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Speaker 1: Because you're a subscriber to this Bloomberg podcast, we thought

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Speaker 1: you'd be interested in a sponsored podcast called CEO Radar,

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Speaker 1: produced by BCG and Bloomberg Media Studios. It analyzes almost

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Speaker 1: forty nine hundred earnings calls worldwide to assess what topics

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Speaker 1: merit a CEO's time and attention. Here's a recent episode.

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Speaker 1: Rich and Michael, Welcome to the CEO Radar podcast.

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Speaker 2: It's great to be here with you.

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Speaker 3: Thanks for having us.

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Speaker 1: During the first quarter. The analysts who are on these calls,

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Speaker 1: who function really as a proxy for the market in

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Speaker 1: our approach, we're talking about tariff sixty two percent more

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Speaker 1: often than we're CEOs. Even though obviously CEOs talk far

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Speaker 1: more on these calls than do analysts, the fact that

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Speaker 1: they were mentioning tariff so much more surprised me a bit.

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Speaker 1: I thought that we would see CEOs talking more about that,

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Speaker 1: talking about how they were preparing for what seemed to be,

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Speaker 1: at least to a lot of experts and inevitability. Rich,

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Speaker 1: what was your take on why they weren't discussing it

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Speaker 1: more in first quarter?

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Speaker 2: I was thinking the same thing as I read through

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Speaker 2: the survey, and as I reflected I think there were

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Speaker 2: two totally separate things going on here. One is, if

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Speaker 2: you go back to the president's first term in office,

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Speaker 2: there was a saying, well, two observations. One is it

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Speaker 2: became frequent to say take him very seriously, but not literally.

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Speaker 2: And a second was that he will be very responsive

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Speaker 2: to how the market dynamics evolve in adjusting the actions

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Speaker 2: and announcements. And I think in many CEO's minds, the

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Speaker 2: combination of those two statements. They had heard all the

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Speaker 2: comments about tariffs. The President was quite good at both

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Speaker 2: on the campaign trail and after the campaign ended about that,

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Speaker 2: but I think they were still probably underestimating the magnitude

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Speaker 2: of what he was prepared to do. And I think

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Speaker 2: the second thing is the CEOs that I speak with

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Speaker 2: generally have a view that it's best not to be

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Speaker 2: too commenting in public about the worries you have or

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Speaker 2: what you think the administration maybe doing right or doing wrong,

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Speaker 2: and it's much better to engage directly, whether that was

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Speaker 2: going to Marrow Lago before the inauguration or going to

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Speaker 2: Washington since the inauguration.

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Speaker 1: But wouldn't they have been in a safe zone if

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Speaker 1: they had talked about we're in case there are tariffs,

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Speaker 1: we have prepared in the following ways for that so

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Speaker 1: that they could reassure the market that they wouldn't be

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Speaker 1: as effected perhaps as other companies are.

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Speaker 2: I don't think there's an easy near term response on

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Speaker 2: how to do that, and I think the last thing

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Speaker 2: CEOs want to talk about. Some of that response will

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Speaker 2: be passing price through to their customers or through to consumers,

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Speaker 2: or things that you really don't want to be saying

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Speaker 2: unless you have to, unless it's there.

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Speaker 1: Michael, we saw some regional differences here in the discussion

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Speaker 1: of tariffs in the first quarter. Globally, the mentions of

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Speaker 1: tariffs by CEOs did increase in the first quarter. Certainly,

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Speaker 1: it's not as if they were totally line to the topic.

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Speaker 1: It went up five hundred and thirty seven percent around

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Speaker 1: the world, but in the US it went up about

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Speaker 1: one thousand percent. In Europe, where you're from, about five

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Speaker 1: hundred percent increase, and less than a one hundred percent

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Speaker 1: of an increase by CEOs in Asia talking about tariffs.

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Speaker 1: That last bit surprised me, given that that's where many

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Speaker 1: of the global supply chains began and certainly would be

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Speaker 1: affected by a US set of tariffs. What should take

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Speaker 1: on why those numbers are different around the world.

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Speaker 3: I mean, if I look at the European numbers, the

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Speaker 3: five time increase to the last quarter, I'd say we

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Speaker 3: should not make the conclusion that the numbers are not

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Speaker 3: as high as in the US. Therefore the European CEOs

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Speaker 3: are less well prepared. I think most CEOs have really

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Speaker 3: done their homework, and what we've seen when speaking with

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Speaker 3: the CEOs were a couple of things. I mean, they

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Speaker 3: were really working on building this geopolitical muscle. We've seen

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Speaker 3: a lot of scenarios being played through, and I think

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Speaker 3: what we've seen over time rich a bit like to

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Speaker 3: your point that this is not happening overnight. I think

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Speaker 3: many of the businesses have already started a couple of

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Speaker 3: years ago to think through what should my localization strategy

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Speaker 3: actually look like. And we've seen that, particularly if we

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Speaker 3: look at the automotive manufacturers, the big German OEMs. I mean,

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Speaker 3: they have started over time actually to build up international

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Speaker 3: footprint and more and more localization strategies. And I think

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Speaker 3: what we were going what we are going to see

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Speaker 3: over over time. I think that this strategy is going

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Speaker 3: to intensify.

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Speaker 2: And if I just pick upon the Asia part of

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Speaker 2: your question, I also think and again the first term

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Speaker 2: of the president, we saw Japan and India, both leaders

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Speaker 2: of both countries, Prime Minister Motive, Prime Minister Abbe do

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Speaker 2: a really excellent job of building relationships with the White

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Speaker 2: House with the President, and I think there was probably

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Speaker 2: some optimism, whereas in Europe, obviously, coming out of Dava's

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Speaker 2: the Munich Security Conference, it was pretty clear it was

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Speaker 2: going to be a quite tense relationship. So the fact

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Speaker 2: that Asia or Asian business leaders may have underestimated the

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Speaker 2: impacts of tariffs, and I think obviously I think Chinese leadership,

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Speaker 2: whether it's companies or political leadership, was really keeping relatively

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Speaker 2: quiet about what the US would do. So I'm not

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Speaker 2: actually surprised that this didn't get as big a visible

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Speaker 2: play in these conversations in Asia as we saw in Europe,

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Speaker 2: and then certainly the US was much more front and center.

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Speaker 1: As your data suggests, these tariffs were initially announced and

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Speaker 1: then were put on hold for a period of time.

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Speaker 1: I think that's just indicative of a level of uncertainty

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Speaker 1: that the business community is going through at this point.

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Speaker 1: Is there any way that people can profit from that

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Speaker 1: is there somebody who wins in a climate of uncertainty.

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Speaker 2: So I just want to start with your comment around

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Speaker 2: uncertainty because it is the comment I hear the most

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Speaker 2: right now in the business community. You know, every investment

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Speaker 2: is a function of risk and reward and returns associated

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Speaker 2: with it. Right now, the level of uncertainty has really

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Speaker 2: heightened the risk associated with investments. So I think what

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Speaker 2: we're seeing first and foremost is a level of caution

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Speaker 2: around investing, certainly in physical assets. I think the second

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Speaker 2: thing is in terms of where you can build advantage. Look,

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Speaker 2: some people will take bets on where things go, and

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Speaker 2: some of those will be right. The challenges we don't

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Speaker 2: know which bets will turn out to be right. And

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Speaker 2: the second thing is once this settles, and I think

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Speaker 2: all business leaders, whatever their views of what the level

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Speaker 2: of tariffs they want, I think will hope for clarity

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Speaker 2: that at least you know where you stand. And once

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Speaker 2: it does settle, there will certainly be competitive advantage to

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Speaker 2: some companies relative to others, because even if your cost

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Speaker 2: go up to tariffs, if your main competitor faces even

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Speaker 2: higher tariffs, you've built some advantage even if you may

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Speaker 2: have reduced overall demand, because some price will flow through

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Speaker 2: to the end market.

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Speaker 1: So in the near term, nobody really wins from uncertainty.

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Speaker 1: I think it's get frozen in place.

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Speaker 2: Uncertainty. I used to describe it as deer in headlights

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Speaker 2: when you looked at the Great Financial Crisis or post

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Speaker 2: on it. And I don't think we're at that magnitude,

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Speaker 2: to be clear. But I do think that when there's

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Speaker 2: massive uncertainty that enters the environment, the first thing people

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Speaker 2: do say, Okay, let's hold on, let's see, and that

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Speaker 2: means planned investments don't go forward because people don't know

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Speaker 2: in this case where to invest. Even if they know

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Speaker 2: how they want to invest in how much they want

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Speaker 2: to invest. The where question is really tricky right now.

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Speaker 3: But even though Rich, even though we have also from

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Speaker 3: a European point of view, we have this uncertainty as well.

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Speaker 3: I think the clarity what's going to happen now going forward,

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Speaker 3: with how obviously the administration is going to interact with

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Speaker 3: the different regions, I think brings at least a new

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Speaker 3: perspective for CEOs how to think about their business models,

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Speaker 3: how to think around Okay, how do I need to

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Speaker 3: set up my open model. And I think from a

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Speaker 3: European point of view, this has been probably the final

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Speaker 3: wake up call to think through how how can we

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Speaker 3: future prove our operating models in order to be competitive

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Speaker 3: in this in this new competitive world that is that

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Speaker 3: is going to be set up, because again, if I

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Speaker 3: look at my home market at Germany, the German model

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Speaker 3: was based on a full export driven model, fully globalized

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Speaker 3: global supply chains right and and and and that model

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Speaker 3: was serving the economy the businesses super well. I think

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Speaker 3: while we have uncertainty, I think we have clarity that

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Speaker 3: this model was not going to work.

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Speaker 1: Let's turn now to the topic of costs. One of

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Speaker 1: the things we did in this report was we gathered

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Speaker 1: together similar topics and sort of combine them to gauge

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Speaker 1: sort of how some of these megatopics are playing out

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Speaker 1: over time. One of them was costs. So we combined

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Speaker 1: things like the topic of write downs or job cuts

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Speaker 1: or an economic slowdown and saw, sort of, on average,

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Speaker 1: where did those topics rank amongst the most mentioned topics,

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Speaker 1: both by CEOs globally as well as by analysts. What

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Speaker 1: we found on costs was a divergence there that the

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Speaker 1: analysts were mentioning those on average about thirty four in

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Speaker 1: their rank of topics, whereas for CEOs they were down

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Speaker 1: in sixty sixth place, talking about them much less. What's

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Speaker 1: your take on why analysts are so focused on this

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Speaker 1: and CEOs for whatever reason at least so far or not.

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Speaker 2: I think when we repeat it in this upcoming quarter,

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Speaker 2: if I were guessing, I think the cost and productivity

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Speaker 2: issue is going to come much more to the four.

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Speaker 1: Just to give you a little bit more data here,

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Speaker 1: in both Europe and the US, discussions of growth outweighed

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Speaker 1: discussions of costs, whereas an Asia it was flipped. They

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Speaker 1: were talking CEOs were talking more about costs less about

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Speaker 1: growth in this first quarter.

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Speaker 2: That is right, and so if I come to the

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Speaker 2: Asia question, then we'll go to you. Yeah, I think

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Speaker 2: that when I go. I've been traveling around Asia a

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Speaker 2: lot over the last few months, and I talked to

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Speaker 2: my colleagues as well, and the consistent discussion is the

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Speaker 2: intensity of competition in Asia. First, in China itself, it's

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Speaker 2: massively competitive because there's lots of overcapacity and the battles

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Speaker 2: are fierce to be able to once to survive as

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Speaker 2: these industries are growing. But second that over capacity is

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Speaker 2: also pushing intense cost competition toward Japan, towards Southeast Asia,

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Speaker 2: toward India. It's also spilling out to other parts of

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Speaker 2: the world, but just given proximity, given the volume of

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Speaker 2: trade activity, there is an enormous competitive intensity on cost

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Speaker 2: as companies are not just competing locally, but they're often

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Speaker 2: competing against really strong Chinese competitors who are playing in

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Speaker 2: those markets as well. So it did not surprise me

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Speaker 2: at all that when you talk to Asian CEOs that

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Speaker 2: intensity of cost competition was very high up in Europe.

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Speaker 3: I think while the cost topic was not the top

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Speaker 3: concern of the CEOs, I think it always was over

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Speaker 3: the last couple of years, at least in the top

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Speaker 3: three or four topics. I think the cost topic will

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Speaker 3: be impacted by technology, and I think what Jenna I

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Speaker 3: will do on the productivity and how it will drive

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Speaker 3: cost curves down I think will will soon be implemented

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Speaker 3: I think by CEOs.

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Speaker 1: Let's go deeper on technology, particularly in Europe. One of

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Speaker 1: the things we found this quarter was that mentions of

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Speaker 1: AI generative AI automation all increased one hundred percent or

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Speaker 1: more in Europe. Among European CEOs, they're still not talking

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Speaker 1: about it quite as much as their colleagues are in

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Speaker 1: North America and in Asia, but they're it's clearly on

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Speaker 1: the rise. It's almost as if they're trying to catch

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Speaker 1: up what's behind that trend.

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Speaker 3: So if we look at technology and if you look

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Speaker 3: at the competitiveness of European companies, we're far behind the US.

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Speaker 3: We're also far behind China, and I think we need

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Speaker 3: to catch up. An area where we see where Europe

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Speaker 3: is starting to catch up and actually holding leadership position

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Speaker 3: is everything industrial AI. I've just been to the hanofha

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Speaker 3: Messe couple of weeks back. It's one of the biggest

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Speaker 3: European trade first on the industrial automation. It's great to

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Speaker 3: see how strong European companies are in this field.

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Speaker 1: I want to talk about environmental and climate change topics,

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Speaker 1: and Rich I'd like you to address what we're seeing

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Speaker 1: in the US. The US CEOs are running away from

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Speaker 1: that topic as quickly as they can. Hardly anybody has

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Speaker 1: mentioned anymore on these earnings calls. Is that because they're

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Speaker 1: really trying to simply not discuss stuff that is still

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Speaker 1: going on behind the scenes, or have they ratcheted back

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Speaker 1: on those climate change initiatives that they had made so

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Speaker 1: prominent in their calls and say a year or two ago.

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Speaker 2: I think there are three things going on right now.

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Speaker 2: I think first, business leaders, and I would say centered

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Speaker 2: in North America, but other parts of the world as well,

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Speaker 2: are much more focused on making sure that the investment

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Speaker 2: that they make in climate and sustainability bring business value

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Speaker 2: as well as planetary value, if you put it that way,

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Speaker 2: and therefore they are being careful to think about what

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Speaker 2: initiatives they are undertaking. Can they defend them as driving

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Speaker 2: greater productivity. If you take on a circularity effort, you

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Speaker 2: often addressing the environment, but you're actually taking cost out

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Speaker 2: of the system. If you're building a new green business,

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Speaker 2: you may be helping the planet, but you're also creating

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Speaker 2: the next generation of growth in a world even separate

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Speaker 2: from what the US will do that will be spending

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Speaker 2: trillions of dollars a year on investing to address climate

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Speaker 2: change over the coming decades. You need a win win,

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Speaker 2: not just do something that feels right for the climate

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Speaker 2: but is costly to the business. I think there's a

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Speaker 2: second thing that most companies in that context, are still

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Speaker 2: trying to keep with the commitments that they've made where

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Speaker 2: they can make that work. Most companies haven't been walking

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Speaker 2: away from their commitments, but they're being much more cautious

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Speaker 2: new commitments. There was a time period where every month

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Speaker 2: you look and see how many new commitments have come

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Speaker 2: out in the US, and that is really quite few

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Speaker 2: right now. And then the third point is I do

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Speaker 2: think that there's a lot of green hushing going on.

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Speaker 2: It's become a very political topic. They don't want to

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Speaker 2: be caught in the politics of it, and that's why

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Speaker 2: I think the analysts and the US actually gave it

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Speaker 2: more attention than business leaders gave it.

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Speaker 1: And Michael and Europe, as you know, there is a

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Speaker 1: real bastion of discussion of climate change. In fact, the

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Speaker 1: discussion of climate change, climate exposure, greenhouse gas emissions all

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Speaker 1: rose by one hundred percent or more among European CEOs

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Speaker 1: in the last quarter.

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Speaker 3: I think the business cases that we're seeing on circularity,

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Speaker 3: they are starting to work. They will unlock by twenty thirty.

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Speaker 3: There are studies out there they will unlock trillions of

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Speaker 3: dollars of GDP growth. And I think there is another

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Speaker 3: aspect now coming to it. If there is a sovereignty aspect.

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Speaker 3: If you look about dramati real circularity and keeping the

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Speaker 3: raw material in certain circle of flows within a certain

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Speaker 3: region is also a second aspect. I think that is

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Speaker 3: driving that dynamic why climate topics stay on the agenda

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Speaker 3: in Europe.

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Speaker 2: What I think was encouraging on the European side from

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Speaker 2: a government point of view is so many business leaders

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Speaker 2: have been frustrated at the amount of bureaucracy and overhead

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Speaker 2: that comes with the environmental goals in Europe, even if

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Speaker 2: they fully agree with the ambition, the way it's done

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Speaker 2: has felt so cumbersome, and I do think the recognition

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Speaker 2: in the EU that you can keep the ambition, but

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Speaker 2: you have to make it easier for companies if they're

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Speaker 2: able to if they're going to be able to be

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Speaker 2: globally competitive. This model isn't working the way it should.

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Speaker 3: But there is progress we're starting to see. Particularly there's

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Speaker 3: a beautiful Cherman word, the lever of ket and sock falsk.

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Speaker 2: Is it okay? What does that work?

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Speaker 3: This is about how you need to report on your

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Speaker 3: supply chain that this is actually going to be stopped now,

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Speaker 3: so we're starting to see progress on the on the

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Speaker 3: bureaucracy side.

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Speaker 2: Good for all of us. Yes.

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Speaker 1: Indeed, in late twenty twenty four we had all expected

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Speaker 1: to see a huge search in murders and acquisitions. We

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Speaker 1: haven't seen that yet. Is that really just a function

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Speaker 1: of the uncertainty that's in the environment now and could

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Speaker 1: self correct by the end of the year, or is

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Speaker 1: this something that's going to be a little more long term.

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Speaker 3: I think we won't see deals over the next couple

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Speaker 3: of months because the problem is you cannot underwrite a

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Speaker 3: business case in this environment. Everything that is that is global,

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Speaker 3: that has global supply chains. You can't take a bet

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Speaker 3: on on these business cases. And hence what we're actually

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Speaker 3: seeing is we see quite a dramatic slowdown in the pipeline.

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Speaker 2: As one of my colleagues here in New York is

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Speaker 2: very involved in that world, said to me, you can't

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Speaker 2: do a deal if you can't do a two to

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Speaker 2: three year but tough forecast. And right now people don't

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Speaker 2: feel confident that they have any but tough forecast they

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Speaker 2: can rely on, and so it's hard to do a deal.

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Speaker 1: So uncertainty can certainly dampen the m and a environment.

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Speaker 1: Is there anything that uncertainty does permits a CEO to

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Speaker 1: do that he or she otherwise might not be able

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Speaker 1: to accomplish. Does it give you some space to be

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Speaker 1: able to focus on something that in a more growth

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Speaker 1: oriented period of time you wouldn't be able to.

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Speaker 2: Well, you know there's this old especially never let a

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Speaker 2: crisis go to waste. I think where that will apply

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Speaker 2: is less around the deployment of capital for deals or

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Speaker 2: new plants, but absolutely to drive productivity, deeper customer relationships,

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Speaker 2: investment of innovation into the business. I think people will

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Speaker 2: realize that the world may only get harder.

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Speaker 1: Is there anything that this current situation reminds you of historically?

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Speaker 2: Okay, so first I want to be careful about trying

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Speaker 2: the NUN because there's no health impacts here. But if

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Speaker 2: you think about those first few months of COVID, we

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Speaker 2: were all living with so much uncertainty. It's only looking

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Speaker 2: back that vaccines came along faster that we were able

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Speaker 2: to get past that in a less tramatic way. But

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Speaker 2: in April of twenty twenty, just five years ago, we

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Speaker 2: were sitting with incredible amounts of uncertainty. Companies were really

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Speaker 2: anxious about what was going to happen. There were talks

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Speaker 2: about traumatic economic impacts. I would say that uncertainty was

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Speaker 2: even higher than the uncertainty we're living with, and we

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Speaker 2: only don't remember it because it got resolved so quickly.

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Speaker 2: To me, it feels more like that, not the same degree,

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Speaker 2: and certainly without people losing their lives or anything of

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Speaker 2: that nature. But it feels a little bit more in

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Speaker 2: that direction than it felt like the challenges of past

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Speaker 2: recessions or challenges.

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Speaker 3: But I would actually on that point, Rich, I would

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Speaker 3: actually say that even though we have a lot of uncertainty,

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Speaker 3: I think some things are becoming clear. And again from

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Speaker 3: a European perspective for us returning to our old operating model,

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Speaker 3: fully globalized world supply chains globally set up, I don't

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Speaker 3: think we will return to that world.

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Speaker 2: I totally agree. I think you're right. In the longer term,

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Speaker 2: I would I think Michael was exactly right that companies

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Speaker 2: need to understand we're in a new political reality moving forward,

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Speaker 2: even if the tariffs resolve in a more benign way,

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Speaker 2: which is not obvious that they will, and being more localized,

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Speaker 2: more understanding dynamics in different parts of the world, and

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Speaker 2: I would argue this technology topic is the one secular

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Speaker 2: trend that's coming. We can do whatever we want around politics, tariffs,

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Speaker 2: geopolitical dynamics, AI and a whole set of other related

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Speaker 2: technologies are coming fast. And as it relates to innovation, productivity,

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Speaker 2: changes to business models, changes to building deeper customer relationships

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Speaker 2: like those things are coming. And if you let all

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Speaker 2: these short term challenges get in the way of embracing that,

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Speaker 2: then I think you're really losing ground competitively, even if

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Speaker 2: it seems like you're navigating the short term.

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Speaker 1: Okay, I'm going to go out on a limb here

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Speaker 1: that if the three of us are around this table

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Speaker 1: three months from now, high likelihood we're going to be

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Speaker 1: talking about uncertainty in the economy even then, Rich and Michael,

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Speaker 1: thanks for your insights today.

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Speaker 2: It's great to be with you.

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Speaker 1: Thank you, Ed, and great to have you. For those

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Speaker 1: of you who'd like to learn more about the CEO Radar,

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Speaker 1: you can read the full report at Bloomberg dot com

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Speaker 1: slash CEO Radar. If you like what you hear, we

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Speaker 1: have our next episode drop in early Q three with

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Speaker 1: Media Studios. Thanks for listening.