional services 40 75 Transportation & logistics
Pharmaceutical/life sciences 38 74 Industrial manufacturing
Banking & capital markets 37 71 Utilities
Engineering & construction 37 71 Energy
Utilities 26 69 Business & professional services

0% 0%
Q: How concerned are you about the following potential threats to Q: In the wake of the economic crisis, to what extent do you
your business growth prospects related to or emerging from the anticipate changes to any of the following areas of your
current economic crisis? % ‘extremely concerned’ or ‘somewhat company’s strategy, organisation or operating model?
concerned’ about ‘permanent shifts in consumer behaviour’. Base: All respondents (33-1,198)
Base: All respondents (33-1,198) Note: Respondents who stated ‘some change’ or ‘a major change’ to
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 their strategy, organisation or operating model in response to
changing consumer purchasing behaviours

Q13: Were reputations damaged by the crisis? Public trust is a real issue for big business, not just in the United States, but globally.
Perhaps not that broadly, using public trust as a measure of reputation. Most business leaders I’ve been through a couple of turnarounds now, and my philosophy on that is pretty
expect the post-crisis public trust issue remains firmly with banks and isolated to countries straightforward, and that is transparency. If all the constituents, whether they be investors
that experienced the worst banking crises. And CEOs are actively taking steps to address or employees, are aware of what’s going on and they feel that you’re being transparent with
public trust in different ways: Of those who say their industry has experienced a decline in them, they give you some slack. It’s those companies that are very close to the vest that
trust, a majority plans to participate in industry initiatives or engage in dialogue with regulators. leads to this type of distrust. Of course, governance is critical and I believe communicating
Overall, the financial services companies are the most active in adopting a variety of strategies is key. I have open dialogue and an open door. That lends itself to trust
to help rebuild trust. Michael I. Roth, Chairman and CEO, Interpublic Group, US
Q13
Public trust is down in financial services and automotive, but much less elsewhere Q14: Does a climate-change strategy affect
a company’s reputation?
Banking & 35 26 13 4
capital markets Interestingly, climate change raised its position on the CEO agenda despite the severity of the
Insurance 4 42 19 4 recession. Among CEOs who had climate-change strategies in place, more maintained or
Automotive 4 34 10 6 even increased investment in their climate strategies than reined in spending over the past 12
Business &
months. Corporate responses to climate change are linked to government policy and regulatory
17 17 10 2
professional services implications: 61% of CEOs were preparing for the impacts of climate-change initiatives such as
Industrial 3 23 12 3
manufacturing emissions trading or carbon taxes, despite the lack of clear policy signals from governments.
Global 8 18 15 4
Entertainment 6 20 11 3 Q14
& media
Engineering 4 19 19 4
& construction
Transportation 6 16 21 4
& logistics Did your company have a climate If yes, how did the crisis impact
Energy 3 18 9 3
Don’t know
Metals 3 18 15 6
3%
Retail & distributive 9 9 9 3
wholesale Had no effect on investment 61
Pharmaceuticals/ 18 18
life sciences Yes Delayed investment in climate change strategy 13
45% 52%
Consumer 4 11 18 3
goods
Utilities 2 7 14 7
0%
Chemicals 4 20 15
0% Q: Thinking back one year ago, did your company have a strategy to respond to the challenges posed by climate change?
Significant fall in public trust Slight fall in public trust Slight rise in public trust Significant rise in public trust Base: All respondents (1,198)

Note: R
esponses of ‘Public trust stayed the same’, ‘Don’t know/Refused’ excluded

Nearly two-thirds of CEOs in Western Europe, Asia-Pacific and Latin America expect a
reputational advantage from their climate strategies, so CEOs are attuned to the shift in public ‘This crisis came as a nasty surprise for most businesses and we need to be aware that it
perceptions of climate change and corporate responsibility. Yet, CEOs are also beginning to can happen again.’
build a broader case for sustainability programmes. More CEOs expect climate change will
lead to new products and services for their companies than those who worry that climate ‘How much impact external influences have on strategy and organisation.’
change entails a significant expense, for example.
‘The importance of risk management at the extreme ends and in all that one does.
Keep your core business and start other businesses only when you fully understand them...’
Our biggest concern is that consumers will choose not to buy our brands because we have
not done the right thing. But having done the right thing, it is invigorating to see how that
can ignite the imagination of our employees and the communities in which we operate. It ‘We should have planned better and not just spent when making major profits. We should
also affords us the opportunity to get out ahead of regulation. have made better expansion plans as an investment; not throwing money away on
luxury goods.’
Paul S. Walsh, Chief Executive, Diageo plc, UK
‘To react on time, to be on top of things continuously and avoid being complacent,
especially during the successful years. To keep up with what is coming and not to linger in
the past.’
Q15: What are the major lessons learned from the crisis?
CEOs are attempting to strengthen the resilience of their organizations and yet remain attuned ‘This crisis has helped to better understand where the realities of business and industry are.
to the opportunities emerging. It’s a difficult balancing act, as attested by the apparent We were on an artificial model, a leverage-based system. Now we’re back to basics.’
contradictions they conveyed. Lessons learned from the financial crisis revolve chiefly around
gaining more control over these newly appreciated vulnerabilities, internal and external.
‘Diversification, having more than one product and having product flexibility. Understand the
processes of the delivery chain and your customers.’
That means gaining longer-term foresight, while improving the ability to react at a moment’s
notice. It also means incurring less financial risk to improve the resilience of the company,
while maintaining investments in vital strategic building blocks. Managing through these ‘You need to consistently review your business processes, even in times of high growth, so
paradoxes is the key to executing a smarter course for growth. that when an economic crisis hits, you can react swiftly and with purpose.’
We asked all 1,198 CEOs in our survey to describe, anonymously, what lessons they are ‘The crisis stemmed from excessive profit-making and has once again made clear ‘there
taking away from the crisis. Their responses were illuminating so we’ve included 9 lessons is no such thing as a free lunch.’ We should return to the basic and focus on value-based
that illustrate how leaders intend to set a course for smarter growth, including their new management.’
understanding of the nature of risk and the changes to strategy and the organisation that
will be needed to respond.
For further information, please contact:

Sophie Lambin
Director of Global Thought Leadership
+44 20 7213 3160
sophie.lambin@uk.pwc.com

pwc.com/ceosurvey
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Rethink
State-owned
Reshape
Smart regulation
Result
Mutual
prosperity
Rethinking and reshaping the business environment:
Government and the global CEO
Foreword
Welcome to ‘Rethinking and Reshaping the business environment: Government and
the Global CEO’ in which we assess the changing relationship between government
and business as the world emerges from crisis and sets out on the road to recovery.
We have again extended and deepened the research for PricewatehouseCoopers’

13th Annual Global CEO Survey by including a selection of interviews with senior
decision-makers in governmental organisations across the world. Our aim in doing
this − and in publishing the findings here − is to understand better the implications
for government policy of the views of CEOs (an increasing number of them
in companies with some form of government backing) as we emerge from
troubled times.
As such, we believe that this report represents a further significant contribution to

mutual understanding and productive future relationships between the public and
private sectors.
‘A slow Spring’
Business confidence is recovering, after a dramatic fall in 2008, with government fiscal stimulus being critical to this recovery.
But CEOs highlight some major challenges in this year’s Survey, not least of which are fears of a protracted global recession
and over-regulation with worries about protectionism also rising rapidly. And CEOs are responding, by cutting costs and
reducing staffing whilst focusing much more on managing risk.
The ‘Great Recession’ has also spurred unprecedented levels of government intervention in business, particularly in financial
services, and highlighted the importance of government’s role in addressing global and systemic risks. Indeed, a remarkable
feature since our last Survey is the degree to which business and government have become increasingly co-dependent –
with one in seven companies in our Survey now having some form of government backing.
Restoring confidence, re-building trust

So what does this mean for government? Whilst CEOs battle to restore their relationship with consumers as well as
regulators, trust in government’s brand, whether at international, national, regional or city levels, is perceived by the
government officials we interviewed to have survived. Indeed, government intervention has been essential to help
restore public confidence, particularly in the banking sector, a fact recognised by the CEOs we interviewed.
In our view, the increased optimism that business and government can overcome systemic risks is the most important
message from business in this year’s Survey. There remains, however, uncertainty amongst CEOs about government’s
longer term role in shaping, and being an active part of, the business environment. How far has government changed
the rules of the game forever?
2 Government and the Global CEO

Taking off
Fixing the financial system, managing publicly owned stakes in companies, coordinating better internationally on global
issues such as climate change, and attending to long-standing problems in healthcare, infrastructure and other areas all
mean significant change for nations, and will require increased collaboration between the public and private sector.
Governments need to continue to invest in, and strategically manage, the ‘capitals’ needed by any society for long-term
prosperity – financial, intellectual, social, environmental, technical and political capital. And they must increasingly
collaborate cross-border to build joint capitals ranging from intelligent transport systems to international energy
management, and do so in a way that is sustainable and does not mortgage the future.
This report sets out the views of CEOs and of government officials as the world sets off down a new runway to growth.
It considers the implications of the post-crisis environment for governments and how they must act in their different roles:
as owners of businesses; as major debtors internationally; and as smarter, more collaborative regulators. And it considers
the role of the G20 as the new forum for mitigating global risks and putting in place policies and mechanisms for
collaboration that are appropriate for the challenges of global public risk management in the 21st century.
Finally, we would like to thank not only 1,198 company leaders from over 50 countries who shared their views with us for the
CEO Survey, but also the government officials who took the time to share their thoughts with us. We are grateful to them for
their cooperation and frank insights. We look forward to a continuing and fruitful dialogue on how to create the society and
government of the future for the citizens of tomorrow today, in a trusted, sustainable and more collaborative society.
Jan Sturesson & Carter Pate

Global Government and Public Services Co-Leaders
PricewaterhouseCoopers LLP
pwc.com/ceosurvey
This year the 13th Annual Global CEO Survey website contains new, interactive tools, which allow users to customise
data and charts.
• View an interactive compilation of video, key quotes and transcripts at pwc.com/ceosurvey/indepth.
• Examine the data from every angle – by business issue, region and industry sector at pwc.com/ceosurvey/thestory.
• Look at the industry summaries – a complete picture of the issues at the heart of each industry.
• Hand-pick the most relevant information and create a custom report.
Contents
Summary 05
Global recovery, global risks 08
Government as strategic game-changer? 15
The smarter, more collaborative regulator 21
The outlook for policy harmonisation 27
Government as debtor 31
Final thoughts: Governments as intelligent Investors 36
Acknowledgements 37
Key contacts 38

Summary
Business confidence is returning with 81% of CEOs showing some measure of confidence on revenue
growth prospects over the next 12 months even though 60% expect national economic recoveries only
in the second half of 2010 or later. CEOs in BRIC economies, and in large companies, are by far
the most confident. But CEOs still have many concerns – of protracted recession (65%), of
over-regulation (60%), of unstable capital markets (59%) and as yet unfounded fears of a wave
of protectionism (49%).
Yet the unprecedented global coordination by governments Leaders in the public and private sectors know that they
to stabilise the financial system last year has drawn qualified have important, and different, roles to play if systemic risks
praise from business: are to be mitigated successfully. In our view, this year’s
Survey highlights the need for governments to build on this
• CEOs have reversed their opinions from last year about platform and focus on creating and delivering value in their
whether businesses and governments can successfully different roles:
mitigate systemic risk – a majority (57%) now think they
can (compared with 46% last year). • as larger owners of business: with one in seven of CEOs
surveyed having some form of government backing (up
• Almost half of CEOs interviewed (49%) also believe that
from one in ten last year), governments are altering the
government ownership helps to stabilise an industry
business landscape and becoming strategic ‘game-
during a crisis.
changers’ as owners, customers, competitors and
regulators to different degrees in different markets.
This optimism for international coordination, and for
more effective governmental collaboration with business, • as credible debtors: with the rapid rise in budget deficits
is one of the major findings in the survey this year, one which in many economies, particularly developed G20
we believe can reset the relationship between business economies (with debt to GDP ratios projected to rise to
and government. 118% by 2014), credible plans are needed now setting out
the exit strategy from government stimulus packages and
Clearly, such collaboration is not easy – the recent subsequent actions to turn the tide of debt. Tough
Copenhagen climate change talks demonstrated the decisions involving increasing tax revenues and reducing
pressures created by competing national interests when spending will be critical to restoring the public finances
trying to negotiate global frameworks. Leaders in back to health. Failing to fix these fiscal deficits, by
government are well aware of the challenges that lie ahead contrast, would be a recipe for persistently high interest
whilst business also worries about the consequences, as rates, more volatile currencies and a less certain environment
shown by the rise in CEO concerns of protectionism in our for business investment, employment and growth.
Survey (up ten percentage points from last year).
• as more collaborative, smarter regulators of business:
with six in ten CEOs concerned about over-regulation (and
a rise of 9% of those ‘extremely concerned’ from last
year), and a significant increase in CEO perceptions of
rising regulatory burdens (67%, compared with 57% last
year), dialogue and closer working between business and
government – co-design – is needed more than ever to
achieve smarter regulation.
Strategic ‘game-changers’ Credible debtors
More than two thirds of the CEOs surveyed have significant With budget deficits rising in most economies, and with
concerns about long term state involvement in business with critics of government policy challenging the cost and
important implications for government policies on effficiency of economic stimulus programmes in creating
competition and fair markets. Despite the antipathy of most jobs amid estimates by some commentators of high costs
CEOs to state ownership, including a majority of the CEOs per job created, governments are facing a conundrum – how
surveyed with government backing, there are also times to deal with ever more debt at a time when the needs of
when government intervention is necessary to stabilise businesses and citizens for support are rising, with the
industries as CEOs also largely agree. economic downturn resulting in greater numbers of
unemployed and disadvantaged people needing state
Given the increase in government stakes in business – an assistance. The lesson from history is that a focus on
extension of last year’s trend – the challenge for government efficiency is rarely enough to turn around major fiscal deficits
now is to make decisions on how long they will retain their – governments must transform their approach and seek
stakes in business and, for those that it is decided should radically new ways of doing things. There is a need to revisit
return to the private sector, set out their exit strategy the role of government, stop some activities, prioritise some
alongside a realistic timetable. areas over others and re-design service delivery if radical
cuts are to be achieved.
Whether it is ideologically or economically driven,
governments will still retain some stakes in businesses for Sustainable solutions require political will and ownership at
the foreseeable future. For instance, in our report ‘Back to the highest level. This will, in our view, entail a combination
the Future’, which focused on the relationship between of tax rises and spending cuts, where the decisions on both
government and financial services, we anticipated that the are guided by the impacts on economic growth and social
complexity of individual financial institutions’ situations, outcomes – progressive austerity is the order of the day. But,
difficult market conditions and an unattractive disposal as any business or family household knows, balancing
environment will combine to make the possibility of early budgets still requires tough choices and a robust, evidence-
government exit from their stakes in the private sector highly based approach to prioritisation which balances the relative
unlikely, perhaps taking five to seven years or more before importance of government programmes with the ability of
governments are able to fully divest of their stakes and government to deliver.
related guarantees.
In the interim, clear objectives and governance Smarter, more collaborative regulators
arrangements are needed to ensure governments act as The burden of regulation continues to grow in the eyes of
good owners and manage carefully the potential conflicts CEOs – two thirds of CEOs do not believe governments have
arising from their distinct roles as owners/shareholders, reduced their regulatory burdens – and business is also still
acting on behalf of taxpayers, and supervisors/regulators, seemingly unconvinced by government’s track record on
acting on behalf of consumers and businesses. achievement of its priorities on issues such as infrastructure,
skills development and climate change.
Yet there is still a desire for collaboration to achieve a

win:win for business and government when it comes to
smartening regulation. This is particularly critical at the
current point in the economic cycle when governments must
beware of imposing regulations which stifle innovation,
competitiveness and the growth of jobs – the call from
business this year is for a combination of less regulation in
areas which stifle competitiveness (like access to capital)
and better enforcement of existing regulations in other areas
(such as financial sector stability).

This year, we went further and asked CEOs and government Final thoughts:
officials how best to achieve the goal of smarter regulation. Governments as intelligent investors
The clear response was for dialogue and closer working
between business and government – co-design. Business concern is currently focusing, rightly, on protracted
recession. However, CEOs and governments around the
Clearly, achieving a smarter approach to regulation world need to look forward. Governments must act as
nationally is a challenge – whether this can be achieved intelligent investors: for growth to take off, governments at
globally is even more open to question. Whilst harmonisation all levels must invest strategically and sustainably in the
of regulatory approaches and increased collaboration is various ‘capitals’ needed by any society for long-term
in vogue, with a desire expressed by both business and prosperity, with the priority being projects with a high social
government for a more systemic approach to tackling global and economic return, which will assist private sector wealth
risks, we have found little desire amongst business or creation, particularly in infrastructure. Equally, governments
government for new supranational regulatory institutions. should be wary of cutting investment plans to balance the
books – this will not solve structural fiscal deficits, and will
There is no doubt that much stronger global governance only serve to solve today’s problem at the expense of
is needed to safeguard the fundamentals of the world creating new ones for tomorrow.
economy. The G20 is evidently seen by CEOs as the key
forum for collaboration, although whether it has the capacity Most importantly, governments must continue to re-build
and cohesiveness to make a real difference is as yet confidence and public trust, reduce uncertainty further
untested, with a number of the reforms proposed at recent through intelligent and authentic leadership and vision and
meetings yet to be fully followed through. As such, we create policies and mechanisms for collaboration that are
believe that more needs to be done to strengthen its appropriate for today’s global flows of capital. Public sector
capacity for effective decision-making and follow-through leaders must shift gear, from being reactive to events to
by reforming the supporting infrastructure, including global being both proactive and interactive, with business and
organisations such as the IMF and the World Bank. society. Governments must seize the opportunity to chart
a way ahead, investing in the future as the global economy
takes off towards growth.
Global recovery, global risks
PwC’s 13th Annual Global CEO Survey occurred as the global economy began to recover, with many
countries past the worst of the recession. However, whilst confidence is returning there is also a
heightened awareness of risks, as identified both by the 1,198 business leaders worldwide surveyed
as well as through our discussions with a selection of government leaders.
Light at the end of the tunnel

Business confidence is critical to economic recovery given So, there is light at the end of the tunnel. The majority (72%)
the impacts on investment and jobs, so the views of CEOs of CEOs anticipate recovery for their industry before the end
are perhaps of greater interest to government now than for of 2010 with CEOs from all industry sectors expecting to
many years. We were therefore heartened to find that CEOs recover within a similar timeframe, even financial services
were more confident in this year’s Survey but nonetheless (Figure 2). Recovery for countries is also expected before the
cautious about revenue prospects (Figure 1): overall, 81% end of 2010, but fewer CEOs (13%) believe that recovery has
of CEOs show some measure of confidence – responding already set in and 60% expect national economic recoveries
‘somewhat confident’ or ‘very confident’ – on revenue only in the second half of 2010 or later. Almost half (44%) of
growth prospects over the next 12 months, with almost a CEOs in BRIC1 countries believe their countries have already
third (31%) of CEOs ‘very confident’, in line with expectations experienced recovery. Recovery in G8 nations is expected
for a moderate recovery. While CEOs are somewhat more to take longer.
confident in their company’s ability to generate revenue
growth in the near-term, they are decidedly more confident
over the longer-term, defined as a three-year time horizon.
01 02
Confidence returns Expectations of recovery for industries and countries
60
Already recovered or 23
recovery expected before
50 the end of 2009 13
18
40 In the first half of 2010

21
30 31
31
20
24
In 2011
29
10
5
Don’t know/Refused
0 5
2004 2005 2006 2007 2008 2009 2010

0% 10 20 30 40 50 60 70 80 90 100
12 months 3 years Industry Nation’s Economy
Ref: Q1a and Q1b. How would you assess your level of confidence in prospects for
the revenue growth of your company over the next 12 months and 3 years? Ref: Q1c. When do you expect recovery to set in for your industry?
Yearly comparison. Q1d. When do you expect recovery to set in for your nations’s economy?
Base: All respondents (2009 = 1,198; 2008 = 1,124; 2007= 1,150; 2006 =1,084; Base: All respondents (1,198)
2004 = 1,324; 2003 = 1,386). N.B. Recovery is defined as stable and steady economic growth.
Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010 Source: PricewaterhouseCoopers 13th Annual Global CEO Survey 2010
1 Brazil, Russia, India and China

Size and place count Yet we’re all more worried now
Confidence and recovery expectations are tied to geography Notwithstanding the return of confidence, particularly in the
– where the CEO is based – and the size of the company. longer term, CEOs have a whole host of concerns which they
A distinctive split emerged between CEOs based in the believe are a threat to their growth prospects (Figure 3). For
G8 developed economies and those based in the other all CEOs, there is a level of unease with the broader forces
members of the G20, including faster-growing China, India underpinning the relative strength of recoveries around the
and Brazil. CEOs in the developed economies were far world. They are more concerned about a number of external
more cautious on near-term revenue prospects, with 23% threats to business growth than they were in the previous
‘very confident’ versus 42% of CEOs in newer member G20 year’s survey as many pull away from survival mode and a
nations. BRIC companies are by far the most optimistic over singular focus on the crisis.
the short and longer-term, whilst CEOs in G8 countries have
the lowest degree of confidence, particularly over the short- The top three business risks this year are also top of the
term. The highest levels of confidence also emerge from agenda for many governments:
CEOs from the largest firms (defined as having revenue of
• Protracted global recession, where almost two thirds
over $10 billion a year).
(65%) of CEOs are extremely or somewhat concerned
especially in Asia-Pacific (77%); indeed many of our
Two-speed recovery government interviewees like Shelly Jamieson, Secretary
A majority of CEOs also expect recovery to set in for their of the Cabinet and Head of the Ontario Public Service in
industries by the second half of 2010. But CEOs believe Canada expect a ‘slow spring’ believing the worst is
recovery for G8 nations is likely to occur much later than behind us but expecting a gradual recovery to moderate
in the other G20 countries and non-G20 countries: 54% growth.
of CEOs based in the wider G20 group of nations expect • Over-regulation, with the highest number of CEOs
recovery to set in by the first half of 2010 compared to 26% extremely concerned (27%, compared with 18% last year)
of CEOs in the G8 nations. For instance, China’s growth for any risk and especially in Latin America (75%), perhaps
accelerated over the course of 2009 and is likely to exceed fearing a government reaction to perceived failings by
the government’s target of 8% according to IMF estimates. business leading to global recession.
In comparison, the output of developed economies is
projected to have declined by 3.4% in 20092. This reflects • Lack of stability in capital markets, with 59% of CEOs
economic reality and is re-inforced by the views from our somewhat or extremely concerned, especially in Asia
government interviews where Asia is seen as a particular Pacific (66%). This is again mirrored by our government
growth engine. interviewees who were worried about the continuing
volatility of capital flows (and access to capital) and the
possibility of as yet unseen problems emerging in the
banking sector.
CEOs from the G20 economies outside the G8 are also

the most aware of threats to business growth prospects;
they are more concerned about over-regulation, low-cost
competition, currency volatility and energy costs. This year’s
Survey also, for the first time, has separate analysis for
Africa which reveals that CEOs in this continent are most
concerned about energy costs and the availability of skills
(80% somewhat or extremely concerned about both of
these threats) closely followed by the inadequacy of basic
infrastructure (78%).
2 IMF “October World Economic Outlook (WEO),” released 1 October, 2009. (http://www.imf.org/external/pubs/ft/survey/so/2009/RES100109A.htm)
03
Potential threats to business prospects
Don’t Know/Refused
Protracted global recession -6 -29 42 23 0
Over-regulation -12 -27 33 27 1
Lack of stability in capital markets -9 -32 43 16 1
Exchange rate volatility -15 -27 35 23 0
Low-cost competition -14 -31 31 23 0
Energy costs -17 -29 35 19 1
Macroeconomic imbalances (e.g. trade or fiscal) -10 -35 40 14 1
Availability of key skills -15 -34 35 16 1
Protectionist tendencies of national governments -20 -30 32 17 1
Permanent shift in consumer spending and behaviours -17 -34 33 16 1
0%
Ref: Q3a and Q3b. How concerned are you about the following potential threats to your business growth prospects?
Base: All respondents (1,198).
The rise of protectionism? is about as open for trade today as it was before the crisis
started.” At most, post-crisis trade restrictions should
There is also a significant increase in concerns about the rise
amount to 1% of world merchandise trade, it said3.
of protectionism (Figure 4), with 49% of CEOs somewhat or
very concerned about governments’ protectionist tendencies Other significant increases in concerns featured climate
(up from 39% last year). This is especially the case in Latin change (though less so for North America), pandemics
America, where protectionism is second only behind and other health crises – again of concern to governments.
over-regulation (70% compared with 75%), and across Indeed our government interviewees cited further specific
the BRIC economies (63% of CEOs somewhat or extremely concerns over environmental and natural resource
concerned). In Latin America several countries adopted degradation and depletion, air and water pollution,
measures to increase tariff barriers on certain imports commodity price pressure and increasingly volatile weather
as the crisis unfolded, but this trend is rising across patterns.
all regions.
However, alarmist scenarios of protectionist trade barriers

Environmental degradation and the negative effects of
largely failed to materialise in 2009: the World Trade
climate change have worsened and could become even
Organisation (WTO) noted in its annual report released in
more pronounced in the coming years. Economic growth
November that whilst there has been slippage on trade
is necessary for poverty reduction… However, economic
policy in most of the G20 countries, “the world economy
growth must also be environmentally sustainable.
Haruhiko Kuroda
President, Asian Development Bank
pwc.com/ceowsurvey
3 Overview of developments in the international trading environment”, Part A, Annual Report by the WTO Director-General.
(http://www.wto.org/english/news_e/news09_e/wt_tpr_ov_12_a_e.doc)

04
Threats to revenue growth – Percentage change 09/10
2010 2009 % change 09/10

% concerned % concerned
Over-regulation 60 55 +5%
Protectionist tendencies of national governments 49 39 +10%
Inflation 40 49 -9%
Energy costs 53 50 +3%
Low cost competition 54 48 +6%
Availability of key skills 51 46 +5%
Climate change 37 26 +11%
Scarcity of natural resources 35 30 +5%
Security of the supply chain 34 33 +1%
Pandemics and other health crises 35 18 +17%
Terrorism 30 21 +9%
Inadequacy of basis infrastructure 33 25 +8%
Increase of 10% or more Increase of 1% -9% No change or decrease
Note: Comparison of concerns only maps concerns that were asked in both 2008 and 2009.
Base: 2009 (1,198) 2008 (1,124).
The evolving relationship between business and government

Clearly, these global risks cannot be solved, or ameliorated, regulatory burden. CEOs are seeking concise and clear
by businesses or governments on their own. But who should direction from governments on long-term environmental
take the lead? CEOs have nuanced views on the role of policies but do not think governments are delivering these
government: nothwithstanding the critical role of government policies (55%) or protecting biodiversity and ecosystems
in avoiding recession turning into full blown depression, the (45%). A majority (56%), again this year, say governments
views of CEOs vary significantly on the role of government should drive convergence of global tax and regulatory
and its success in delivering on some of their fundamental frameworks but fear that governments are under pressure to
requirements (Figure 5). raise more tax from them (47%), especially in the Americas.
CEO views are also split on whether government is delivering
In general, CEOs perceive a lack of progress by government
basic infrastructure (Box 1) and are not convinced that the
in many areas. There is a significant increase from last year’s
bedrock of a skilled workforce (57%) or access to natural
Survey in the negative perceptions of CEOs on the success
resources (49%) is being delivered.
of government intervention with regards to the environment,
access to natural resources, availability of skills and the
05
The changing role of government
The government should drive convergence of -8 -14 42 14

global tax and regulatory frameworks 19 -7 -13 39 18
The government is changing its tax rules and -8 -24 29 18

practices to raise more tax from business -10 -25 27 12
The government is taking adequate steps to
improve the country’s infrastructure -14 -25 33 7
(e.g. electricity, water supply, transport) -13 -25 31 10
The government is working to improve -14 -32 26 4

healthcare access at lower cost
The government has clear and consistent

long-term environment policies -20 -35 21 4
-15 -33 20 8
The government effectively protects
biodiversity and ecosystems -12 32 23 2
The government helps companies secure access -16 -33 18 1

to natural resources (e.g. raw materials, water, energy) -15 -31 20 3
The government has been effective in helping -21 -36 17 2

create a skilled workforce -14 -34 19 4
The government has reduced the regulatory -33 -34 14 2

burden on corporations -25 -32 18 3
0%
2010
2009
Ref: Q16. Thinking about the role of Government in the country in which you operate, how much do you agree or disagree with the following statements?
Base: All respondents (2009 = 1,198; 2008 = 1,124).

There are also strong national differences of view on the On the other hand, there is relative disdain from CEOs for
effectiveness to date of governments addressing CEOs’ long government’s ability to create a skilled workforce in US,
term priorities (see Table 1). CEOs in China/Hong Kong are Spain, Italy, Korea, Mexico and Brazil with 10% or less of
the most positive about the role of government interventions, CEOs in these countries believing that government has been
with a majority believing that government is taking adequate effective in helping create a skilled workforce. In addition, in
steps to improve the country’s infrastructure (87%), improve the US a staggering 89% of CEOs believe their government
healthcare access at lower cost (72%), providing clear and is changing its tax rules and practice to raise more tax,
consistent long-term environmental policies (62%), along with UK (78%), Spain (76%) as well as a majority in
protecting biodiversity and ecosystems (53%) and creating a Brazil (67%), Mexico (67%) and Russia (57%). Yet, apart
skilled workforce (52%). However, the only other case where from China, Korea and the UK, a majority of CEOs believe
a majority of CEOs believe government has been effective is government should drive the convergence of global tax
in the provision of infrastructure – in Korea (63%) and and regulatory frameworks.
Germany (54%).
Overall, these mixed reseponses suggest a range of areas
where government policy-makers and businesses can more
effectively collaborate to stimulate economic growth.
Box 1: Delivering infrastructure to meet business needs

Infrastructure in many countries is reaching its natural investment floor) commensurate with the risks of a project.
lifespan and is in need of replacement but there is Further action also needs to be taken to include
increasingly a lack of public money. Raising taxes is maintenance as part of public-private infrastructure
becoming difficult and unattractive given budget deficits contracts to extend the life and quality of assets.
which are already requiring increases in corporate and
personal income taxes across countries. The private One innovative option to overcome delays in financing
sector has also become more risk averse and is struggling Public Private Partnerships is being tried in South America
to raise private funds for infrastructure development in the where the Costa Rican government is creating a trust to
current economic climate. receive funding from a private sector investor to essentially
purchase – and own – a water treatment facility for a
Governments need to re-start the market for infrastructure period of 20 years, during which time the trust would
development by creating new incentives to the private lease the facility back to the government. At the end of
sector given the risks involved in the current climate. Some the 20-year period, ownership would revert back to the
examples include offering termination fees to protect government of Costa Rica. The government of Costa Rica
businesses against failure of projects, which may re-kindle is therefore able to obtain financing for a period of 20 years
interest in markets such as the US, and offering a at reasonable interest.
guarantee of a minimum rate of return (or return on
TABLE 01
Role of government
Global USA Canada Spain Germany UK Netherlands F

rance Italy China/HK Japan Korea India Australia Russia Mexico Brazil
(1198) (100) (39) (34) (63) (64) (30) (44) (38) (60) (75) (30) (30) (30) (30) (30) (30)
The government should drive

convergence of global tax 56% 50% 51% 68% 75% 36% 60% 61% 61% 43% 55% 33% 73% 60% 67% 73% 77%
and regulatory frameworks
The government is changing its

tax rules and practices to raise 47% 89% 21% 76% 43% 78% 23% 25% 13% 30% 31% 20% 30% 43% 57% 67% 67%
more tax from business
The government is taking adequate

steps to improve the country’s 40% 27% 49% 21% 54% 13% 37% 39% 24% 87% 20% 63% 27% 33% 13% 27% 30%
infrastructure
The government is working to

improve health care 30% 34% 31% 21% 27% 20% 20% 14% 18% 72% 16% 30% 20% 7% 30% 47% 3%
access at lower cost
The government has clear

and consistent long-term 25% 13% 31% 9% 27% 22% 23% 30% 8% 62% 23% 23% 17% 27% 10% 13% 0%
environmental policies
The government effectively

protects biodiversity 25% 32% 31% 29% 30% 13% 37% 11% 8% 53% 12% 13% 13% 27% 3% 13% 3%
and ecosystems
The government helps companies

secure access to natural 19% 8% 21% 6% 19% 8% 13% 9% 18% 38% 32% 40% 7% 23% 10% 23% 3%
resources
The government has been effective

in helping create a skilled 19% 3% 28% 3% 19% 19% 37% 27% 0% 52% 8% 3% 33% 30% 13% 7% 10%
workforce
Ref: Q16. Thinking about the role of Government in the country in which you operate, how much do you agree or disagree with the following statements?
Respondents who stated ‘agree’ or ‘strongly agree’
Base: All respondents (base in brackets).
Summing up there be a closer dialogue between regulators and the

regulated – smart regulation – both nationally and
Clearly confidence is returning as are expectations of
internationally?
recovery within the next 12 months. But there are still risks
– of protracted recession or slow recovery, of over-regulation • When will governments have to exit from their
and of unstable capital markets as well as fears, as yet accommodative fiscal and monetary policies which were
unfounded, of a wave of protectionism. necessary to overcome the very real threat of depression
and deflation, but which if left loose too long will stoke
This raises some important and uncomfortable issues for inflation? And what actions need to be put in place to deal
government, particularly against mixed views of CEOs on with debt?
their ability to rise to these challenges. In particular:
We look in turn at these issues in the remaining sections
• What are the implications of governments becoming
of this report.
owners of businesses ranging from financial services
to automotive?
• What gaps in public risk management have been exposed
by the financial crisis, particularly given the need to
understand better the intricacies, complexities and
interconnections of the financial system, and address
overlaps and loopholes in regulatory oversight? How can

Government as strategic game-changer?
Last year’s Survey revealed what we thought at the time was a startling statistic – 10% of the
companies we surveyed had some form of government ownership or backing spread across all of
the industry groups we surveyed. This year, there has been a further and significant increase in
the proportion of our sample of CEOs with some form of government backing – up to 14%.
CEOs are coming to realise that they face a new reality in the future, a global environment marked
by governments as owners, regulators, customers and competitors, to different degrees in
different markets.
So, how is the landscape changing for business? Have those Popular support for government ownership in the post-crisis
CEOs with the backing of government developed different environment also appears to be holding in some polls. A
views from CEOs with an exclusively private boardroom? GlobeScan/University of Maryland poll in 2009 of adults in
And what are the implications for government? 27 countries said a majority called for less active
government ownership or control in just four of the
A changing landscape for business countries4. This suggests an exit strategy may not be as fast
as free-marketers might desire. Indeed, given the range of
New government influence over the global business
experiences with public ownership in countries where the
environment in 2009 was nowhere so clearly marked as in
crisis was more muted, from East Asia to the Middle East
the increase in ownership in companies. A third of all
and Latin America, state ownership is likely to endure for
companies said the government owns a stake in a major
some time in one form or another.
player in their industry, rising to 43% amongst companies
with revenue over $10 billion. The change is most The harmony between government and business ends for
pronounced in financial services, where 56% of CEOs said CEOs, however, on the implications of longer-term public
the government held stakes in a major player in their country ownership of businesses. Non-government backed CEOs
which is second only to utilities (71%). perceive negative implications of government ownership
across the board, particularly those based in North America
Government’s new reach in 2009 is changing the debate
(Figure 6). More than two-thirds of all CEOs agree that
on government ownership in the private sector. Almost half
government ownership distorts competition, leads to
(49%) of CEOs were positive towards government taking an
political interference and creates a conflict of interest with
ownership role in times of crisis, including those in North
its regulatory role, rising to over 80% across all of these
America, whose dissatisfaction with most issues involving
categories in North America.
government measures to improve business conditions
were well marked elsewhere in the Survey. This sentiment
was more strongly backed amongst business leaders in
Asia-Pacific (61%) and the Middle East (54%), and decidedly
It is the duty of a government to ensure that whatever
less so amongst CEOs in Latin America (34%), Africa (40%)
measure it takes to support the economy, that measure
and Central/Eastern Europe (41%). Within Europe, where
be as precisely targeted to the intended goal as possible,
CEOs largely agree that government ownership in a time
with as little collateral damage as possible.
of crisis is a stabilising force, the most support came from
French CEOs (68%) and the least from Italian CEOs (37%). Normand Bergeron
Amongst industries, only a third (31%) of insurers considered Président-directeur général de l’Agence des
short term ownership a stabilising force in times of crisis, partenariats public-privé du Québec, Canada
against 56% of auto CEOs and 55% of banking
and capital markets CEOs.
4 Survey of 29,033 adult citizens across 27 countries, conducted for BBC World Service by the GlobeScan, together with the Program on International Policy Attitudes (PIPA)
at the University of Maryland. (http://www.globescan.com/news_archives/bbc2009_berlin_wall/)
06
Views on government ownership
Neither/Nor Don’t Know/

Refused
Government ownership will lead to -4 -11 46 26 12 1
political interference in the marketplace
Government ownership inherently creates a conflict
-3 -11 47 25 12 2
of interest with its regulatory function
Government ownership distorts
competition in an industry -4 -12 41 30 12 2
Government ownership influences regulation

and enforcement in the industry -4 -11 50 18 15 2
Government ownership discourages -6 -23 37 15 17 2

the entry of foreign competitors
Government ownership helps to stabilise
an industry in times of crisis -9 -22 41 8 17 1
0%
Ref: Q17b. How much do you agree or disagree with each of the following statements about Government ownership?
07 08
Views of government-backed companies on government ownership Government-Owned companies’ strategies
Government ownership will lead 53 89

to political interference Approach to managing risk
in the marketplace 75 84
Government ownership inherently 53 84

creates a conflict of interest with its Investment decisions
regulatory function 76 81
Government ownership distorts 51 79

competition in an industry 74 Strategies for managing talent
78
Government ownership influences 60 83

regulation and enforcement in Responding to changing consumer
the industry 69 puchasing behavious 81
Government ownership discourages 38 Focus on corporate reputation 73

the entry of foreign competitors 55 and rebuilding trust 65
Government ownership helps 64 77

to stabilise an industry in Organisational structure
times of crisis 48 (including M&A) 75
0% 10 20 30 40 50 60 70 80 90 100 73
Capital structure
59
Government Owned/Backed Non Government Owned/Backed
Ref: Q17b. How much do you agree or disagree with each of the following statements 63
Engagement with your
about Government ownership? board of directors 55
Respondents who stated ‘agree’ or ‘strongly agree’
Base: All respondents (166, 1,013).
0% 10 20 30 40 50 60 70 80 90 100
Ref: Q7. In the wake of the economic crisis, to what extent do you anticipate changes to
any of the following areas of your company’s strategy, organisation or operating
model?
Respondents who stated ‘some change’ or ‘a major change’
Significant at 95% confidence interval.
Base: All respondents (166, 1,013)

Even those that are experiencing government ownership There are, however, some important differences for CEOs
have negative perceptions (Figure 7), although slightly less with some form of government involvement. There is some
so with the results suggesting that experience of government indication from our results that government stakes provide
involvement reduces concerns about interference, conflicts a cloak under which to take urgent actions e.g. making
of interest and competitive distortions (though there is still more organisational changes and capital re-structuring,
a majority of CEOs in state-backed companies who have whilst also enabling those companies to take a longer term
these concerns in all cases). view on areas such as capital investments, learning and
development and preparing for risks (scenario planning):
A two-headed monster?
• Government-Owned companies appear to be making
But does government ownership make such a difference more changes to their strategy, particularly focusing on
to the views of CEOs on a range of issues? From those corporate reputation and re-building trust as well as
with experience it appears not – in general, the views of capital structures. There also appears to be somewhat
government-backed CEOs mirror those of their private more engagement between Boards and their executives
sector counterparts. For instance, like their private sector in state-backed organisations (Figure 8).
counterparts, CEOs with some form of government backing
are more confident in their short and long term prospects. • Almost half (48%) of state-backed CEOs are planning
They also perceive the same threats to their businesses – moderate or significant increases in their long-term
protracted recession, over-regulation and unstable capital capital investments (Figure 9).
markets – although they are significantly more worried about • Government-Owned companies are also more likely to be
energy costs (63% compared to 52%) and inflation (47% planning for systemic risk and high risk/low probability
compared to 39%). Recession barely dents their momentum events, with a majority of state-backed CEOs (57%)
with climate change strategies. making preparations (Figure 10).
09 10
Investment decisions Approach to risk management
81 Integrating risk management 63

Initiatives to realise cost efficiencies capabilities into business units
78 57
71 Reassessing your 57
Leadership and talent development
69 tolerance for risk 52
64 52
Organic growth programmes Collaborating with supply chain
64 partners to collectively manage risks 50
64 Creating personal accountability and 55

Strategic technology infrastructure reward structures for good risk
or applications 59 management, including risk taking 49
60 Preparing for systemic risk and low- 57

R&D and new product innovation 57 probability, high impact events
45
41 Allocating resources to risk-related 54

Advertising and brand-building 42 information gathering and analysis
48
48 0% 10 20 30 40 50 60 70 80 90 100
Capital investments 39
0% 10 20 30 40 50 60 70 80 90 100
Government Owned/Backed Non Government Owned/Backed Ref: Q10. With respect to your approach to risk management, to what extent are you
increasing your focus in the following areas as a result of the economic crisis?
Respondents who stated ‘to a large extent or ‘significantly’
Ref: Q8. How do you plan to change your long-term investment decisions in the following Significant at 95% confidence interval.
areas over the next 3 years as a result of the economic crisis? Base: All respondents (166, 1,013)
11 12
Headcount reductions Approaches to people strategy
39 Managing people through change 81

Decrease
50 (e.g. redefining roles in organisation) 79
30 80
Stay the same Traning and development programmes
21 77
16 Staff morale and employee 80

Increase by less than 5% engagement programmes 75
12
5 64
Increase by 5-8% Remuneration levels
7 61
11 Flexible working 63
Increase by more than 8% environments 59
9
1 Collaborations with networks 63

Dont’t know/refused of external specialists 57
0% 10 20 30 40 50 60 70 80 90 100 Global mobility, including staff travel 55

or international secondments 56
Pension and healthcare 42

arrangements 41
Ref: Q14a.What happened to headcount in your organisation globally
over the past 12 months?
0% 10 20 30 40 50 60 70 80 90 100
N.B. Recovery is defined as stable and steady economic growth.
Ref: Q15. Regarding your people strategy, to what extent will you change your
approaches to the following areas, as a consequence of the economic crisis?
Respondents who stated ‘changing somewhat’, ‘changing to a large extent’
or ‘changing significantly’
• Non Government-Owned companies have made greater To own or not to own

headcount reductions, although the differences reduce
The concerns stated around political interference and the
looking ahead with both types of business planning similar
impact of government ownership on competition clearly
approaches in the next 12 months (Figure 11).
necessitates transparent consideration by governments on
• In addition, state-backed CEOs are slightly more likely to how active and long-term state investments in business
be changing their approach to staff morale and employee should be and their associated exit strategies.
engagement programmes and collaboration with networks
of external specialists (Figure 12). There has been an expectation by many commentators
of early exits of government stakes in business. Some
governments, however, may want to stay longer and use
their stakes to help shape markets e.g. on the sustainability
agenda in the energy and auto sectors, although there are
risks that ownership is less effective than other tools to
achieve such policy outcomes.

Box 2: Being a good owner
Activism not interference The presence of government intervention can also create
market distortions for example by creating differences
Governments as owners can take a longer-term approach.
in employers’ costs of capital, impacting remuneration
In our view, the optimal role for government is to take the
structures and creating unfair competition through state
role of an activist investor, acting as a ‘critical friend’ by
guarantees. Governments must ensure that, where they
engaging and challenging the boards of state-supported
are not full owners, they do not use their shareholdings to
businesses on their strategy and encouraging a longer-
abuse the rights of minority shareholders. Governments
term approach to business. They should not, however,
also need to guard against getting involved in operational
interfere in day-to-day operation – such businesses
decisions and using their (temporary) ownership of
should be run in the same way, with the same attention to
business inappropriately as a tool of activist business
best practice, as any other business.
policy, with the resulting accusations of political meddling.
This needs to be done in the context of an appropriate

governance structure, which recognises the unique
Maximising economic and social returns
involvement of government and where the roles of all There is an important distinction between maximising
players are clear – boards, management, government and shareholder value within a context that is supportive to
other shareholders. For example, the UK’s Shareholder wider economic and social goals and using government
Executive applies four principles when working with ownership of business as a substitute for more
management teams of government-owned businesses: appropriate policy mechanisms to achieve those social
clarity, value, transparency and professionalism. objectives. Whilst in government ownership (in part or in
full), the focus should be on developing and implementing
Managing conflicts of interest a strategic plan to maximise the return, both financial (to
shareholders) and economic/social (to the wider economy
Governments need to manage carefully the conflicts
and society), from their forced investments. In our view, an
arising from their distinct roles as owners/shareholders,
activist government’s exit strategy should aim to achieve
acting on behalf of taxpayers, and supervisors/regulators,
an economic and social return on investment (SROI) as
acting on behalf of consumers and businesses. Where
well as a financial one. For example, in the case of State
government ownership, in some cases through sovereign
Supported Banks by increasing lending levels to maintain
wealth funds, is partial as opposed to full, governments
economic activity at a higher level than would otherwise
need to be particularly transparent on the extent of
be the case. SROI, however, should not be used as a
their backing for business: this is needed for markets to
cover for politically expedient sales of shares at a low
assess the riskiness or otherwise of business ventures,
price or indeed state support of companies doomed to
as demonstrated by the highly publicised case of Dubai
fail.
World and the concerns about the level of backing it
eventually received from government.
There is also an issue of who buys the former government Summing up
stakes and their strategies and motives. Government
It is clear that CEOs have significant concerns about long
ownership of business needs case-by-case consideration as
term state involvement in business with important implications
different countries have different experiences and heritages
for government policies on competition and fair markets.
of state involvement. In general, however, CEOs and our
Despite the antipathy of most CEOs to state ownership,
government interviewees appear to believe that for most
including a majority of CEOs with government backing, there
sectors state ownership should be a last resort and
are also times when government intervention is necessary
a temporary, not permanent, solution.
to stabilise industries, as CEOs also on balance agree.
Nevertheless, whether it is ideologically or economically
As such, the challenge for government is to make decisions
driven, governments will still retain some stakes in businesses
on how long they will retain their stakes in business and, for
for the foreseeable future. For instance, in our report ‘Back
those that it is decided should return to the private sector,
to the Future’, which focused on the relationship between
set out their exit strategy alongside a challenging but realistic
government and financial services, we anticipated that the
timetable. In the interim, clear objectives and governance
complexity of individual financial institutions’ situations,
arrangements are also needed to ensure governments act
difficult market conditions and an unattractive disposal
as good owners and manage carefully the potential conflicts
environment will combine to make the possibility of early
arising from their distinct roles as owners/shareholders,
government exit from their stakes in the private sector highly
acting on behalf of taxpayers, and supervisors/regulators,
unlikely. “It will take two to three years to sell major holdings,
acting on behalf of consumers and businesses.
but five to seven years or more before governments are able
to fully divest of their stakes and related guarantees.”
Given that temporary state ownership will stretch into the The basic lesson is that the state should withdraw from
medium term, governments should not therefore waste this private business because it is still true that the private
opportunity for reform. They must clearly define their objectives, sector makes significantly better decisions than the
take a positive role and seek to be ‘good owners’ (Box 2). state… I think that it is necessary to support structural
Our research5 shows that this involves addressing three key changes, more market economics, better environment
elements: managing conflicts of interest; taking an ‘activist’ for business, healthy state finances, less protectionism.
role; and focusing on the wider returns of ownership to These are the things that should be done.
society. There is also clearly a need for transparency when
government has a stake in businesses and for governance Martin Tlapa
Deputy Minister,
procedures to be put in place to ensure that neither
Ministry of Industry and Trade, Czech Republic
customers nor minority shareholders lose out from
government intervention.
5 See ‘Back to the Future’ for a full discussion of these issues in the financial services industry

The smarter, more collaborative regulator
Over-regulation and concerns about regulatory over-reach have risen again this year and yet CEOs are
also convinced of the need for the involvement of government to mitigate systemic risks. In past issues
of this report, we have commented on this ‘regulatory paradox’ - on the one hand, CEOs want more
government leadership and action in some areas e.g. on climate change6 and driving the convergence
of global tax and regulatory, whilst on the other hand CEOs are inclined to believe government action
is only good when it helps their business and bad otherwise.
This year, as well as taking the temperature of the relationship

between business and government on regulation, we tested The public’s disillusionment has moved beyond the banks
to see what CEOs want most from government, how to the private sector in general, so that governments are
regulation can be made smarter and in what areas. now talking about more regulation to stop a similar crisis
from ever happening again. But hasty regulation will be
Is the burden of regulation still rising? bad regulation and my concern is that creativity,
innovation, and enterprise will be stifled at a time when
Over-regulation remains a perennial concern in our Survey,
they should be encouraged.
having been a top three issue for a decade. This year
over-regulation moved back to the second spot, with a Paul Walsh
significant increase over last year in those ‘extremely CEO, Diageo
concerned’ about it (up to 27% from 18%).
CEOs are clearly concerned that they will face a backlash

as governments seek to regulate more in order to curb
perceived excesses in private markets. That a near financial CEOs have also been clear in prior years that a significant
collapse could presage a wave of regulation could be issue for them is the compliance burden. Overall, two thirds
expected to trouble CEOs facing weak demand. (67%) of CEOs do not believe that government has reduced
the regulatory burden on corporations, a rise from 57%
last year. Indeed, this year only in Japan is there a positive
balance of CEOs believing that their government has
reduced the regulatory burden7 , and even here by a much
reduced proportion and on a downward trend (Table 2,
where negative numbers indicate that those CEOs agreeing
that regulatory burdens are falling are outweighed by those
disagreeing). CEOs in US, Brazil and UK lead the way in their
view that the regulatory burden has not been lifted.
6 For further CEO views on climate change, see PwC’s forthcoming publication ‘Appetite for Change: Global business perspectives on tax and regulation for a low carbon economy’
7 Excludes those who neither agree nor disagree and those who don’t know or refused to answer
TABLE 02
I don’t think business will be all that accepting of a lot
CEOs’ views of the regulatory burden
more regulation. But I think it will be accepting of more
effective regulation… The key is to establish non-
Balance of CEOs who agree (strongly or slightly) as against disagree (slightly or strongly)
that the government in which their business is headquartered has reduced the regulatory ideological consultation and collaboration between the
burden on corporations (%)
government and the private sector. The private sector
must recognise that the government has legitimate aims
Country 2008 2009 2010
in bringing about certain social outcomes. And those
Global -39 -36 -52 social outcomes should be of concern to businesses, too.
US -58 -59 -90 At the same time, the government shouldn’t play a larger
Canada -57 -34 -54 or more prescriptive role than it has to.
Mexico N/A -50 -70
UK -87 -68 -85 Robert Bhatia

France -54 -35 -71
Deputy Minister of Alberta Seniors and
Community Supports, Canada
Germany -64 -49 -62
Netherlands -77 -50 -70
Italy -78 -48 -58
Spain -52 -47 -67
Russia -44 -47 -57
Brazil -73 -57 -90
China and Hong Kong 6 0 -8 13

Japan 35 18 6 Views of those experiencing a decline in the public trust
India 20 -40 -60
Australia -69 -67 -76 Participation in industry initiatives

to improve the sector’s reputation 64
Korea -44 20 -7
Proactive dialogue with
policy-makers and regulators 63
The paradox is that whilst CEOs criticise the actions of A systematic approach to
51
measuring and managing reputation
governments and perceive ever increasing regulatory
Expansion of your corporate
burdens, they are also ever more keen to collaborate with responsibility programme 50
them. CEOs are not waiting for new regulation but are Media relations programme
49
and advertising
stepping up their involvement to help to shape it. They Revisions to reporting
are prioritising cooperation with regulators as they seek and engagement with
investor community
37
to rebuild trust in their industries (Figure 13). For example, Engagement with NGOs
to improve practices that 31
nearly two thirds of CEOs (63%) plan to initiate, or have affect your reputation
Changing executive
already done so, a proactive dialogue with policy-makers compensation practices 30
and regulators to increase levels of trust, especially in

None of the above 1
North America (74%) and Africa (79%), and sectorally
in financial services (76%). Don’t know/Refused 3
0% 10 20 30 40 50 60 70 80 90 100
Ref: Q12b. Which, if any, of the following activities have you initiated or are you planing
to initiate in your own company as a result of the decline in trust?
Base: Respondents who stated there has been a slight or significant fall in public
trust in their industry at Q12a (304)

What does smart regulation mean to business? 14
So, what can government do to reverse this significant Smartening policy-setting and regulation
deterioration in perception on a rising tide of regulatory
Work more closely with the private
burden? In last year’s report8, we set out our views on the sector to maintain competitiveness 59
need for a smarter approach to regulation (Box 3). Ensure regulations are
clear and stable 57
Work more closely with other nations

to harmonise regulations 45
Place more emphasis on fairly

Box 3: Smart regulation enforcing existing regulations 39
Focus regulation on outcomes,

32
Many of the principles of better regulation are well known: not process
Make the representation of
regulation needs to be proportionate, accountable, emerging economies in global 21
bodies more equitable
consistent, transparent and targeted. Yet last year we
Empower multi-lateral organisations
15
found there was a missing ingredient – stability – and to act as global regulators
a rapidly changing context – globalisation – as well as None of the above 0

a renewed purpose – to stop players in markets
behaving irresponsibly. Don’t know/Refused 2
0%
In our view, the key principles underpinning a smarter
approach to regulation are as follows: Ref: Q19. In which of the following ways do you believe government could best improve
the policy-setting process with regard to smarter business regulation?
Base: All respondents (1,198) N.B. Respondents chose up to three of the seven
• ‘Think global, act local’ – define the right rules to possible options
underpin success in a modern global economy,
This year, we went on to ask CEOs for their views on the
tailored to the national and local context;
actions that could most impact a smarter approach to
• Fair reciprocity – it is not enough to define a regulation (Figure 14). This revealed that whilst there is
transparent set of rules, but to implement them in overwhelming concern that the regulatory burden is rising, a
a fair and reciprocal way; majority of CEOs (59%) believe the key to smarter regulation
• Outcome-based – focus on outcomes, not purely is for government to collaborate more closely with the private
process, and make judgements on results, not just sector, particularly in Africa (70%). This approach – of
box-ticking; and co-design – may mirror CEOs desire to work more closely
with their customers. Elsewhere in the Survey we found that
• Clarity and stability – ensure that the rules for 60% of CEOs expect consumers to play a more active role in
regulation are clear and not subject to constant product and service development. In this sense, why should
tinkering and change for change’s sake. government and business not work in a similarly collaborative
fashion? The desired result would achieve governments’
desired outcomes but minimise the cost of compliance.
8 ‘Redefining Success: Government and the Global CEO – Runway to Growth’, PSRC March 2009
CEOs also argue that regulation needs to be more supportive
of business: the clearest call is to ensure that regulation is Coordination minimises, if not eliminates, overlaps,
above all else clear and stable – 57% of CEOs want this, improves synchronisation, and allows agencies to build
rising to nearly two thirds (65%) in North America. It is also upon competencies and learnings of the others.
worth noting that a slight majority of CEOs (51%) in
Honorable (Hon.) Amando Tetangco Jr.,
the largest companies in our sample (over $10bn revenues)
Governor, Bangko Sentral ng Pilipinas, Philippines
favoured closer working across borders to harmonise
regulations, rather than giving more power to international
regulators, a theme to which we will return in the So from our point of view the best road to regulation is
next section. through social dialogue.
Our government interviewees also expressed concerns Dr Juan Somavia

about the need to address overlaps and loopholes in Director-General, International Labour
Organisation (ILO)
regulatory oversight and achieve closer dialogue between
regulators and the regulated.
Are all regulations equally important?

Whilst there is a desire on both sides for regulators to work opportunities and particularly on workforce practices
more closely with the private sector and for rules to be clear, (including pay) where 35% of CEOs want less regulation.
consistent and stable e.g. on climate change, there are still
• In other areas, CEOs favour better enforcement of existing
varying business views by type of regulation.
regulation: this particularly applies to financial sector
Support from CEOs for new regulation is scattered and stability, social and environmental sustainability, consumer
largely a minority view despite the evident lapses in the protection rules and safeguarding intellectual property
financial sector (Table 3). More CEOs are instead seeking rights. For instance, CEOs favour better enforcement of
either less regulation or better enforcement in areas where existing regulation to ensure financial sector stability over
they perceive gaps in regulatory practices: less regulation by a factor of four.
• CEOs believe that some areas of regulation are priorities

for if not reducing then at least staying the same, primarily
in areas which most impact their competitiveness: on
innovation, access to both capital and foreign investment
TABLE 03
Changes desired to regulation
More Better A different Less No change

regulation enforcement of kind of regulation in
(%) existing regulation regulation (%) regulation
(%) (%) (%)
Financial sector stability 25 32 21 8 13
Innovation and competitiveness 12 16 19 32 18
Access to affordable capital 14 18 15 26 24
Access to foreign investment opportunities 9 14 13 32 29
Social and environmental sustainability 25 27 21 12 13
Protecting the interests of consumers and the public 20 29 16 12 21
Workforce practices, including compensation 8 16 18 35 21
Safeguarding intellectual property 26 31 11 7 22
Ref: Q18. Through what approach would you like to see regulation address each of the following areas?

This diagnosis by business of the nature and impact of Critically important in the minds of our government
regulation is significant – with governments under pressure interviewees is the involvement of stakeholders through a
to create jobs in the economy, there is a need for actions proper dialogue on the practical issues of implementation
to reduce the negative impacts of regulation in areas which and, where new regulation is needed, the importance of
directly impact on the competitiveness of business whilst gradual, planned changeovers. The result in their view is a
acting on behalf of consumers, employers and citizens to much better outcome: better informed stakeholders with a
guarantee better societal outcomes. better appreciation of the rationale for regulation and so
more likelihood of compliance.
So, how can better dialogue be achieved?
Our government interviewees were concerned about making Importantly, it is recognised that there is a need to engage
sure that regulatory interventions are smart, flexible and better with Small and Medium sized Enterprises (SMEs).
judicious. There is also a strong feeling that public risk Large companies have the resources to invest in engaging
management needs to be strengthened along with system- with government and regulators whereas smaller companies
wide (or macro-prudential) monitoring. are less able to do so and also to absorb compliance
costs. It was noted in our discussions that there is a role
However, our government interviewees were also cognisant for better use of new technology to facilitate this dialogue.
of the need to avoid excessively inhibiting innovation and An interesting example quoted was in Canada where an
place a higher priority on focusing on outcomes and specific e-risk registry has been created to enable public scrutiny of
objectives (particularly creating jobs and wealth whilst new regulations (see box 4), allied to a willingness to get rid
protecting the disadvantaged). In parallel, it is recognised of obsolete regulations e.g. though an Open for Business
that the processes to achieve these ends should not be initiative. In many countries, there is also a drive to improve
overly prescriptive and that there is a preference for better inter-agency co-ordination, as happens for instance in the
enforcement of existing regulations rather than rafts of new Philippines where its financial regulators interact via its
ones, which is in line with the desires of CEOs. Financial Stability Forum.
It’s all about the ability or the art of developing regulations

Box 4: Using new technology in Ontario
that achieve specific objectives but don’t go beyond what
is needed because overregulation brings creativity and Large corporate entities design ways to talk to government
innovation to a halt… Regulation is needed to avoid falling – it’s part of their DNA. But our economy is actually made
into crisis again but it has to be applied wisely because up of small and medium sized businesses that don’t have
too much regulation can literally fossilize the innovative that same capacity. They’re busy doing their work so you
side of the private sector. It has to be done but not can’t put these people on committees and meet every
over-done. month; you can’t waste their time. So you have to find
ways to interact and perhaps there’s a role for technology
David Levine
in that, and there’s a way to be more inclusive. We do
Président-directeur général de l’Agence de santé et de
have a regulatory electronic registry for new regulations.
services sociaux de Montréal, Canada
So we actually post regulations for a 30-day period, and
everybody can see them and can comment. It’s been
very successful. It’s a very transparent way to say,
‘Look, this is what we’re thinking about doing’. It has
allowed us to reach people I don’t think we would
have reached otherwise.
Shelly Jamieson
Secretary of the Cabinet and Head of the Ontario
Public Service, Canada
Summing up
Many Asian governments consult quite widely with the
It seems that whilst business perceives further increases in private sector when considering new policies or
the regulatory burden this year and, as we have seen earlier, strategies and that is, of course, absolutely correct. Input
is unconvinced by government’s track record on achievement from the private sector is always quite useful. In the same
of its priorities e.g. on environment, skills and climate change, vein, ADB can provide policy-makers with best practices
there is a desire on both sides for collaboration to achieve and lessons learned from around Asia or even other
a win:win for business and government when it comes to regions of the world. In this way, ADB aspires to become
smartening regulation. This is particularly critical at the a kind of knowledge bank that policy makers can
current point in the economic cycle when governments must draw upon.
beware of imposing regulation which stifles innovation,
competitiveness and growth of jobs. Most CEOs and the Haruhiko Kuroda
government officials we interviewed believe that dialogue President, Asian Development Bank (ADB)
and closer working between business and government –
co-design - is the best way to achieve smarter regulation.
Clearly, achieving a smarter approach to regulation

nationally is a challenge – whether this can be achieved
globally is even more open to question. There is, however,
a recognition by our interviewees of the need for greater
Regulations need to be dynamic and responsive to a
international cooperation and information sharing but some
changing economic environment. Dialogue is important.
realism on the extent to which standardisation can occur,
Dialogue between regulators and other stakeholders
with a call for increasing harmonisation and alignment
should therefore be continuing, cordial and
of approaches to allow for country differences
comprehensive... We believe that the more informed
in implementation. We discuss this further in the
stakeholders are, the better they are able to appreciate
next section.
the rationale for regulations. In turn this makes regulation
(and policy) more potent in effecting the desired results.


The outlook for policy harmonisation
Whilst the Great Recession has driven a more ‘hands-on’ economic policy-making approach in
developed and emerging economies alike, the outlook for policy harmonisation amongst governments
and the degree to which the hands-on approach will persist is of utmost importance in understanding
the unfolding economic landscape. The global financial crisis has sharpened the recognition by CEOs
that government has a key role in shaping responses to global risks, that markets cannot solve all
problems and that intervention is needed. There is, however, less certainty on how this role is best
deployed and by whom.
Is G20 the answer? This is further supported by a confidence amongst two

thirds of CEOs (65%) that regulatory co-operation among
There is a clear shift perceived, by both CEOs and our
national governments will help successfully mitigate
government interviewees, in the geopolitical balance –
systemic risks such as economic crisis, particularly among
the rise of G20 has been a symbol of a change in the world
CEOs in Asia Pacific (72%) and the Middle East (75%).
order. Most CEOs (78%) expect the G20 will become the
A slightly lower proportion of CEOs (47%) expect this to
dominant political and economic power (Figure 15).
extend to the harmonisation of new regulations although
there is more pessimism in North America where only a
CEOs are also increasingly confident that efforts by government
third (34%) see this happening (Figure 16).
and business can effectively confront global challenges like
climate change, terrorism and financial crises. As noted
Strikingly, however, this trend to harmonisation stops short
earlier, they have long sought more cooperation amongst
of calling for regulation by multilateral bodies, with a split
governments to harmonise tax and address other overlapping
view from CEOs on whether national regulators will give
regulatory burdens that stem from running an international
more authority to global or regional bodies and with CEOs
business operation. There is now an expectation from a
in North America again more sceptical, only a quarter
majority of CEOs (57%, compared with 46% last year) that
(25%) thinking that.
business and government efforts will be able to mitigate
global risks like climate change, terrorism and financial
crises.
This is a significant change to last year’s contrary

set of views which may, perhaps, be borne of the experience
of governments working together to avert the global financial
crisis going into meltdown.
15
The rise of the G20
2010 2009
The world will be more open to
Governments wil become more protectionist -65 32 -46 51 free international trade
The pressure on natural resources -60 38 -72 26 Efficiency of resource usage will improve
will continue to increase
The G20 will be the new dominant economic The G20 nations will remain the dominant
and political power in the world -78 19 -73 25 economic and political powers in the world
Within nations,the gap between rich Within nations,the gap between rich
-68 28 -70 27
and poor people will increase and poor people will decrease
Government and business efforts will be Government and business efforts will mitigate
unable to mitigate key global risks like -39 57 -50 46 key global risks like climate change, terrorism
climate change, terrorism and financial crisis and financial crisis
Regulatory insight will remain primarily the Multi-lateral organisations will increasingly
remit of each nation’s own regulators despite -55 42 provide oversight on regulatory issues such
increased co-operation as in financial services
0% 0%
Note: *G20 is full G20, including G8

Base: All respondents (2009 = 1,198; 2008 = 1,124). Respondents chose a scenario from each pair, or the option ‘Don’t know/Refused’
16
Regulatory cooperation
Neither/Nor Don’t Know/

Refused
Regulatory cooperation will help successfully mitigate systemic -3 -13 53 12 17 2
risks such as another economic crisis or climate change
New regulations will largely be harmonised because of
cooperation among governments -5 -22 41 6 23 2
National regulators will give more authority to

global or regional bodies -7 -31 31 6 23 4
0%
Neither/Nor highest in Asia Pacific and CEE
Ref: Q20. How much do you agree or disagree with each of the following statements about anticipated regulatory cooperation among national governments on new regulations?

As CEOs are less certain that multilateral organisations The case for harmonisation
will supplant oversight by national regulators any time
Our government interviewees also highlighted to us the
soon or that national government will empower multilateral
need for a more systemic approach to global risks, borne
organisations to act as global regulators, this begs the
of recognition that countries are becoming ever more
question: where will effective supra-national cooperation
interdependent and the need to look at risks in aggregate
on economic and financial policies take place?
rather than at the level of an individual institution, sector or
Given that most CEOs expect the G20, representing 85% country. Similarly the lack of congruence between individual
of the global economy, will become the dominant political action and the collective good is spurring a move towards
and economic power it might be expected that this will be greater information sharing across regulators to minimise
the obvious forum for such supra-national cooperation. risks, allied to a push for stronger governance corporately
Yet whilst the G20 set out an ambitious agenda in to manage risks more effectively and carry them down from
September 2009 to work together on growth, climate change Board level to the front-line. Whilst there is recognition of
and financial regulation, among other issues, the stresses the difficulty of applying regulations globally, there is also
facing financial policy-makers representing nations from a evidently a willingness to try harder.
wider range of growth and development stages are evident.
How well national governments coordinate on regulatory
Indeed, the G20 forum poses its own challenges for global reform is however less clear, even when regulators have
policy coordination. In recent years, global negotiations have similar intentions. The day after UK authorities in December
become more difficult as more parties, often with differing imposed a one-time, 50% tax on bonuses of more than
perspectives and constituencies, come to the table, as £25,000 in UK banks, for example, France announced similar
witnessed by the current stalled status of the World steps. Yet, Germany decided against a new tax, a move
Trade Organisation’s Doha trade talks. Of course, global Deutsche Bank’s CEO said should strengthen the country
forums such as the WTO and the G20 are not the only outlet as a financial hub9. The example highlights the link between
for national cooperation on economic policy. Even as the national competitiveness and regulation, and the need for
WTO’s talks have broken down, for example, regional trade harmonisation in order to reduce regulatory arbitrage.
agreements have risen sharply higher, accompanying a
broader trend of rising intra-regional trade and capital flows,
before the financial crisis (Figure 17). Such agreements are I think it’s probably not realistic to think that regulatory
thought to impede global trade in the long-term. Yet, they frameworks are going to be identical across countries. It’s
could represent stepping stones towards global coordination probably not productive to even try to achieve that. But
and begin the process of harmonisation amongst neighbouring convergence, meaning moving closer together while
nations that are likely to have some interests in common. allowing for somewhat differing approaches, yes,
Still, some issues require truly global frameworks, such as I think that is a positive. That has to help in terms of
climate change, to prevent individual countries undercutting facilitating international transactions and trade.
the desired outcomes of such regulatory cooperation.
Robert Bhatia
Deputy Minister of Alberta Seniors
and Community Supports, Canada
9 Ackermann Sees German ‘Advantage’ Without Bonus Tax”, Bloomberg, 12 Dec, 2009. (http://www.bloomberg.com/apps/news?pid=20601109&sid=aLP_cZ3zUNw4)
17
Regional Trade Agreements
16
Number of regional free trade agreements
14
12
coming into force
10
0
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009*
*through October
Source: World Trade Organisation RTA database
There is also a desire to increase collaboration between

It’s a bit too many Gs [G8, G20]. There is some inflation multilateral governmental institutions (EU, UN, WB and IMF)
of such institutions here. Their function is not absolutely to help to foresee future crises and mitigate their impacts.
clear, whether or not they, for example, should be a If this does not happen, we may even see an acceleration of
substitute for international institutions that don’t work. an interesting trend whereby world cities are taking up some
It is definitely necessary to include economically strong of the responsibility by collaborating directly, bypassing
states in these organisations, even when they do not national governments e.g. on climate change, energy
have a status of market economies, such as China, management and a variety of other pressing
for example, and non-members of OECD. cross-border issues.
Martin Tlapa However, there is limited appetite, and indeed some healthy
Deputy Minister, Ministry of Industry and Trade, scepticism, amongst our government interviewees for new
Czech Republic global institutions – like CEOs, most favour more of a push
to harmonise regulatory approaches.
So are governments working together better? Yes,

the G20 took the responsibility to take some central
Summing up
decisions. I believe that that was a good initiative but at It is evident that harmonisation is in vogue and a desire for a
the same time we have to move in the wider context of more systemic approach to tackling global risks but through
the United Nations system, the Economic and Social improving collaboration, and reform, of existing institutions
Council so you have the force and the strength and the rather than a desire to create a new panoply of multilateral
leadership coming out of the G20 but you also ensure oversight. The G20 is evidently seen as a more important
that the rest of the countries feel that what we are doing forum for collaboration, although whether it has the capacity
is something that is of interest to everybody. and cohesiveness to make a real difference is as yet untested,
with a number of the reforms proposed at recent meetings
Dr Juan Somavia
yet to be fully followed through.
Director-General, ILO
We remain optimistic, however, that the G20 is the right
forum for addressing global risks, even if more needs to be
done to strengthen the supporting infrastructure to make
things happen.

Government as debtor
Stimulus spending is underpinning the recovery – the IMF estimates that support committed (if not fully
implemented) to the financial sector alone has reached close to 6% of GDP for the advanced G20
economies and 0.4% for emerging economies10. Yet public debt is ballooning in the process, virtually
assuring higher taxes and/or reduced public spending in many nations once recovery sets in.
Governments across the world are therefore facing the twin

policy challenges of maintaining support for their economies One is the timing of the exit from the accommodative
long enough to ensure a robust, private sector-driven monetary and fiscal measures... Late withdrawal raises
economic recovery takes shape whilst at the same time the spectre of inflation and asset bubble as ultra low rates
planning for a new era of much higher public sector debt may lead to inappropriate risk taking. Excess liquidity
which will remain with us all for many years to come. Whilst remaining in the system longer than necessary can lead
CEOs did not offer their views on these challenges, our to higher inflation. On the other the hand, too early
government interviewees had some robust opinions. withdrawal of supportive monetary and fiscal policies
could disrupt growth.
Walking a tightrope Honorable (Hon.) Amando Tetangco Jr.,
Latest estimates, and the views of our CEOs, indicate that Governor, Bangko Sentral ng Pilipinas, Philippines
2010 will see a return to world growth. As the global economy
makes a gradual recovery, governments will soon need to
make decisions on their economic stimulus packages in
order to avoid over-stimulating their economies lest inflation
rear its ugly head.
In addition, critics of government policy claim that economic
The timing of exit from the accommodative fiscal and monetary stimulus packages are proving very expensive and inefficient
policy is clearly a threat currently troubling administrations as a way of creating jobs, with Reuters estimating that in the
at international and national levels. The concerns expressed US the economic stimulus package “has saved or created
by our senior government interviewees expressed this as 640,329 jobs since it was enacted back in February through
walking a tightrope between disrupting growth if support the end of October... That amounts to $246,436 per job
is withdrawn too quickly and seeing inflation take off if based on the $157.8bn that has been awarded so far.”11
economic stimulus is maintained for too long. In some A separate study12 calculates that since 2000 Spain has
regions, this is compounded by the need to re-balance spent €571,138 to create each “green job”. Although the
economies away from export-led growth to more reliance on types of data, assumptions and criteria used in these
domestic consumers, particularly in Asia. In most countries, examples are different with more substantive research
there is also a need to re-build consumer confidence. needed for a comparable analysis and robust conclusions,
the general issue raised is that of the need for more
substantive research to evaluate the effectiveness of such
job creaton programmes.
10 IMF/ Fiscal Affairs Department “The State of Public Finances Cross-Country Fiscal Monitor: November 2009”
11 ‘Cost-Benefit analysis of jobs stimulus’, James Pethokoukis, Reuters, 7 December, 2009
12 ‘Study of the effects on employment of public aid to renewable energy sources’, Universidad Rey Juan Carlos, Spain
Dealing with debt Governments, particularly in developed economies, need
therefore to develop credible plans to return to sustainable
Equally pressing is the build up of debt caused by a vicious
public finances by a combination of tax rises and spending
combination of bank bailouts with subsequent declines in
cuts whilst being mindful of the impact of actions on growth,
tax revenues and rises in social protection spending as well
development and social outcomes e.g. better educated,
as spending to stimulate a return to economic growth.
healthier populations with less poverty and, in the long run,
According to Robert Bhatia, Deputy Minister of Alberta
mitigating impacts on climate change.
Seniors and Community Supports, Canada, the result is a
‘fragility of government budget positions’.
Many governments have a fiscal mountain to climb, as can Let me say first that I don’t think there is any government
be seen from the trajectory of debt for G20 countries in in the world that wanted to get into this level of debt.
Figure 18, particularly for those which did not build up They were obliged by the crisis of the financial system so
reserves in the boom years. This applies at state, local I believe the financial system has a big responsibility in
and city as well as national levels. ensuring that governments don’t have to continue being
indebted, they have to help the real economy to get going
and for that they have to lend… So what should be your
18
strategy to progressively exit from this level of debt? I
Government debt of G20 countries as % of GDP would say you have to prioritise job creation or social
protection, for the more vulnerable, anything that has to
140
do with increasing investment, sustainable enterprise, job
120 creation – and leave it to the last.
100 Dr Juan Somavia

Director-General, ILO
80
%
60
We have a deficit that we need to address, which means
40 that we’re in the middle of an expenditure restraint exercise
20
where we’re looking at our core businesses across
government and saying, ‘Which are the ones that we
0 fundamentally have to be in?’ ‘Who can best provide
2007 2009 2010 2014
these services?
Emerging G20 economies Advanced G20 economies
Shelly Jamieson
Source: IMF staff Position Note, November 2009
Secretary of the Cabinet and Head of the Ontario
Public Service, Canada
In the short term, the focus remains on stimulating

economies by maintaining increases in public spending as
the global economy turns around and heads towards the
recovery ward. But, in the medium term, dealing with debt
on such an unprecedented scale and avoiding a long term
Yet a return to growth is fundamental because it is the
drag on economic recovery requires credible, sustainable
primary source of government revenue through personal
plans to address the fiscal gap and avoid a return to
and corporate income taxes. The priority for government,
intensive care.
therefore, is to spend on projects with a high social and
economic return, which will assist private sector wealth
creation. This includes infrastructure projects, support for
SMEs and strategic sectors as well as addressing longer term
policy challenges such as healthcare, education, ageing
populations and the desire for low carbon economies.

Doing more with less
But while delivery efficiencies can save money and
There are also important steps that governments can take improve service, they can’t save, say, 10 percent of your
to do more with less. An obvious starting point is to focus overall budget. If you’re sending $1000 cheques to tens of
on improving operational efficiency. The most politically thousands of people every month and manage to do that
attractive areas are in the back office, through reducing more efficiently, you will save money. Instead of costing
duplication, sharing services and re-deploying resources to you three dollars a month to send a cheque out, you may
the front-line. The UK’s Operational Efficiency Programme get it down to one dollar. That’s great, but you’re still
(OEP) is an example of this approach where the government sending $1000 payments. So, increased efficiency is
is seeking efficiency savings in five areas: back office and only a small part of the budget challenge.
IT, collaborative procurement, asset management, property
and through local incentives and empowerment. The lesson Robert Bhatia
from history, however, is that a focus on efficiency, is rarely Deputy Minister of Alberta Seniors
enough to turn around major fiscal deficits – governments and Community Supports, Canada
must transform their approach and seek radically new
ways of doing things (see Box 5).
Box 5: Lessons from international experience

Netherlands Study Group on the Budget Margin Sweden’s Consolidation Programme 1995-98
The Netherlands experienced a period of successive Sweden’s programme was also prompted by poor finances
budget deficits in the 1980s and early 1990s. The Study (debt at 84% of GDP and a budget deficit around 10% of
Group on the Budget Margin proposed reforms including GDP). The programme introduced three-year ceilings on
a medium-term framework and an agreement process for expenditure for each ministry. It was up to departments
establishing policy and budget priorities for the duration of to fulfil service obligations whilst achieving budget cuts
the parliamentary term. After implementing these reforms, of 11% from 1995-98. After 1998, public agencies had to
net debt was reduced by 50% between 1995 and 2009. match private sector productivity levels. Debt fell to around
40% of GDP by 2006.
Canada’s Programme Review 1994-99
Canada’s public finances were in crisis in the early 1990s,
Ireland 2008-09
with debt at around 70% of GDP and a budget deficit Facing rising deficits, in November 2008 the Irish
which peaked at 9.2% of GDP. This prompted a wide- government established a Special Group on Public
ranging Programme Review, which started from the Service Numbers and Expenditure Programmes to make
premise of “what is the Government’s role?” rather than recommendations for a return to ‘sustainable public
“what shall we cut from the budget?” The Prime Minister finances’. The Group, comprising public and private sector
was a strong champion for change and a public campaign representatives, reviewed each government department’s
formed a consensus within Canada that the debt had to spend as well as cross-cutting issues and themes and
be eliminated. Programmes were put through a common asked whether services were needed and, if so, whether
Programme Review Test, and those that failed were marked public or private sector should provide them. The Special
for abandonment or transfers. The biggest savings by far Group recently reported and identified €5.3 billion of
were from “stopping doing things” – efficiency measures savings i.e. 9.3% of relevant public spending.
just did not make enough of a difference. As a result public
sector employment fell by 23% (c. 47,000 jobs) in three
years and the budget returned to surplus within a decade.
The single most important factor in unlocking significant,
sustainable reductions in public spending is strong political Where you make the most progress with the efficiency
leadership at the highest level. Without political will and agenda is when the political leader and the official leader
ownership at the highest level, nothing will change. This sets are both clearly signed up. If one of them isn’t, you’ll make
the tone for officials and Chief Executives across the public some progress, but not a lot – and if neither of them are,
sector and puts doing more for less at the top of the agenda, you are not going to make any progress at all.
alongside the delivery of services to meet public demand.
Sir Peter Gershon
UK Civil Service World, 30 June 2009
Prioritisation
Public support and understanding of the issues and the
challenge are also vital whilst any measures to reduce costs
or re-prioritise services must be a coherent package, so that
the ‘pain’ is shared. Governments can also draw on best
practice from the private sector. Public sector organisations This, of course, is easier said than done, particularly if it is to
need to look beyond traditional approaches to cost be done in a rational and robust way. It is far too easy to develop
reduction and encourage new ideas and practices that will lists of activities to cut, programmes to stop and organisations
transform service delivery. to cull, without thinking through the systemic consequences,
or to focus on areas of spend which are ‘easy’ to cut. It is
Private sector companies that are emerging from the also straightforward to call for (although harder to deliver)
downturn as winners are those who have proactively across-the-board cuts of, say, 10 or 20% without assessing
undertaken a strategic, financial and operational review, the relative priority of different areas of spend.
while positively maintaining ‘business as usual’ and
managing their varying stakeholders’ agendas. We believe These approaches risk incoherent decisions where some
that these core principles are equally applicable in helping very high priority frontline services are cut, whilst some less
public sector organisations to work through the current important activities continue. Similarly, cuts in one area
economic downturn. made without consideration for the related services can
risk worse outcomes. We believe that a consistent, robust,
In particular, business has learnt through harsh experience evidence-based approach is the best way to achieve lasting
that it is critical to set priorities and allocate the scarce consensus and success, and ensure a coherent approach
resources available accordingly. Similarly, governments need to new, lower cost public service delivery.
to stop doing some things in order to focus on other areas of
higher priority. Government needs to undertake a fundamental
review of its activity and role. In particular, government must
prioritise ruthlessly and ensure spending is ‘on strategy’ and
not wasted because ‘we’ve always done things that way’
(see Box 6 for an approach to prioritisation).

Box 6: A strategic approach to prioritisation
Based on a wide range of public and private sector

experience, our view is that prioritisation needs to separate A strategic prioritisation tool for government
out two important elements of decision making: the relative
priority of different areas of spend (which is subjective and
Evidence Base
will often be determined politically) and the relative Cost-benefit analysis
performance of the public sector in delivering the service Core competence analysis
(as determined by an objective cost/benefit analysis). High
Lower priority services which are delivered poorly are
candidates to be stopped; if they are delivered effectively DO BUY
there may be a case for privatisation, or possibly for consider invest,
providing the service to a lower standard at a lower cost. In Strategic Priorities
doing more do smarter
Relative Priority
contrast, higher priority services should continue to be
provided, though with radical redesign (e.g. outsourcing) if
the public sector provides them poorly at the moment.
SELL STOP
The technique is intended to take a ‘zero-based’ approach.
or run cheaply sell any
Indeed, the approach is as much a process as an outcome
- it is essential to involve decision-makers and key for a return components
stakeholders, as the conclusions should be theirs if they you can
Low
are to be subsequently implemented. The tool can be
applied at any level, be it the whole of government or part High Relative Performance Low
of an agency, and we believe it is essential as a mechanism
for ensuring tough choices are made in a robust and
evidence-based way.
Summing up Sustainable solutions require political will and ownership at

the highest level. This must, in our view, entail a combination
Governments are facing a conundrum – how to deal with
of tax rises and spending cuts, where the decisions on both
ever more debt at a time when needs are rising, with the
are guided by the impacts on economic growth and social
economic downturn resulting in greater numbers of
outcomes – progressive austerity is the order of the day.
unemployed and disadvantaged people needing state
But, as any business or family household knows, balancing
assistance. Efficiency improvements will be necessary, but
budgets still requires tough choices and a robust, evidence-
not sufficient on their own to fill the fiscal gap. It will also
based approach to prioritisation which balances the relative
mean revisiting the role of government, stopping some
importance of government programmes with the ability of
activities, prioritising some areas over others and
government to deliver.
re-designing service delivery.
Turning the tide of debt by taking tough decisions on both

tax and spending will be critical to restoring the public
finances back to health. Failing to fix fiscal problems, by
contrast, would be a recipe for persistently high interest
rates, more volatile currencies and a less certain
environment for business investment, employment
and growth.
Final thoughts: Governments as intelligent investors
Business concern is focusing, rightly, on protracted recession. CEOs and Governments around the
world are preparing for take off and a return to growth. But now is also a time for governments to reflect
and learn the lessons of the global financial crisis and put in place the processes and early-warning
systems which will help reduce the risk of another global recession in the foreseeable future.
CEOs and governments around the world need to look

forward. Governments must act as intelligent investors: Public and private sector risk management systems must
for growth to take off, governments at all levels must invest be sharpened. Coordination among government
holistically, strategically and sustainably in the ‘capitals’ agencies must be improved. Dialogue between the private
needed by any society for long term prosperity, with the and public sectors must continue.
priority being projects with a high social and economic
return, which will assist private sector wealth creation,
particularly in infrastructure. Equally, governments should
be wary of cutting investment plans to balance the books
– this will not solve structural fiscal deficits, and will only
serve to solve today’s problem at the expense of creating
new ones for tomorrow.
There will also be a need for more collaboration between The financial crisis and subsequent global recession has
countries based on a need for enhanced infrastructure highlighted the central role of government in addressing
between as well as within countries (‘joint capitals’) e.g. global and systemic risks. There is no doubt that much
intelligent transport infrastructure and broadband, as well stronger global governance is needed to safeguard the
as to solve debt problems. Yet this must be done carefully fundamentals of the world economy, particularly human
given that, at the same time, many governments face and financial capital and natural resources. Public risk
rising budget deficits. management must also improve with stronger mechanisms
for mitigating global systemic risks needed, including reform
It is striking also to reflect on the lessons of the global of institutions such as the IMF and World Bank
financial crisis which our interviewees highlighted including and a greater role for the G20 as a real-time decision
a need to: -making forum.
• align policies and have a clear vision of what is being
achieved, particularly avoiding asset bubbles, be they Most importantly, governments must continue to re-build
in real estate, commodities or capital markets; confidence and public trust, reduce uncertainty further
• sharpen public and private risk management systems; through intelligent and authentic leadership and vision and
create policies and mechanisms for collaboration that are
• improve coordination between government agencies;
appropriate for today’s global flows of capital. Public sector
• maintain a dialogue between the public and private leaders must shift gear, from being reactive to events to
sectors; being both proactive and interactive, with business and
• question the status quo on a continuing basis; and society. Governments must seize the opportunity to chart a
• focus on social protection and going for job creation way ahead, investing in the future as the global economy
and growth. takes off towards growth.

Acknowledgements
The following individuals and groups in Core editorial team
PricewaterhouseCoopers and elsewhere Jan Sturesson
contributed to the production of this report. Partner, Global Government & Public Services Leader
Carter Pate
Partner, Global Government & Public Services Co-Leader
Nick C Jones
Director, PwC’s Public Sector Research Centre
Research
Alina Stefan
Global CEO Survey Team
Claire Styles
Hayley Rimmer
Jill Haasan
International Survey Unit
Other contributors
Egon de Haas
Global Government
Sophie Lambin
Director, Global Thought Leadership
Lindsey Ford
Government and Public Sector Marketing, UK
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+234 1 270 3119 +971 2 6946800 +44 20 7804 8068
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+420 251 152 042 +31 70 342 6079 +1 703 918 1352
Nora Wu Debbie Francis Olivier Mortelmans
China New Zealand European Union Institutions
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+86 21 2323 2517 +64 4 462 7182 +352 49 4848 4012
Christian Klibo Roger Mortensen Richard Golding
Denmark Norway United Nations System
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+45 89 32 55 14 +47 95 26 06 99 +41 58 792 9100
Marko Korkiakoski Luis Ferreira David Hoffman
Finland Portugal World Bank Group
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+358 9 2280 1220 +351 213 599 300 +1 703 918 3856
Jean-Louis Rouvet Judith V.Lopez Tony Kingsley
France Philippines Development Agencies
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Wolfgang Wagner Mark Rathbone
Germany Singapore
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+49 30 2636 1111 +65 96753514

www.psrc-pwc.com
100% Printed on FSC 100% recycled material, supporting responsible use of forest resources. Produced at a mill that is certified to the ISO14001 environmental
Setting a smarter course fo

or growth:
Automotive
Few, if any, business leaders will forget the past 18 months. The global recession was the most serious many
have ever experienced. Setting a smarter course for growth,
g the PricewaterhouseCoopers 13th Annual
Global CEO Survey, looks at what measures CEOs are taking t in response to recession, how they view the post-
crisis business environment and what changes they are making to adapt their organisations. We surveyed
1,198 business leaders from around the globe, including g 50 automotive sector CEOs, from September to
November 2009 and conducted further in-depth
in depth interview
ws with 27 CEOs
CEOs.
What did we learn? Global business leaders had to make dram matic changes to their organisations, including reducing
headcount, selling off assets and preserving cash. That painfu ul experience has led many CEOs to rethink their approach to
risk in an increasingly volatile world. It’s abundantly clear how quickly a contagion can spread, and how damaging it can be.
CEOs now know they need to plan for volatility.
To do that, CEOs have begun to reshape not only their strateg gies, but also their capabilities. It takes strategic flexibility to
address risk at a deeper level. And it takes organisational agility to respond to volatility. That doesn’t mean CEOs will
become risk averse; rather, they may become more deliberate e in examining alternatives, formulating a Plan B, and
ensuring they can execute on it. The result, we believe, will be
e a smarter course for growth, a resilient path that will produce
a sustainable long-term upside for organisations – while accou unting for a range of economic, social and environmental
forces that comprise both threats and opportunities.
Sector Key Findings Rethink Strategic

direction
Business model changes in the offing
The automotive industry is undergoing some of the most sign nificant changes in its Reshape Business
operating model in nearly 100 years, as a result of new powe ertrain and connecting models
technologies, increasing interest in electric vehicles and the growing importance of the
emerging markets. Hence the fact that 68% of automotive CE EOs plan to change their Result Growth
companies’ organisational structure.
Confidence levels improving
Last year,
ear aautomotive
tomoti e CEOs were ere the least confident in their 12 months o
outlook
tlook of an
any
sector in our survey. This year their expectations have impro oved considerably. And Talking Points
while CEOs in the automotive sector are less likely to state they are ‘very confident’
about prospects for revenue growth over the next 12 monthss than their peers in other Is your business
sectors, they are actually more likely to state they are ‘somew what confident. Only 4% model responding to
are 'not confident at all' -- a big improvement from last year'ss 18%. new vehicle trends
Climate change offers risks, opportunities and the growing
Cli t change
Climate h iis a significant
i ifi t iissue ffor th
the automotive
t ti iindu
d stry,
t butb t with
ith many importance of
companies struggling to stay afloat in the global recession, automotive
a CEOs are more
likely to report that the recession has delayed their companyy's investment in its climate
emerging markets?
change strategy. CEOs in the automotive sector are more likkely to be preparing for the How are you coping
impacts of climate-change initiatives in the coming 12 month hs than their peers in other
sectors, though. More of them see compliance with climate-cchange initiatives as likely with climate change
to be a significant expense for their company than do CEOs across the sample. At the and resource
same time, compared to CEOs across all sectors, more also o believe that climate-
climate scarcity?
change initiatives will lead to significant new product and serrvice opportunities.
Sector responding to broader pressure on natural res sources
More automotive CEOs state the pressure on natural resourcces will continue to
increase than do CEOs across the survey sample. In responnse, we see many
automotive companies devoting efforts to enhancing develop
pment in new areas which
reduce the amount of resources needed to produce and run vehicles.

or growth:
Automotive
Sector Key Findings Rethink Supplier networks
Stabilising the supply network is crucial Reshape Risk exposure
Automotive CEOs are much more concerned about financcially stressed
suppliers than CEOs in other sectors. They are also more e worried about
Result Stability
supply-chain security and more likely to be actively collab
borating with
their partners to manage risk. This is partly because the automotive
a
supply chain is very integrated; many original equipment manufacturers
(OEMs) share key suppliers, so problems at one company can quickly Related Talking
affect others. In addition, automotive companies rely on th
heir suppliers to
invest in new technologies and many suppliers are strugg gling to fund
Points
these investments, given the current economic climate an nd its impact on
To what extent are you
an industry long burdened with excess capacity and low profitability.
p
collaborating with financially
Risk management also a general focus
stressed suppliers to
Automotive CEOs are also paying more attention to otherr areas around
risk; ninety-two percent are planning to allocate more resources to risk- manage risk?
related information gathering and analysis.
How are you managing
Exchange rate volatility a concern exchange rate volatility?
More automotive CEOs are concerned about exchange ra ate volatility
th th
than their
i peers across th
the sample
l as a whole,
h l reflecting
fl ti the
th What impact have cost
international exposure of many players in the industry. reductions had on your
Achieving cost efficiencies staff? Are you supporting
Automotive CEOs think investing in cost efficiencies is immperative; 90% them through change and
plan to spend more on such initiatives over the next threee years. But
investing in employee
dramatic shifts in consumer behaviour, together with new w regulations
and structural changes, will make it difficult for many com
mpanies to morale programmes?
reduce their costs substantially.
Have you ended any
Headcounts down; Auto companies supporting staff outsourcing arrangements
Eighty percent of automotive CEOs report headcount reduction -- the
this year? What factored into
highest percentage of any sector in our survey. Automotivve CEOs are
also changing some of their approaches to people strateg gy. Compared the decision?
to the overall sample, more automotive CEOs state that they will be
changing their strategy around managing people through change (e.g.,
redefining roles in the organisation) and staff morale and employee
engagement programmes.
Bringing more activities back in-house
Compared to the overall sample, more automotive CEOss report that
they have 'insourced' a previously outsourced business process
p or
function in the last 12 months, suggesting that some companies are
reassessing g the cost savings
g ggained by
y outsourcing
g arran
ngements.
g
PricewaterhouseCoopers LLP pwc


or growth:
Automotive
Sector Key Findings Rethink Financing options
Concerns about funding Reshape Bank lending

Most automotive companies need to invest in meeting evolving Result Liquidity
standards and promoting innovation, fulfilling demand forr more
technologically integrated vehicles and expanding their presence in
growth regions. So it is not surprising that 72% of automo
otive CEOs are
somewhat or extremely concerned about the volatility of the
t capital
markets (compared with 58 % of the total survey population). Related Talking
New product development remains key Points
New product development remains a key area of focus. More M CEOs in
the automotive sector see new product development as th he main Do you have sufficient
opportunity
t it tto grow th
their
i bbusiness
i iin th
the nextt 12 months
th tthan
th d do th
their
i fi
financing
i to
t fund
f d new
peers across the overall sample. product development,
Bank lending more important including responding to new
CEOs in the automotive sector are more likely to finance growth through trends? How is your
bank lending (50% vs. 40% overall), but given the tough times
t facing the
relationship to bank lenders?
sector, accessing these types of funds may be difficult go
oing forward.
The impact of government intervention Are you working to build
A number of automotive manufacturers received widely publicisedp public trust in your company
government bailouts in 2009. But though 56% of automottive CEOs and the sector as a whole?
believe that government ownership helps to stabilise an in ndustry in times
of crisis, 82% think that it also results in political interferen
nce in the Are you sharing the
marketplace. message with your national
Automotive CEOs see slight drop in public trust government that less
Government bail-outs
bail outs have shaken the trust of some conssumers in the regulation is needed,
auto industry, and automotive CEOs recognise this to som me extent --
automotive CEOs are more likely to state there has been a slight fall in
particularly around
public trust in their sector as a result of the economic crisis than CEOs in innovation and workforce
other sectors. practices?
Looking for less regulation on innovation, workforce practices
eness in the
Innovation is absolutely critical to maintaining competitive
automotive
t ti industry.
i d t M
Many automotive
t ti companies
i are buburdened
d d with
ith
workforce obligations which cast a shadow over their bala ance sheet;
improving the situation is key to achieving long-term fiscaal health. Given
both of these factors, it's not surprising that 50% of CEO Os in the
automotive sector would like to see less regulation regard ding innovation
and competitiveness, and 56% favour less regulation of workforce
w
practices, including compensation.
PricewaterhouseCoopers LLP pwc


or growth:
Automotive
Learn more
Please see www.pwc.com/ceosurvey to access the full PricewaterhouseCoopers
P 13th Annual Global CEO
Survey, Setting a smarter course for growth, and supporting Visual Story and In-depth CEO Story documents,
along with other online resources.
C t td
Contact details
t il
Rick Hanna Francis Cizmar Alexander Mueller

Global Automotive Leader Global Automotive Programme Team Global Automotive Programme Team
+1 313 248 9211 +1 313 394 6100 +49 511 5357 5854
richard.hanna@us.pwc.com francis.j.cizmar@us.pwc.com alexander.mueller@de.pwc.com
www.pwc.com
This publication has been prepared for general guidance on matters of interest only, and does not consstitute professional advice. You should not act upon the information contained in this publication
without obtaining specific professional advice. No representation or warranty (express or implied) is givven as to the accuracy or completeness of the information contained in this publication, and, to the
extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not acccept or assume any liability, responsibility or duty of care for any consequences of you or anyone else
acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2010 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to Pricewa aterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context
requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which
w is a separate and independent legal entity.
Design_1000081_jp LLP 4

or growth:
Chemicals
have ever experienced. Setting a smarter course for grow wth, the PricewaterhouseCoopers 13th Annual Global
CEO Survey, looks at what measures CEOs are taking in response to recession, how they view the post-crisis
business environment and what changes they are makin ng to adapt their organisations. We surveyed 1,198
business leaders from around the globe, including 46 chemicals sector CEOs, from September to November
2009 and conducted further in
in-depth
depth interviews with 27 CCEOs.
CEOs
Sector Key Findings Talking Points

Ready to strike a deal
How are you evaluating
The number of chemicals companies engaging in cross-b border mergers
and acquisitions is substantially higher than it is in other sectors.
s Thirty- acquisition targets?
three percent of chemicals CEOs have completed at leasst one such deal Are you well-positioned to
within the past 12 months and 46% plan to do so within th he next 12
take advantage of growing
months.
markets in Asia?
Looking to Asia to lead the way
The chemicals industry is particularly strong in Asia and North
N America; Will you be able to keep up
67% of chemicals CEOs head companies with operationss in Asia and with competitors who are
59% head companies with operations in North America (ccompared with increasing spend on R&D
42% and 36%, respectively, of the total survey sample). However,
H most to drive innovation?
chemicals CEOs, like their peers in other sectors, expect Asia to prove
more pprofitable than North America over the next 12 mon nths; 84%
anticipate doing more business in the former, while only 52%
5 anticipate
doing more business in the latter.
Innovation key to growth
Chemicals CEOs continue to invest in new product innovation. Sixty-five
percent plan to increase their expenditure on R&D over th
he next three
years, which is more than in any other sector except ente
ertainment &
media
di (at
( 74%).
4%) IIndeed,
d d 30% off chemicals
h i l CEO CEOs plan
l to o make
k
‘significant’ increases in the amount they invest.

or growth:
Chemicals
Sector Key Findings Rethink Reporting lines
Backing tomorrow's leaders Reshape The organisation
Eighty-three percent of chemicals CEOs also plan to spennd more on
Result Simpler structures
leadership and talent development over the next three ye
ears, and 30% of
these CEOs intend to spend ‘significantly’
significantly more.
more
Cost-cutting and infrastructure improvements planne ed
Cost-cutting and infrastructure improvements are high on n the agenda of
chemicals CEOs, too. Eighty-seven percent aim to investt more in cost-
Related Talking
cutting initiatives over the next three years. Similarly, 76%
% aim to invest Points
more in upgrading their strategic technological infrastructture in order to
facilitate modern manufacturing and logistics processes. Is your strategic technology
Major changes in the offing iDo you have robust
More chemical CEOs -- 39% -- anticipate a major change e in their programmes in place to
company's organisational structure in the wake of the eco
onomic foster key research talent
downturn.
and groom tomorrow's
Inflation, protectionism, exchange rates seen as majo or risks leaders?
Chemicals CEOs are much more concerned about inflatio on and about
possible protectionist tendencies of national government than their peers nfrastructure robust enough
in other sectors; a full 63% are somewhat or very concernned that both of to handle globally networked
these factors may prove a threat to growth (compared to 40% and 49%,
respectively, of the overall sample). An even larger numbber -- 76%-- are
supply chains and
also worried that exchange rate volatility may pose a thre
eat, compared to increasing security
just 58% of the survey sample overall. These findings reflect the sector's requirements?
strong exposure to macroeconomic trends.
Have you optimised your
Energy costs remain a major challenge
Chemicals CEOs are much more likely to be concerned about a energy
organisational structure?
costs (72% vs. 53%) than their peers across the overall sample.
s This Do you have a full picture of
result is based primarily on concerns over oil prices, refle
ecting the
importance of petroleum as a raw material for many products, as well as how oil price volatility could
the energy-intensive nature of the sector's production and d transport impact your profitability?
processes.
Are you responding to the
Low-cost
Low cost competition rings alarm bells
threat of low-cost
Seventy percent of chemicals chief executives express co
oncern that low-
cost competition may threaten growth, compared to 54% of the survey competition? What actions
sample overall. are you taking to position
your business?

or growth:
Chemicals
Sector Key Findings Rethink Systemic risk
Resource scarcity, terrorism, supply chain security are Reshape Collaboration

key issues Result A better world
Chemicals CEOs are also more concerned about a numb ber of other
th t tto b
threats business
i growth.
th Th
They are muchh more lik
likely
l tto be
b somewhat h t
or extremely concerned about future scarcity of natural re esources (63%
vs. 35% overall), as chemical producers rely on natural re esources to
supply raw materials for their products. Further, over half (54% vs. 34% Related Talking
overall) see security of the supply chain as an issue, while 43%
expressing concern, compared to 30% of the sample ove erall. Forty-three
Points
Related Talking oints
percent worry about terrorism, compared to 30% of the sa ample overall. How well are you managing
Concerns over terrorism and security of the supply chain stem from the Do yyou have a strategygy for
reality that many chemical products can be dangerous to transport and risks related to resource
evaluating potential
store. scarcity?
acquisition targets?
Climate change and pandemics also cause for concerrn Are you satisfied with your
Other systemic risks also raise red flags for sector CEOs.. Another 50% Have you considered how
company’s efforts to
(vs. 37% overall) are concerned about climate change. Pandemics and you might be able to take
other health crises have also moved up the list, with 48% expressing promote and publicise
advantage of government
concern compared to 35% overall
concern, overall. corporate social
support off ‘green’
‘ ’
Bank financing seen as more accessible responsibility practices?
investments?
More chemicals CEOs, around 30%, anticipate that accesss to bank
financing and credit will actually become easier after econ
nomic recovery Have you evaluated how
sets in, compared with before the economic crisis. future trends in government
Sector CEOs believe systemic risks can be addressed d investment in infrastructure
Manyy chemical companies
p are developing
p gp products to he
elp
p companies
p in could affect your business?
other industries use resources more efficiently and comba at climate
change, and chemicals CEOs are accordingly much more e likely than
their peers to believe that efficiency of natural resource usage will
improve in the future (59% vs. 38% of the overall sample)), despite their
view that scarcity of resources poses a risk. They are also o more likely
than their peers in other sectors to believe that governme ent and business
efforts will mitigate key global risks like climate change, te
errorism, and
fi
financial
i l crises.
i
CSR will be a top priority for tomorrow's consumers
Chemical CEOs are even more convinced than their peerrs that
consumers will place a higher emphasis on a company's environmental
and corporate responsibility practices before making a pu
urchase (76%
vs. 64% overall). They are less convinced that consumerss will play a
more active role in product and service development, though (48% vs.
60% overall), and also not as convinced that consumers will
w seek out
familiar brands.

or growth:
Chemicals
Sector Key Findings Related Talking
Boards ramp up engagement around compliance, stra ategy Points
Chemical executives are more likely to believe that the booards of
directors are more engaged with ensuring regulatory com mpliance as a To what extent are you
result of the economic crisis (65% vs
vs. 52% of the overall ssample).
sample) They
engaging your board
are also more likely to see the board providing constructivve engagement
with the management team on strategy (72% vs. 61% ove erall). around compliance or
strategy issues? Could you
Trust in the sector undamaged by the downturn
Chemical executives do not believe that the economic crisis damaged be doing more?
trust in their industry. Not one felt that the industry saw a significant fall in
public trust, and only 4% believed trust suffered slightly. More
M than a
thi d (35%) actually
third t ll feel
f l that
th t public
bli trust
t t in
i their
th i sector
t ha
h s increased
i d–
they were more positive on this front than any other secto or in our survey.
Poverty likely to continue
Chemical CEOs are less sanguine about the prospects fo or social
equality. Eighty-three percent feel the gap between rich and
a poor people
within nations will increase (compared to 68% of the ove erall sample).
Learn more
Survey, Setting a smarter course for growth, and supportiing Visual Story and In-depth CEO Story documents,
along with other online resources
resources.
C t td
Contact details
t il
Saverio Fato Alison McNerney Joy Winton

Global chemicals leader Global chemicals client service advisor Global chemicals marketing
+1 (216) 875 3030 +1 (646) 471 1747 +44 20 7804 6008
saverio.fato@us.pwc.com alison.mcnerney@us.pwc.com joy.winton@uk.pwc.com
www.pwc.com
r&c worlds
express
February 2010 | Volume 1
Setting a smarter course Background: Some trends:*

for growth • Consumers are spending less—and
Retail and consumer goods sector looking to get the most value for
findings from the 13th Annual Global their money. Savvy consumer goods
companies are looking for innovative
CEO Survey
ways to define “value” beyond price.
The business world has changed dramatically • Private label continues to gain market
in the last 18 months, and the new reality has share as consumers continue to shop
dramatically impacted retail and consumer goods for value.
companies. Will consumer demand rebound?
It’s clear that no one really knows the answer • Narrower is the new “norm”, and
yet. But what is clear is that a lot of long-term retailers are looking to decrease
planning will have to be thrown out the window. product assortments on the shelf to
According to Ian Bremmer, president of Eurasia cut excess inventory, make more room
Highlights Group, a leading global political risk research for store brands and generally create a
and consulting group, companies will “have more efficient, less confusing shopping
• Business confidence among retail and
to plan with a readiness to make changes on experience for customers. Some
consumer goods CEOs is up from last short notice, and you probably need to revise
year, but still less than in past years. suppliers are cutting the number of
strategic plans much more frequently, with new products they manufacture in order to
• Of potential threats to their businesses, assessments of the global environment, than get ahead of the game.
retail and consumer goods CEOs are both you did before this crisis hit.”
very concerned about overregulation. • Leading companies are collaborating
The upheaval to business planning and with partners to deliver innovative trade
• Two-thirds of all retail and consumer operations came through clearly in the 13th promotions. A consumer might get a
goods CEOs think consumers will favour Annual Global CEO Survey. The survey, coupon for a significant discount at a
socially and environmentally responsible conducted in September to November 2009, second retailer or for an event when
companies. The large majority of both consists of interviews with 1,198 business purchasing a basket of the first retailer’s
anticipate changes will be required to leaders from around the globe—272 of those in products.
respond to shifts in consumer behaviour. the retail and consumer goods sectors.
• 47% of consumer goods CEOs had no * Excerpted from a PwC-hosted panel discussion on “Winning trends of leading CPG
companies” that included Jane Nielsen, SVP & CFO PepsiCo Americas Beverages,
climate change strategy in place a year PepsiCo; Stephen A. Sibert, SVP Industry Affairs, GMA; Patrick Yost, Director,
PricewaterhouseCoopers, Marty Weintraub, Vice President, Karabus Management
ago, and only 33% of retail CEOs did. and moderated by John Maxwell, PwC Global Retail and Consumer Leader.
In brief Few if any business leaders will forget the last
18 months. The retail and consumer goods
How are CEOs responding to changing
consumer behaviour?
CEO responses to the 13th Annual Global
CEO Survey show how they view their current Nearly all believe that strategy changes will be
prospects and what changes they are making required and both feel strongly that consumers
to adapt. will place a higher emphasis on a company’s
social and environmental practices. A significant
portion foresees changes in strategy as a result.
What’s happening to business
confidence?
What are the best prospects for growth
Guarded optimism prevails. Consumer goods in the next year?
CEOs are somewhat more confident than
retailers, and both are more confident than As was the case last year, the focus will be on
last year. existing markets, rather than new markets or
new product development.
What keeps CEOs awake at night?
A lengthy global recession is at the forefront
of retail and consumer goods CEOs’ concerns.
On the plus side economic turmoil has impacted
growth trends favourably in some emerging
markets, creating opportunities.
2
Some glimmers CEOs are emerging from the deep uncertainty
of the past months and are guardedly confident
companies are strategically positioned to
capture competitive gains in their existing
of good news about the future. 29% of retail CEOs and 35% markets ahead of a hoped-for broad-based
of consumer goods CEOs are very confident improvement in demand. Their growth strategies
about their companies’ prospects over the next tend to bear this out: The largest percentage
12 months, compared with just 14% and 27% is focused on their existing markets and fewer
respectively last year. Confidence is still less than believe that new geographical markets or new
it was in previous years, however. This year’s product development offer better potential for
higher confidence suggests CEOs believe their business growth.
“It made us think about our businesses, our boards, our teams—
this was an emergency situation and we were forced to make some
important decisions.”
—Carlos Fernandez, CEO, Grupo Modelo
3
Concerns remain The survey examines how CEOs perceive the
risks of the business environment. As is natural
goods CEOs and 64% of retail CEOs said that
headcount had either decreased or at best
after the shock of recent economic events, stayed the same last year. Though cutbacks are
CEOs are concerned on a number of external forecast by 26% in each sector, the good news
threats to growth. Of a broad range of potential is, more CEOs see headcount increasing—if
risks, retailers were most concerned about the only slightly—than decreasing in the next 12
possibility of a lengthy recession, stability of the months. Highly-trained specialists will always
capital markets, over regulation and potential be in demand, according to Tigran Nersisyan,
shifts in consumer spending, in that order. president of Russian food and beverage maker
Consumer goods CEOs worried most about Borodino Group. “To be honest, just as before
exchange rate volatility and over regulation, the crisis, we still face a shortage of highly
along with energy costs. Keeping costs in line trained workers, such as IT specialists, software
continues to be on executives’ minds, especially developers and experienced marketing staff.
among consumer goods CEOs. 68% of consumer Specialists of all kinds are in great demand.”
4
Changing strategies Business leaders appear to be split on the
lasting impact of the economic crisis, but they
Consumer goods CEOs are increasing their
focus on preparing for systemic risk and
to adapt are changing company strategies to adapt. low-probability, high impact events—but
Consumer goods and retail are high on the list moderately. 48% anticipate changing their
of sectors most concerned that a permanent approach somewhat, but only 34% anticipate
shift in consumer behaviour is underway. 64% of altering their practices to a large extent or
retail CEOs and 55% of consumer goods CEOs significantly. Retail executives anticipate some
are either extremely or somewhat concerned or major change to investment decisions as a
about “permanent shifts in consumer behaviour” result of the economic crisis—83% anticipate
resulting from the current economic crisis. A some degree of change.
large portion expects consumers to spend less
and save more in the future.
“Benetton’s positioning in what we like to call ‘democratic fashion’ is helpful

in facing the crisis, however; the consumer on average is spending less and
more shrewdly. Spending a lot is less trendy than it has been in the past and
consumers prefer to buy greater quantities of products at the same price
rather than a single ‘designer’ product.”
—Gerolamo Caccia Dominioni, CEO, Benetton Group SPA
5
Consumers CEOs are bracing for other changes as well,
which is why nearly every retail CEO (91%)
Even though socially and environmentally
responsible practices are on CEOs’ radar
perceive value anticipates making changes to respond to screens, many in the sector still need to face
in reputation shifting consumer purchasing behaviours, and
89% of consumer CEOs do, as well. Most
up to the challenges posed by climate change.
47% of consumer goods CEOs had no climate-
CEOs agree that new kinds of behaviour offer change strategy in place a year ago and only
up new opportunities. Consumer goods and 33% of retail CEOs did, compared to 52% in
retail CEOs are equally likely to plan to change the total sample. More than a third has made no
their strategy as a result of consumers placing a preparations for any climate-change initiatives
higher emphasis on a company’s environmental in the coming 12 months. Given consumers’
and corporate responsibility practices before growing demand for “green” products and
buying; 65% of consumer goods CEOs feel practices this is a gap many will need to remedy.
that consumers will favour environmentally
responsible companies. A similar percentage In a related vein, many consumer goods
expects consumers to play a more active role in CEOs plan to spend more on advertising and
the product development process. This is one of brand building in the wake of the recession—
those “values” as perceived by consumers. 57% versus just 42% in the larger sample.
“Value orientation is driving consumer patterns. Companies that are

getting close to the consumer (involving them in product development)
are just smart. This isn’t really a shift in consumer-corporate strategy or
relationships—consumers will go back to spending more freely when
they are more confident.”
—Jeff Thompson, Head of PwC Consulting—Europe, Middle East and Africa
6
Where to look Retailers with operations in the area don’t see
their business increasing in Asia as much as
Lessons learned in a crisis
for growth? the survey group as a whole (66% versus 82%). Business leaders responding to the survey
Consumer goods CEOs see the landscape often cited regrets at not acting quickly enough
somewhat differently, as, out of those CEOs when conditions turned. Strengthening the
with operations in the region, 78% believe resilience of their organisations while remaining
business in Asia will grow. on top of opportunities was deemed critical.
Other lessons learned:
Better penetration of existing markets was
again seen this year as the major opportunity • Long term planning is critical—but be
for business growth. 40% of both retail and prepared to change at a moment’s notice
consumer goods CEOs cited this as their key
focus. Fewer saw new product development • Stay disciplined on costs, but incur them
or new geographic markets as a focus, and to innovate
fewer yet were planning to pursue M&A or • Manage risk in good times, as well as in bad
joint ventures and strategic alliances.
7
Resources To learn more about the retail and consumer goods findings
in the 13th Annual Global CEO Survey, please contact:
John Maxwell
Global Retail & Consumer Leader
john.g.maxwell@us.pwc.com
Denis Smith
Global Retail & Consumer Knowledge Senior Manager
denis.x.smith@us.pwc.com
pwc.com/r&c
PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders.
Our Global Industry Programme demonstrates our industry strengths and drives value for our clients. The programme’s foundation is a deep understanding of business
and industry issues, connected with meaningful solutions. Companies leverage our extensive industry resources and knowledge to compete more effectively in specific
marketplaces. Our global retail and consumer industry group has designated professionals and territory sector leaders in more than 50 countries around the world,
serving all types and sizes of retail and consumer goods companies. A network of retail and consumer-focused professionals assists with transactions, global sourcing,
international accounting regulations, transfer pricing, customs, tax and other issues.
© 2010 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership,
or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.
This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. NY-10-0567

or growth:
Engineering
g g & Construction
n
business leaders from around the globe, including 75 fro om Engineering & Construction (E&C) companies, from
September to November 2009 and conducted further in- in depth interviews with 27 CEOs
CEOs.
Sector Key Findings Rethink Financing

g
Greater use of debt financing, changes to capital stru uctures in the Reshape Capital structures
offing Result Growth
More E&C CEOs – over a third – expect to finance growth h through the
debt market, compared to 24% of CEOs across the entire e sample.
Further, a greater number of E&C CEOs – 71 % compare ed to 61%
across the sample
p as a whole – anticipate
p changes
g to theeir capital
p Talking Points
structure. These findings may reflect the lack of enthusiassm the capital
markets have traditionally had for the E&C sector, which has historically Are you able to access
had a high risk of earnings volatility and experienced rela
atively low sufficient capital to support
margins. Many sector companies are dependent on a deb bt market that is business growth?
not yet operating effectively in many parts of the world.
Are you considering the
Risk of inflation in the supply chain
Thirty-nine percent of the sector CEOs surveyed are conccerned about risk of inflation when
inflation. This is broadly in line with the survey sample as a whole, and is agreeing long-term, fixed
down from the 50% who worried about this issue last yea ar. This result is price contracts?
surprisingly low, as inflation could well represent a particu
ular challenge
for the E&C sector, given the prevalence of fixed price lon ng term
contracts, which make it difficult or impossible to pass on inflation in the
cost base to the end customer.

or growth:
Engineering
g g & Construction
n
Sector Key Findings Rethink Risk management
Growth prospects shifting East Reshape Control
Fewer E&C CEOs – just 31%, compared to 46% of the ovverall sample – environment
expect their business in Western Europe to grow over the e next twelve
months In fact
months. fact, nearly as many,
many 28%,
28% actually anticipate a decline in the Result p
Better compliance
region. This contrasts starkly with views of growth prospe
ects in Asia,
where in excess of 70% expect growth.
Risk management focus increases
The large majority of E&C CEOs, like their peers in other sectors, are Related Talking
increasing the focus on diverse aspects of risk management, with Points
integrating risk management capabilities into business un nits and
allocating resources to risk
risk-related
related information gathering and analysis Are you di
A diversifying
if i your
heading up the list.
business geographically to
Board oversight of strategic risk growing take advantage of growth in
Nearly four-fifths of E&C CEOs (79%) report that as a ressult of the
emerging markets?
economic crisis, their board of directors is more engaged or significantly
more engaged in assessing strategic risk. Many also state their boards How well is your senior
are more engaged on overseeing financial health and foccusing on long-
management team engaging
t
term key
k performance
f indicators.
i di t Th
The iincreasedd ffocus on strategic
t t i risk
i k
comes as no surprise. In tough economic times, E&C com mpanies have to the board on questions of
be especially aware of the viability of the projects that the
ey enter into and strategic risk, financial
avoid the trap of taking on work that may significantly incrrease the health, and KPIs?
corporate risk profile and threaten the profitability and cassh resources of
the Company. Do you have sufficient
Investments in cost cutting, leadership development on programmes in place to trim
the increase costs and groom tomorrow’s
C CEOs expect
In the wake of the economic crisis, more than half of E&C leaders?
a major change in their investment decisions, compared tot around a
third of CEOs overall anticipating changes of this magnitu
ude. Top areas
where E&C CEOs expect to increase investment are arou und cost
efficiencies, leadership and talent development, and orgaanic growth The crisis has actually bolstered
programmes. This implies that despite the growth progno osis, CEOs are their influence. These countries
acutely aware of competitive pressures and the need to sstay focused on will continue to absorb 80% of the
realizing efficiencies. world's construction requirements
Outsourcing levels low over the coming decade.
The figures suggest that the E&C sector is not as focused d on Bruno Lafont
outsourcing its key business processes or functions as otther sectors, Chairman and CEO Lafarge
with only 16% planning to initiate a programme, compared with 34% Group
overall. Whilst there will be a natural aversion to relinquishing control of
k processes around
key d project
j t management, t there
th may be
be more the
th
sector could be doing around its back
office processes.

or growth:
Engineering
g g & Construction
n
Sector Key Findings Rethink Infrastructure
needs
E&C CEOs feeling more confident
E&C CEOs are clearly feeling more confident about the markets
m in which Reshape Strategic
they operate. Some 73% are either somewhat or very con nfident of responses
revenue growth for their own organisations in the next 12 months.
months
Furthermore 15% believe economic recovery has alreadyy begun for the Result Growth
sector, with a further 50% expecting it during 2010.
M&A activity low, but set to increase
Only 15% of E&C CEOs report having completed a crosss-border merger
or acquisition in the past twelve months. Many more – 35 5% – entered
Related Talking
into a new strategic alliance or joint ventures. Sector CEOOs anticipate Points
much h greater
t activities
ti iti levels
l l in
i the
th coming
i twelve
t l month th
h th
hs, though,h with
ith
27% looking for M&A and 49% expecting to enter into a new n strategic Do you have a strategy for
alliance or joint venture. evaluating potential
Headcounts hit hard acquisition targets?
Fifty-two percent of E&C CEOs report having decreased headcount
h in
the past twelve months, and only 22% added staff. Last year,
y 29% Have you considered how
anticipated such cuts, while 36% anticipated increases. This
T finding yyou might
g be able to take
reflects the severe impact the downturn has had on the seector, but the advantage of government
situation looks to be improving. Fewer E&C CEOs expectt to reduce
headcount in the coming 12 months compared to the prevvious period, support of ‘green’
and more are looking to beef up employee numbers. investments?
Climate change investment facing more delays Have you evaluated how
While nearly half of those E&C CEOs with a climate-channge strategy in
future trends in government
place report no change in their investments, compared to
o the overall
sample, more of them (24%) state they have delayed inve estments in this i
investment
t t in
i infrastructure
i f t t
area due to the impact of the recession. could affect your business?
Government support of green investments less helpfu ul
While many sector CEOs see positive aspect to climate change
c – nearly
half agree or agree strongly it will lead to new products annd service Currently, the M&A market is very
opportunities – fewer believe they will be able to benefit frrom sluggish and there are few
government support
g pp for 'green'
g investments. opportunities around. However,
given the current climate,
Infrastructure needs an opportunity for E&C transactions that can represent
Thirty-three percent of the overall survey sample is worrieed that the first step towards strong future
inadequate basic infrastructure could prove a threat to groowth. Opinions development are not out of the
are split as to whether the government is doing enough to o remedy the question.
situation, but it seems likely that governments will need to
o increase
infrastructure spending to address the issue – a situation that should Bruno Lafont
provide significant opportunity for E&C companies
companies. Chairman and CEO Lafarge
Group

or growth:
Engineering
g g & Construction
n
Clarity and stability the priority for regulation
E&C companies are subject to a wide variety of regulation ns, particularly
Are you up to speed on the
around health and safety. Not surprisingly, more E&C CE EOs than their key regulations that will
peers across the survey sample stress the need to ensure e that impact your business in
regulations are clear and stable in order to improve the po
olicy-setting each of the territories in
process with regard to smarter business regulation. Fewe er of them see a
need to place more emphasis on fairly enforcing existing regulations.
which you operate?
Downturn-related issues still loom

Fifty-seven percent of E&C CEOs believe an inability to finance growth The key feature of the crisis has
may threaten their companies' futures, far more than the 40% 4 of CEOs been the profound and brutal
overallll worried
i d about
b t financing
fi i iissues. M
Many sectort CEO
CEOss – 59% – are slowdown in the developed
also concerned about a protracted global recession. Topp ping the list of countries. Depending on which
threats related to the economic situation is lack of stabilityy in capital case you look at, volumes have
markets, with 64% of E&C CEOs citing this possibility as a concern plunged by 15% to 30%. In its
wake, the crisis has inevitably
generated funding problems,
unemployment and deficits which
all point to the same conclusion:
Learn more private investment has stalled and
only government stimulus
Please see www.pwc.com/ceosurvey to access the full
measures can kickstart growth.
PricewaterhouseCoopers 13th Annual Global CEO Surve ey, Setting a
Even then, the benefits will not
smarter course for growth, and supporting Visual Story an
nd In-depth feed through until 2010.
CEO Story documents, along with other online resources.
Bruno Lafont
Ch i
Chairman andd CEO L
Lafarge
f
Group
C t td
Contact details
t il
Jonathan Hook Joy Winton

Global E&C Leader Global E&C marketing
+44 20 7804 4753 +44 20 7804 6008
jonathan.hook@uk.pwc.com joy.winton@uk.pwc.com
www.pwc.com
Design_1000081_jp LLP
Key highlights for

entertainment and
media companies

Entertainment and media
Few, if any, business leaders will forget the CEOs have concentrated on reducing
past 18 months. The global recession was headcount, selling off unwanted assets and
the most serious many have ever preserving cash, but one area where
experienced. Setting a smarter course for resources continue to flow is talent
growth, the PricewaterhouseCoopers 13th development. CEOs are aware that they’ll
Annual Global CEO Survey, looks at how need the right skills in the right places when
CEOs have responded and how they are the recovery sets in. Most CEOs have also
positioning their companies for recovery. It acquired a healthy respect for risk, volatility
also explores where CEOs believe and flexibility, and are emerging with a
regulation can become more effective and different view of the growth imperative.
what they consider the lasting legacies of More plan to change their risk management
the recession. processes than any other element of their
strategy, organisation or business model.
And more boards are getting more involved
in assessing strategic risk than any other
item on the boardroom agenda.
13th Annual Global CEO Survey Entertainment & media
Changing consumer behaviour
Digital growth accelerated by the economic

The Global CEO Survey found that downturn
entertainment and media (E&M) CEOs These findings illustrate that CEOs of E&M businesses are very aware
that their customers’ desires and habits are changing at an
are more likely to believe that unprecedented pace – a trend that the economic downturn has
consumer spending and behaviour will accelerated.
change permanently as a result of the Chair and CEO of Interpublic Group (IPG), Michael Roth, agrees:
“There’s no question that there’s a change in the buying patterns of
economic crisis, and are more the consumer. The days of freely spending money, I think, have
concerned about this than many of passed. People are looking for value for their dollars, and even if you
can afford to spend more money, it’s appropriate to think about how
their counterparts in other industries1. you spend your dollars.”
This reflects the findings of PwC’s flagship industry report, the Global
And these concerns perhaps explain Media and Entertainment and Media Outlook 2009-2013, which
highlights our belief that against a backdrop of tough economic
why E&M CEOs are more likely to plan conditions, there will be nowhere to hide from the implications of
digital migration. Consumers are looking for increased value and
increased investment in R&D and new control, which is facilitated by and drives a rapidly digitalising media
product innovation in the wake of the world. Consumers want to consume their media wherever, whenever
and however they want, and the downturn has added considerable
economic crisis than CEOs in other momentum to that trend.
industries2. [1] 94% of E&M respondents anticipate some/major change in consumer purchasing behaviours compared
to 81% of the total sample. 60% of E&M respondents were somewhat or extremely concerned about a
permanent shift in consumer spending and behaviours, as opposed to 48% across the total sample.
[2] Over the next 3 years, as a result of the economic crisis, 74% of E&M CEOs surveyed plan to
moderately/significantly increase their long-term investment decision with regard to R&D and new product
innovation, as opposed to 57% across the total survey sample.
Changing consumer behaviour
Shifting place and time Net kids educating their parents

Marcel Fenez, PwC’s Global Entertainment & Media leader, As E&M CEOs recognise, value will be a key consideration for all
comments: “We are seeing consumers move from ‘prime time’ consumers. The net generation, born between 1977 and 1997 and the
consumption to ‘my time’ – as a result of which many businesses are first generation to grow up in a wholly digital world, make many more
taking a fundamental look at how they deliver, price and package their choices about how – and indeed whether – they are prepared to pay
content.” for content. Those attitudes are now spreading across the
generations as parents and grandparents become more comfortable
In the entertainment and media world, time and place are no longer with digital content.
set by appointment. Consumers are increasingly liberated from TV
schedules by time-shifting devices such as PVRs, video-on-demand The downturn has accelerated those new consumer attitudes and
and online catch-up services. And media consumption habits are behaviours. In a downturn consumers eschew going out in favour of
becoming more and more mobile, with content available on smart staying at home, consequently watching more TV and video content,
phones, netbooks and through wireless connections that allow listening to more music and spending more time online. And
consumers to watch and listen where, when and how they want. behavioural trends go far deeper than simply changing buying habits.
Content is increasingly integral to social interactions and relationships,
Taken together, these trends mean that, according to the Outlook, as witnessed by the explosive growth of social networking through
mobile/digital content will account for more the three-quarters (78 per tools such as Twitter and Facebook. The challenge for E&M
cent) of all revenue growth in the period between 2009 and 2013, with businesses is how best to capitalise on and monetise these trends.
digital content predicted to account for 31 per cent of all spend on
content in 2013 compared to 21 per cent today. Marcel Fenez sums up how the search for digital value is presenting a
challenge to the industry: “Everyone is looking for a good deal. We’re
now seeing the parents of the net generation also wanting to access
content for very little or even for free. And ironically in a downturn
people consume more content but the challenge for media businesses
is how to monetise that increased activity in the digital space.”
Collaboration
Agility is key
The Global CEO Survey found that While intense competition has long been the default mode for
businesses in the E&M industry, collaboration is becoming an
E&M business leaders are more likely increasingly vital approach as new business models demand speed,
than their peers in other industries to agility and flexibility to get closer to the digital consumer – as well as
the need to manage down underlying costs.
have initiated restructuring activities in
The challenges facing E&M companies have many different
the past 12 months to enter into a new components, from monetising growing demand for digital content,
joint venture or strategic alliance3. through capitalising on fast-evolving consumption habits, to
developing a whole range of new advertising revenue models.
Markets are increasingly global, and yet consumers are looking for a
one-to-one, personalised relationship with their media suppliers.
Business models increasingly need to flex and fit around the needs of
the consumer rather than expecting the consumers to adapt their
behaviour in order to consume media, and that means strategies for
collaboration must be equally flexible.
As revenue models change, cost structures also need to be aligned,

and digital delivery provides opportunities for savings. Savings can be
further enhanced by exploiting opportunities to share functions with
others, especially where to do so is non-competitive.
[3] 51% of E&M respondents said they had initiated restructuring activities in the past 12 months to
enter into a new joint venture or strategic alliance versus 35% of the total sample.
Collaboration
It takes two (or three or four…) “We’re going to hear more and more about
Building new models to meet these challenges will require
collaboration between partners across the entire media value chain. collaboration rather than just competition.
What’s more, the new partners are likely to be companies who may And the key to successful collaboration is
more traditionally have seen each other as competitors.
going to be flexibility. That means never
Collaboration can be used to exploit new areas and drive new, shared, saying ‘no’ to anything without thinking
revenue streams to spread the costs and risks involved in building
new operations. carefully about it first. This is a great time to
differentiate by innovating and capitalizing on
In the past partnerships have proven difficult to execute and therefore
the collaborations of today and tomorrow need to be more flexible, new forms of commercial relationships.”
with more focus on achieving business objectives and less about
‘control for control’s sake’.
Marcel Fenez, Global E&M Leader,
Successful collaboration will require finding ways to split risks and PricewaterhouseCoopers
rewards. To achieve this businesses should be open to all
possibilities.
Talent
Keep the talent pipeline flowing

The Global CEO Survey states that While rationalising headcount can provide short time respite from
economic pressure, the longer term effects must also be taken into
E&M CEOs are more likely to have account in an industry such as entertainment and media industry
seen their organizations reduce which is heavily reliant on talent.
headcount in the past twelve months PwC’s analysis shows that businesses retrenching on talent today are
likely to face a tough time tomorrow. Our recent report, Managing
compared to other industries and are tomorrow’s people: How the downturn will change the future of work,
more likely to predict further losses in uses scenario planning to show that companies which scale back their
people investment now are likely to fail in the long term.
the next 12 months4.
And as the long-term decisions taken during the downturn begin to be
felt, the winners and losers of the war for talent are starting to reveal
However, E&M CEOs are also more themselves, with those who continued to focus on investment and
employee engagement emerging as clear leaders. Hartmut Ostrowski,
likely to state that staff morale and Chair and CEO of Bertelsmann AG, confirms: “As a creative company,
our success is absolutely dependent on our employees, their ideas
employee engagement programmes and intellectual resources”.
will change to a large
Furthermore, in an era of digital transformation the need to ensure
extent/significantly5. innovation is encouraged and developed becomes paramount.
Accordingly, organisations seek to define structures that are flexible
and reward innovation.
[4] 71% of E&M respondents said that headcount in their organisation decreased in the past 12 months
versus 48% of the total global sample, and 37% of E&M respondents said that headcount was likely to
decrease in the next 12 months compared to 25% of the total sample.
[5] 54% of E&M respondents said that their approach to staff morale and employee engagement would
change to a large extent/significantly versus 41% of the total sample.
Talent
People and talent will be such a prized commodity in tomorrow's world

that only companies who have invested both in a talent pipeline for the
future and in an environment which allows creativity and
entrepreneurialism to flourish will succeed.
It is therefore reassuring to see that E&M respondents to our Global

CEO Survey are more committed to employee engagement activity
than other sectors as a whole – a sure sign of recognition that the
industry’s success rests in large part on its talent.
“What you do in this environment is add to

your talent base and reposition your talent to
be more suited for the challenges that are
ahead. Even though we’ve had a nine to ten
percent reduction in terms of staffing, we’ve
also had increases to invest in those markets
and resources that are necessary to be
competitive.”
Michael Roth, Chairman and CEO,

Interpublic Group
Climate change
Not an E&M issue?

E&M CEOs we interviewed for the It’s easy to see why entertainment and media CEOs do not
Global CEO survey don’t see climate necessarily perceive climate change to be of major concern their
industry. But that perception perhaps fails to take into account the far
change as especially relevant to their wider implications of government policies and regulation likely to
businesses. They are less likely to be emerge over the next decade to address the impacts of climate
change.
preparing for climate change than their
counterparts in other industries over As Hartmut Ostrowski of Bertelsmann elaborates, “Though the media
industry may not be one of the biggest polluters, we acknowledge our
the next 12 months6, and they are also corporate responsibility to deal with the issue of climate change. At
less inclined to believe that climate Bertelsmann, responsibility towards the environment is part of our
corporate culture – and as such is included in our company’s value
change initiatives will be a major system.”
expense for their business7.
And E&M CEOs also tend not to make

a strong connection between the
investments they might make in climate [6] 37% of E&M respondents said they were preparing for the impacts of climate-change initiatives in the
change related initiatives and their coming 12 months, compared to 61% of the total sample.
reputation among stakeholders, [7] 20% of E&M respondents agreed that compliance with climate change initiatives will be a significant
expense for their company, versus 34% of the total sample.
including employees8. [8] 40% of E&M respondents agreed that their company’s response to climate change initiatives will
provide a reputational advantage for their company among key stakeholders, including employees,
compared to 61% of the total sample.
Climate change
Businesses across all industries will unquestionably feel the impact of

changing regimes – especially in the area of taxation. In a forthcoming
major study into the impact of climate change on business worldwide,
PwC estimates that within a decade, environmental taxes could
amount to as much as 20 per cent of tax revenues in many countries.
All companies will need to start planning for this eventuality, and we
will be analysing the topic further in a new study to be published in
February 2010, Appetite for Change: Global business
perspectives on tax and regulation for a low carbon economy,
which will examine policy and regulatory initiatives driven by climate
change. Other regulatory impacts will increasingly change the general
business environment, regardless of sector. But what is less clear is
how and where those impacts will be felt.
Want to learn more?
The full 13th Annual Global CEO Related thought leadership

Survey is available at:
www.pwc.com/ceosurvey Global entertainment
& media outlook
The quotes in this article are taken from interviews 2009-2013
with Hartmut Ostrowski, Chairman & CEO,
Bertelsmann AG, and Michael Roth, Chairman & www.pwc.com/outlook
CEO, Interpublic Group.
You can access transcripts of the interviews via

the Global CEO Survey website.
Managing tomorrow’s
people: how the down-
turn will change the
future of work

Contact us
Marcel Fenez
Global and eastern region E&M leader
marcel.fenez@hk.pwc.com
Ken Sharkey
US E&M leader
ken.sharkey@us.pwc.com
Phil Stokes
UK and central region E&M leader
phil.stokes@uk.pwc.com
www.pwc.com/e&m
© 2010 PricewaterhouseCoopers. All rights reserved. 'PricewaterhouseCoopers' refers to the network of member
firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.


or growth:
Industrial Manufacturing
g
business leaders from around the globe from Septemberr to November 2009, including 102 from industrial
manufacturing companies,
companies and conducted further in-dep
in dep
pth interviews with 27 CEOs
CEOs.
forces that comprise both threats and opportunities

Climate-change initiatives offer new business opportu unities
Are you capitalising
Industrial manufacturing CEOs are more optimistic about the commercial
implications of the global effort to combat climate change than their peers in on new product
other sectors; 70% believe that climate-change initiativess will result in significant opportunities related
opportunities to develop new products and services, compared with 47% of the to climate change?
total survey sample. Sixty-three percent also think that their company’s response
to such initiatives will p
provide a reputational
p advantage.
g
Are you well-
positioned to take
Asia stands out as a growth region for manufacturers s
advantage of
Many industrial manufacturing CEOs are pinning their hopes on Asia. Fifty-six
percent already have a presence in the region, and a full 93% of them anticipate
growing markets in
increasing that presence over the next 12 months. In contrast, only 37% of those Asia?
operating in Western Europe and 43% of those operating g in North America
expect to grow.
Most of our R&D goes into those environmental issues tha at have an Everybody has to be leaner and
effect on climate change. All of our big customers want to
o be good place more emphasis on being
citizens. And pressure from our customers comes to ensure that our closer to the customer, which in our
products are environmentally friendly so they can minimisee their own case means moving away from
carbon footprint. having everything in Europe.
Mikael Mäkinen Mikael Mäkinen

Chief Executive, Cargotec Chief Executive, Cargotec
PricewaterhouseCoopers LLP 1

or growth:
g
Investments in cost-cutting easing, R&D on the upsw wing Points
Industrial manufacturing CEOs are less likely to be investting in initiatives
to realise cost efficiencies than CEOs in other sectors. Ma
any of them Will you be able to keep up
have been facing intense margin pressures for many years, rs as their with
ith competitors
tit who
h are
downstream customers shop for cheaper suppliers and as raw materials
prices fluctuate. So they have already made strenuous effforts to control
increasing spend on R&D to
their costs. They are now more likely than most of their pe
eers to be drive innovation?
increasing the amount they invest in R&D.
What impact have
Headcounts down
headcount reductions had
More industrial manufacturing companies have cut their headcount
h in the
past 12 months than in any other sector except automotivve and on yyour staff?
entertainment & media. Over two-thirds of industrial manu
ufacturing
How are you managing
CEOs report that they have reduced the number of people they employ.
macroeconomic risk factors
Globalisation issues viewed as potential threats
such as exchange rate
Some concerns related to globalisation, like exchange ratte volatility and
macroeconomic trade imbalances, rank fairly high on indu ustrial volatility?
manufacturing CEOs lists of concerns, as they do overall. Worries over a
Does yyour board have full
protracted
t t d global
l b l recession
i andd llack
k off stability
t bilit iin capital
it l markets
k t also
l
remain pertinent. visibility on key issues such
as your company’s financial
Board engagement staying at the status quo
Compared to the overall sample, more industrial manufaccturing CEOs health, regulatory
see no change in the board's level of engagement on issu ues such as compliance, and overall
overseeing financial health, regulatory compliance, and collaborating
c strategy?
with the management team on strategy, although some are a still planning
changes in these areas.
That someone would cancel something was unheard of over the last 10 years. They would buy it, and they often
bought it even if they didn’t need all of it. Now, because of cancellations we have to monitor our customers’
behaviour even after they have placed an order– that’s so omething totally new. The other change is that we now
have to monitor subcontractors
subcontractors’ risk.
risk Are your subcontractors healthy enough to be able to provide you with the
components? Our factories are assembly factories, so we e make an order and if a subcontractor cannot supply it
the whole assembly process collapses. And this is one off the dangers when the recovery comes. All the market
analysts are focusing on the bigger companies. What lies behind them are the subcontractors. When the market
goes up 20%, you may find your company only going up 10% 1 because your subcontractors are unable deliver due
to their inability to get components.
Mikael Mäkinen
Chi f E
Chief Executive,
ti C
Cargotec
t

or growth:
g
Sector Key Findings
Low-cost competition remains a threat
or many industrial manufacturing CEOs; 65% are
The prospect of low-cost competition rings alarms bells fo
somewhat or extremely concerned about the risk of being g undercut by less expensive rivals, compared with 54%
of the overall survey population
population.
Debt markets getting tougher
mmediately; compared to the overall survey sample,
Accessing capital through debt markets will not recover im
more industrial manufacturing CEOs (57%) believe it will be moderately or significantly more difficult to obtain this
sort of financing.
Learn more
along with other online resources
C t td
Contact details
t il
Graeme Billings Erica McEvoy

Global Industrial Manufacturing Leader Global Industrial Productts Marketing and KM
+61 (3) 8603 3007 +61 (3) 8603 4827
graeme.billings@au.pwc.com erica.mcevoy@au.pwc.com
www.pwc.com
Rethink
Risk
Reshape
Controls and
processes
Result
Resilience

Metals Industry Summary
pwc.com/ceosurvey
Metals industry summary

have ever experienced. Setting a smarter course for growth, the PricewaterhouseCoopers 13th Annual Global
business environment and what changes they are making to adapt their organisations. We surveyed 1,198
business leaders from around the globe from September to November 2009, including 33 metals CEOs from
20 countries, and conducted further in-depth interviews with 27 CEOs.
What did we learn? Global business leaders had to make dramatic changes to their organisations, including reducing headcount,
selling off assets and preserving cash. That painful experience has led many CEOs to rethink their approach to risk in an
increasingly volatile world. It’s abundantly clear how quickly a contagion can spread, and how damaging it can be. CEOs now know
they need to plan for volatility.
To do that, CEOs have begun to reshape not only their strategies, but also their capabilities. It takes strategic flexibility to address
risk at a deeper level. And it takes organisational agility to respond to volatility. That doesn’t mean CEOs will become risk averse;
rather, they may become more deliberate in examining alternatives, formulating a Plan B, and ensuring they can execute on it. The
result, we believe, will be a smarter course for growth, a resilient path that will produce a sustainable long-term upside for
organisations – while accounting for a range of economic, social and environmental forces that comprise both threats and
opportunities.

Metals CEOs are much more positive about the outlook for in common with CEOs in other sectors. But a significant
their companies than they were last year. Thirty percent are number of metals CEOs also plan to turn to the banks (58%
very confident of being able to increase revenues over the versus 40% of the total survey population) or the equity
next 12 months, and 64% of being able to do so over the markets (33% versus 17% of the total survey population) to
next three years. Overall, across all industries, the highest fund future growth.
levels of confidence emerge from CEOs from the largest
companies surveyed, which we define as those companies Eastern Europe stands out as a possible growth driver for
with annual revenues over $10 billion. Over the longer-term, the largest companies — 82% of the largest companies with
nearly all large-company CEOs are somewhat or very operations in the region expect these to grow in the next 12
confident in revenue prospects. They are more likely to be months, compared to only 55% of companies with revenues
very confident as a group than CEOs of smaller companies of less than $10 billion. This could signal increased demand
by 15 percentage points. in the region for metals companies
The vast majority of metals CEOs expect to use internally Only 27% of metals CEOs are concerned about inflation,
generated cash flows to finance their companies’ growth, fewer than the 40% across the overall survey sample.
1 13th Annual Global CEO Survey

can have on market dynamics, particularly in the steel
Overall sales revenue is down by about 20% sector. Further, 70% believe that governments will become
from the same period last year. However, our more protectionist, a view shared by 65% of the survey
production volume — including that of iron ore, sample overall.
steel products, and chrome ore — is up
Somewhat surprisingly, fewer metals CEOs are worried
20-40% from the same period of last year. This
about overregulation than their peers across the sample as a
seeming discrepancy — a decline in revenue whole, with less than half (45%) seeing cause for concern.
and an increase in production — is explained
by the substantial fall in steel product pricing. Most of the largest companies already had robust Corporate
Profitability has also declined dramatically from Social Responsibility (CSR) programmes in place, so fewer
last year. The overall situation may turn positive need further expansion of their CSR programme in response
in the future. But right now, the dynamics of the to a decline in public trust. Large companies definitely see
steel industry are very unstable. the need to play an active role in addressing issues around
trust, though — around two-thirds of CEOs plan to seek
Huang Tianwen
proactive dialogue with policy-makers and regulators.
President, Sinosteel

Continued volatility looks likely for the metals sector. “Under
the current situation, demand changes every day, and
Another major issue for metals CEOs is low-cost competition enterprises need to adapt rapidly. In fact, wide fluctuations in
— 33% are extremely concerned this could impede growth. market conditions have become very normal and we must be
Energy costs were seen as an even greater threat, with 45% ready respond to a whole range of possible conditions: low
extremely concerned about their possible impact. market prices, strong demand, or no demand,” Huang
Tianwen, President of Sinosteel, told us.
Metals CEOs are also more concerned about the security of
the supply chain — nearly half (48%) are somewhat or Many metals CEOs are looking to risk management systems
extremely concerned that this could pose future hurdles to help them cope. More than four-fifths of metals CEOs are
(compared to 34% across the sample as a whole). focusing to a greater extent on nearly every aspect of risk
Somewhat surprisingly, far fewer (15%, compared to 30% management, from reassessment of their risk tolerance to
overall) are concerned about terrorism. Pandemics and other the creation of personal accountability (see Figure 1). And
health crises were also not perceived as a threat by most. almost all (97%) are planning to allocate more resources to
risk-related information gathering and analysis.
Metals Boards of Directors are also increasing their
Metals CEOs are worried about the possible negative impact engagement across every aspect of risk management we
of the protectionist tendencies of national governments — surveyed. In some areas differences from the overall survey
73% expressed concern that these could have a negative sample are dramatic. In particular, metals Boards of
impact on business growth (compared to 49% across the Directors are much more likely to be increasing their focus
overall sample). This finding reflects the strong impact tariffs on long-term key performance indicators, assessing

strategic risk and overseeing financial health. More metals Figure 1
CEOs also report that their Boards of Directors are Metals CEOs focusing greater efforts on risk management
constructively engaging the management team on strategy.
Allocating resources to risk-related 97

information gathering and analysis 89
Most importantly, we learned that we must Integrating risk management capabilities 91
further strengthen our internal controls and risk into business units 89
management capabilities. The financial crisis Collaborating with supply chain partners 88
to collectively manage risks 86
has made it clear that all enterprises must be
88
better prepared against future risks. Reassessing your tolerance for risk
87
Creating personal accountability and 88
Huang Tianwen reward structures for good risk
84
management,including risk taking
President, Sinosteel
Preparing for systemic risk and 85
low-probability, high impact events 84
75
Metals Global
With respect to your approach to risk management, to what extent are you increasing
Looking back at the past twelve months, cost-reduction your focus in the following areas as a result of the economic crisis?
Ref. Q10. (Base: Global, 1198; Metals, 33)
initiatives lead the list of restructuring activities by a wide Respondents who stated ‘somewhat’, ‘to a large extent’ or ‘significantly’
margin, with JVs and strategic alliances in second place. For
the coming twelve months, cost reduction remains the
acquisition or entered a strategic alliance over the past year
highest priority, but somewhat fewer metals CEOs anticipate
and slightly more likely to be planning deals and alliances in
initiating such measures than did so in the previous twelve
the coming year.
months. CEOs from large companies are keeping such
measures on the table. More undertook cost-cutting
Looking ahead to the next three years, most metals CEOs
measures than CEOs of smaller companies; slightly more are
– like their peers in other sectors and in large companies –
expecting further cost cuts in the near term. This trend looks
anticipate making various changes in the wake of the
likely to continue, as more — 86% — are also expecting a
economic crisis. These include changing the way in which
moderate or significant increase in their long-term
they take investment decisions (85%), manage talent (82%),
investment in cost-reduction programmes.
manage risk (82%), organise their companies (79%) and
respond to shifting consumer purchasing behaviour (79%).
JVs and strategic alliances, in contrast, look to be gaining
Conversely, very few metals CEOs plan to make major
ground over the coming twelve months, with more than half
changes in their capital structure or how they manage their
of metals companies planning such initiatives.
companies’ reputations and build trust.
The largest companies appear to be using M&A to drive
growth and diversify their portfolios, perhaps taking
advantage of prime opportunities in a depressed deals
market. They were far more likely to have completed an

Most metals CEOs (76%), like CEOs in other industries,
When the market changes, you cannot simply anticipate that the G20 will be the new dominant economic
follow normal procedures or maintain and political power in the world. They are optimistic about
outmoded strategies, management structures, the potential for coordinated progress — 73% believe that
or market positioning. New conditions dictate a government and business efforts will mitigate key global
quick response. risks like climate change, terrorism, and financial crises,
compared to just 57% of the sample as a whole. Metals
Huang Tianwen CEOs see regulatory cooperation as another key to
President, Sinosteel addressing such risks; when asked if it will help successfully
mitigate systemic risks such as another economic crisis or
climate change, 76% of metals CEOs agree or agree
strongly, compared to 64% of the overall sample.
These results may explain why only 21% of metals CEOs see
Cost savings remain a top priority on metals CEOs’ agendas; climate change as a potential threat to business growth,
88% plan to invest more in realising cost efficiencies over compared to 37% of the survey sample overall. In fact, many
the next three years (see Figure 2); indeed, 55% anticipate metals CEOs also see some positive benefits emerging from
increasing that investment ‘significantly’, compared with just climate change. Fifty-five percent anticipate that their
37% of the total survey sample. Metals CEOs are also more response to climate-change initiatives will provide a
likely to be planning moderate or significant increases in reputational advantage.
their expenditure on leadership and talent development
programmes, organic growth programmes and capital Across all sectors, large companies are more likely to report
investments. that they have had a strategy in place to respond to the
challenges posed by climate change - 64% of CEOs report
having such a strategy a year previously, compared to just
Figure 2
51% of smaller organisations. Such programmes help the
Cost efficiencies, leadership and talent development top the list of
investment priorities for metals CEOs
largest companies address stakeholder demands and
strengthen their brand image. Around half also believe their
companies will need to reduce emissions significantly, so a
Initiatives to realise cost efficiencies 88 climate change strategy makes good economic sense as
78
well. More of these CEOs also expect to take advantage of
76
Leadership and talent development
69 government incentives for “green” investments.
76
Organic growth programmes
64
58
Final thoughts: Lessons learned and applied to
Capital investments
40 2010
0
The importance of good risk management systems was by
Metals Global
far the most frequently cited ‘lesson learned’ by CEOs
across the survey sample. Metals CEOs are acting on this
How do you plan to change your long-term investment decisions in the following areas message, as witnessed by the strong increase in focus on
over the next 3 years as a result of the economic crisis?
Ref. Q8 (Base: Global, 1198; Metals, 33) many aspects of risk management.
Respondents who stated ‘moderate’ or ‘significant’ increase

We spoke with executives around the world
The 33 Metals CEOs included in our survey sample came from every corner of the globe, as this map shows. China is emerging as a
major force in the global steel market; the quotes included in this document are drawn from our in-depth interview with Huang
Tianwen, President, Sinosteel.
Contacts
Jim Forbes Usha Bahl-Schneider
Global Metals Leader Global Metals Knowledge & Marketing Manager
Tel: +1 905 972 4105 Tel: +49 69 9585 5425
Learn more
Please see www.pwc.com/ceosurvey to access the full PricewaterhouseCoopers 13th Annual Global CEO Survey, Setting a smarter
course for growth and the supporting Visual Story and In-depth CEO Story documents, along with other online resources.
pwc.com/ceosurvey
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their
stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical
advice.
© 2010 PricewaterhouseCoopers. All rights reserved. ‘PricewaterhouseCoopers’ refers to the network of member firms of PricewaterhouseCoopers International Limited,
each of which is a separate and independent legal entity.

or growth:
Pharmaceuticals and Life Sciences
S
business leaders from around the globe from Septemberr to November 2009, including 40 from pharmaceuticals
and life sciences (pharma) companies
companies, and conducted fu urther in
in-depth
depth interviews with 27 CEOs
CEOs.
As a "recession proof" sector, the pharmaceutical industry hass been less directly impacted by some aspects of the
economic crisis, but the sector is facing its own unique challen
nges. The economic crisis left its mark on the future funding of
healthcare; and the industry is currently undergoing fundamen ntal changes to the way it operates. As the pharmaceutical
industry reinvents itself, sector CEOs are responding in myriadd ways.
Sector Key Findings Rethink Healthcare
Pharma CEOs continue to be more confident than the eir peers Reshape R&D
The p
pharma industry y sees bright
g p prospects
p ahead – a full 53% are veryy confident of process
p
revenue growth in the next 12 months, and 43% are somewh hat confident of growth.
Result Improved
Looking out over the next three years, 98% are confident the eir company will grow
revenues, although somewhat fewer are very confident. Thiss represents a notably
outcomes
higher level of confidence than across our survey sample overall.
Tough times for the economy, but good news ahead for f the sector
Pharma companies are also expecting a quicker recovery for their own industry – Talking Points
more of them have
ha e already
alread recovered
reco ered or e
expect
pect recovery
reco er beffore the end of 2009
2009. At
the same time, more also report more pessimistic views abo out their nations' economy Will a later economic
– a full 40% believe that recovery won't set in until 2011, com
mpared to 29% of the recovery have an
overall sample. impact on your
Approval of government initiatives to improve healthc care access bottom line?
Pharma CEOs are divided in their views about government efforts
e to improve
healthcare. But they are generally more positive than CEOs in other sectors; 53% To what extent will
think that the governments of the countries in which they ope
erate are working hard to government initiatives
improve access and reduce costs, versus just 30% of the tottal survey population. around healthcare
impact your
business?

or growth:
S
Sector Key Findings Rethink Patient needs

Patients driving product and service development
Pharma CEOs are firmly convinced of the need to addresss patients Reshape New product
directly; 73% believe that consumers will play a more actiive role in the development
development of new products and services in the future, compared
c with
Result More effective
60 percent of the overall survey sample. This makes sensse, given
growing interest in – and demand for – medicines that are e targeted at medications
patient populations with specific genetic variations and disease
subtypes. New product development is the key to success for sector
companies – 43% single it out as the main opportunity to grow their
business in the next 12 months. Related Talking
Boards focusing more on compliance, strategy issues s
Points
Pharma CEOs are used to dealing with intense regulation n, but the Have you already
financial crisis has sharpened their focus even more. Sixtty-three percent
report that the board of directors now plays a bigger role in ensuring implemented processes to
regulatory compliance and 73% that it is more closely invvolved in reach out to patients when
strategy development, compared with 52% and 61%, resp pectively, of the developing new medications
total survey sample. or service offerings such as
disease management
Over-regulation and protectionism causes for concerrn support?
Pharma CEOs are more concerned about the risk of overr-regulation than
their peers in other sectors (75% versus 60%)
60%). They are aalso more likely Does your board have full
to believe that governments will become more protectioniist in the future visibility of your company’s
and to worry about the impact of protectionism on their co
ompanies’
growth. The global nature of the industry and existence of tight price regulatory compliance and
controls in some markets may help to explain these fearss. overall strategy?
How are you coping with
Skills shortages on CEOs’ radar
skills shortages?
g
Si t percentt off pharma
Sixty h CEO are somewhat
CEOs h t or extremel
t lly concerned
d
about the availability of key skills. This is hardly surprising
g;
pharmaceutical and life sciences companies depend on innovation to
drive growth, so recruiting and retaining highly-qualified re esearchers is
essential to maintain their competitiveness.

or growth:
S
Learn more
along with other online resources.
C t td
Contact details
t il
Simon Friend Sara Solomon

Global Pharmaceuticals and Global Pharmaceuticals and Life Sciences
Life Sciences Leader Business Development & Marketiing
+44 (0) 20 7213 4875 +44 (0) 20 7804 1014
simon.friend@uk.pwc.com sara.solomon@uk.pwc.com
www.pwc.com/pharma
/ h
© 2010 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to Pricewa

aterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context
PricewaterhouseCoopers LLPglobal network or other member firms of the network, each of which
requires, the PricewaterhouseCoopers w is a separate and independent legal entity. 3

or growth:
Transportation
p & Logistics
g
have ever experienced. Setting a smarter course for growth,
g the PricewaterhouseCoopers 13th Annual
Global CEO Survey, looks at what measures CEOs are e taking in response to recession, how they view the
post-crisis business environment and what changes they y are making to adapt their organisations. We surveyed
1,198 business leaders from around the globe from Septtember to November 2009, including 67 Transportation
& logistics (T&L) CEOs
CEOs, and conducted further in-depth
in depth iinterviews with 27 CEOs
CEOs.
forces that comprise both threats and opportunities
Sector Key Findings Rethink Market

penetration
Capacity management in existing markets key to grow wth
T&L companies are focusing primarily on increasing their existing business. Nearly Reshape Capacity
half of T&L CEOs anticipate that better penetration of their exxisting markets will drive
growth over the next 12 months. In today's volatile markets, those who manage their
Result Growth
capacity smartly will have a head-start on their competitors.
Stresses on the subcontractor network loom
Many T&L companies rely on subcontractors, particularly in tthe logistics sector, where Talking Points
such partners help to ensure complete coverage of widespre ead delivery areas. But
some of these partners were hard hit by the recession, and 61%
6 of T&L CEOs are Are you capitalising
now concerned that financially stressed suppliers could impeede their own companies’
growth. They worry that their partner networks will be inadeq
quate to meet an upturn in
on new product
demand. opportunities related
to climate change?
Difficulties in finding financing could hinder growth
Nearly half of all T&L CEOs also fear that inadequate financiing could hinder their Are you well
well-
companies’ expansion. Fifty-two percent hope to fund that grrowth by borrowing from
the banks, but 60% believe that access to bank financing will be more difficult after the
positioned to take
economic recovery sets in. advantage of
growing markets in
Energy costs and climate change key issues
T&L CEOs are far more concerned than their peers about en nergy costs, a fact that Asia?
reflects the energy-intensive nature of the sector. They are also
a more concerned
about climate change – a valid worry,
worry particularly if the onus shifts and T&L
companies are required to compensate financially for all emissions generated during
transit.

or growth:
Transportation
p & Logistics
g
Responding to the changing consumer Points
Like their peers across the survey sample, many T&L CEOs see
permanent changes in consumer behavior in the offing. Of O those T&L Are you responding to
CEOs who believe that consumers will place a higher em mphasis on the changing
h i consumer
country of origin for the products they buy, far more plan to
t change their
expectations?
strategy somewhat (62% vs. 36% overall), although slighttly fewer plan to
change course significantly (3% vs. 13% overall) or to a laarge extent How will your investment
(14% vs. 19% overall).
decisions change in the
In TL 2030: Volume 1, our experts also predict that consuumers will
wake of the economic crisis?
demand more locally produced products. Corporate socia al responsibility
is gaining importance
importance, and more T&L CEOs (48% vs vs. 37%
% overall) also Can your strategic
C t t i
plan to change strategy somewhat in response to consum mers placing a
higher emphasis on a company's environmental and corp porate
technology infrastructure
responsibility practices before making a purchase. handle tomorrow’s
Sector CEOs more concerned about crisis-related thrreats
requirements?
T&L CEOs are more concerned about a wide variety of po otential threats How robust are your risk
to future growth related to the current economic crisis, witth the shadow
of a protracted global recession heading the list
list. For two
two-thirds of T&L
management
g systems?
y
CEOs, macroeconomic imbalances and possible protectio onist tendencies
of national governments stand out as areas for concern.
Environment will change post crisis Note: T&L 2030: Volume 1 is the
T&L CEOs are more likely to state that access to capital through
t debt first installment of the PwC T&L
markets will be more difficult after economic recovery setss in, compared 2030 thought leadership series
with before the economic crisis. A greater number of T&L L CEOs -- more which examines the industry’s
th h
than half
lf (51% vs. 33% overall)
ll) -- believe
b li th
thatt th
their
i iinvestttmentt decisions
d i i future – pwc.com/tl2030
pwc com/tl2030
are likely to undergo a major change.
Strategic technology infrastructure vital We did not realise that the
The economic crisis has had an impact on a variety of lon ng-term damage was going to be so great.
investments. T&L CEOs in particular are planning to incre ease investment What inspires me most is that an
decisions in strategic technology infrastructure or applicattions. This type enterprise like ours cannot go
of focus will be critical for many to position themselves ass providers of g such difficulties by
through y its own
the future. In T&L 2030: Volume 1, we discuss the need for f supply to efforts or by using a simple form
become more efficient through the development of continuous real-time of protection. Therefore, we are
control of the flow of goods. paying more attention to our
Increased emphasis on risk management internal controls and management
Like their peers across other sectors, T&L CEOs are incre easing the focus mechanisms.
on risk management. More than four-fifths plan to increasse their focus on Mr. KONG Dong
a wide range
g of risk management
g related metrics -- and nearly
n y all of Chairman Air China
Chairman,
them (97%) are planning to allocate more resources to rissk-related
information gathering and analysis.

or growth:
Transportation
p & Logistics
g
Many CEOs optimistic about climate change
Sixty-one percent of T&L companies already have a clima ate-change strategy
Are you satisfied with
in place, and very few of them have curtailed their investm
ments in this area as your company’s efforts
a result of the recession.
recession Seventy
Seventy-six
six percent of T&L CEO Os also plan to to promote and
launch climate-change initiatives in the coming 12 monthss, and although 43% publicise corporate
believe that the ‘green’ agenda will slow down their secto
or’s growth, many
T&L CEOs see a silver lining. Sixty-six percent anticipate reaping a
social responsibility?
reputational advantage from their efforts to combat climatte change, while How well does the
42% expect to develop new products or services and 34% % to benefit from
government incentives to go ‘green’. transport infrastructure
function in the markets
T&L CEOs positive on infrastructure improvements
Infrastructure is critical to smoothly functioning transporta
ation and logistics in which you operate?
networks, and some countries – not only in the emerging markets – still have
a great deal to do in order to ensure the long-term viabilityy of their transport
infrastructure. T&L CEOs are somewhat more positive ab bout current efforts to Ultimately, green
improve the situation – 51% agree that the government iss taking adequate management depends on
steps to improve their country's infrastructure, compared to 40% overall. We collective awareness, for it
will address infrastructure issues in greater depth in Volum me 2 of T&L 2030
2030, has become a challenge to
scheduled for release in May 2010. the whole world, and we are
just a part of it. We are, of
course, duty-bound to save
energy and reduce
Learn more emissions. We treat it not
Please see www.pwc.com/ceosurvey to access the full only as an issue of enterprise
PricewaterhouseCoopers 13th Annual Global CEO Surve ey Setting a smarter
ey, development
p or cost control,
course for growth, and supporting Visual Story and In-dep
pth CEO Story but also as a kind of social
and historical responsibility.
documents, along with other online resources.
Mr. KONG Dong
Chairman, Air China
C t td
Contact details
t il
Klaus-Dieter Ruske Peter Kauschke

Global Leader, Transportation & Logistics Global Business Deveelopment &
+49 (211) 981 2877 Marketing Transportattion & Logistics
klaus-dieter.ruske@de.pwc.com +49 (211) 981 2167
peter.kauschke@de.pwc.com
www.pwc.com

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Rethink

Section 1 Rethink: From crisis to cautious optimism 7

Section 2 Reshape: The post-crisis environment 17

Section 3 Result: Adapting to compete 29

Final thoughts: Lessons learned and applied to 2010 43

Research methodology and key contacts 45

In-depth CEO story Visual story

Introduction: Heading towards a growth agenda

Carlos Fernandez Gonzalez Kong Dong

2 13th Annual Global CEO Survey – Main report

There has been a dramatic cull in headcount over the past 50

12 months. However, while 25% of CEOs are planning 12-month revenue

more job cuts this year, 39% plan to increase 40

headcount. One area where resources continue to flow

terms of staffing, we’ve also had increases to invest in those

Our survey this year looks at how CEOs responded to the

4 13th Annual Global CEO Survey – Main report

Protracted global recession* 6 29 42 23 Decline in concern

Lack of stability in capital markets* 9 32 43 16 Decline in concern

Availability of key skills 15 34 35 16

Protectionist tendencies of national governments 20 30 32 17

Inflation 21 38 29 11 Decline in concern

Scarcity of natural resources (e.g. raw materials, water, energy) 31 32 23 12

Pandemics and other health crises 26 38 26 9

Security of the supply chain 24 40 25 10

Inadequacy of basic infrastructure (e.g. electricity, water, transport) 31 35 22 11

Rethink: From crisis to cautious optimism

This may further signal a period of heightened competition 1.1

emerges for CEOs in Western Europe, the most pessimistic 29 15

% Economic recovery expected

gotten sharper, for example. And the crisis also prompted

that has made us a leaner organisation. So I do think In 2011

8 13th Annual Global CEO Survey – Main report

are somewhat or very confident in revenue prospects. They 14

are more likely to be very confident as a group than all

% Economic recovery expected

CEOs from the largest companies also acted more 31

actively positioning their portfolios for growth. More ‘Very confident’ of

In the second half of 2010

CEOs also believe recovery for G8 nations is likely to occur 1.3

for 2009, the IMF estimates. To compare, the output of 52.39

the most aware of threats to business growth prospects. 30

Basically, our response to the crisis has focused on the

1 International Monetary Fund, World Economic Outlook (October 2009).

10 13th Annual Global CEO Survey – Main report

Claudio Eugênio Stiller Galeazzi

3 International Monetary Fund, World Economic Outlook (October 2009).

Employment turning the corner

Highly skilled still globally in demand

Increase by more 9 France 14 5 11

12 13th Annual Global CEO Survey – Main report

Global 20 10 9 CEOs were unable to move talent around quickly when

The thorny problem of global policy coordination

14 13th Annual Global CEO Survey – Main report

The world will be more open to free

Reshape: The post-crisis environment

Worst fears fail to materialise on regulations… yet 2.1

the financial system and by extension, the global economy, Korea 30

expectations of radical regulation to prevent another crisis. Global 15

sense that more regulatory change is inevitable. CEOs see India 13

67% to 57%. Only 2% of CEOs based in the US said the France 11

paying taxes in 183 countries found that 45 economies UK 3

We believe CEOs also worry that regulatory approaches 2.2

Business leaders appear as split as economists on the Energy 44