“Happy days are here again, the skies above are clear again,” FDR’s campaign theme song gushed 80 years ago. And if you believe a raft of new leadership surveys, U.S. CEOs will be crooning that old New Deal anthem in 2012 — and their companies’ fortunes just might be better for it.
There seems to be an inverse connection between pessimism about the economy and corporate growth because economic uncertainty stifles innovation, according to GE’s (NYSE:GE) annual Innovation Barometer.
Although 92% of the nearly 3,000 executives surveyed believe innovation is the main ingredient for a more competitive national economy, their companies’ internal investments in innovation are particularly at risk when the business community feels gloomy about economic prospects.
The good news is that CEOs are suddenly a lot more optimistic about the economy, particularly in the U.S. That surge in confidence has Corporate America’s leaders anticipating stronger revenues and earnings for the year ahead, and they’re poised to spend big on new hiring and fixed investments, according to several newly released surveys.
Consider these findings:
A Fortune survey of executives and entrepreneurs found that 78% believe their companies’ revenues will grow this year, and 51% say they believe the U.S. and Canada will be responsible for the fastest growth. On the jobs front, 46% say their companies plan to hire, 7% are contemplating layoffs and the rest plan to keep payrolls steady.
The latest Vistage CEO Confidence Index rose to a whopping 98.8 in the fourth quarter, from only 83.5 in the prior quarter. A December survey of 1,641 chief executives of small-to-midsize U.S. companies found that every component of the confidence index had increased — 73% expect their companies to grow revenue, and 55% said profits will rise. More than half of the respondents expect to hire new employees, while 42% said they will invest in new plants or equipment.
Another survey of 2,800 global businesses commissioned by Grant Thornton LLP found that optimism about the U.S. economy grew from 26% in the third quarter of last year to 36%, while optimism about the global economy remained relatively flat from quarter to quarter. Companies planning to boost U.S. hiring grew from 26% to 41% — much stronger than the 4% bump in expectations for global hiring. Given the financial tumult in Europe, it comes as no surprise that business leaders’ optimism about that region’s economies has fallen precipitously in recent months.
Winston Churchill believed “a pessimist sees the difficulty in every opportunity, and an optimist sees the opportunity in every difficulty.” But does that mean a CEO who views his company’s prospects through rose-colored glasses will deliver better returns to shareholders than one who is focused on potential storm clouds?
Perhaps, say researchers at Texas A&M University’s Mays School of Business. Because CEOs tend to have more of their own personal wealth invested in their companies than do their more diversified shareholders, a risk-averse CEO is more likely to avoid riskier investment projects that could bring investors higher returns.
“Given a choice between a very rational CEO and a moderately over-optimistic one,” Mays finance professor Shane Johnson says, “the somewhat over-optimistic one is the better choice.”
Judging from their recent comments, the list of top leaders who are optimistic about the economy in 2012 includes:
- Jim Skinner, CEO of McDonald’s (NYSE:MCD), whose customer-centered focus and faith in high-margin beverage items and global expansion is delivering robust same-store growth.
- Alan Mulally, CEO of Ford (NYSE:F), who said at the Detroit Auto Show that he expects a 2%-to-3% improvement in the U.S. economy this year — and auto industry sales of 13.5 million to 14 million vehicles.
- Jamie Dimon, CEO of JP Morgan Chase (NYSE:JPM), who believes the economy is bouncing back and that corporations — particularly midsized companies with $20 million to $2 billion in sales — “are in outstanding shape.”
That said, any economic recovery is far from bulletproof — even in the U.S.. Only time will tell whether optimistic CEOs’ past performance will deliver hefty returns for shareholders in 2012.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.