HR Chiefs Rate Future Conditions Below CEOs For First Time

New research shows CHRO optimism falling below that of CEOs for the first time since StrategicCHRO360 began polling one year ago in February. CHROs’ rating of future business conditions fell 8 percent since 4Q22 and 12 percent YoY.
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Since we began polling CHROs one year ago, they have been the leaders of the C-Suite in optimism. Their ratings for the future of business conditions were well ahead those of both CEOs and CFOs—until now. In Q1, CHROs pulled back their rating of future business conditions by over 8 percent on fears that inflation will lead to reduced consumer confidence and a change in spending behavior causing recession. Their ratings are now in line with their colleagues in the C-Suite.

 

America’s HR leaders rate future business conditions a 6.7 out of 10—measured on a 10-point scale where 10 is excellent—down over 12 percent from last February. CHROs’ rating of current business conditions also fell this quarter, down 7 percent to 6.4 out of 10. In addition to inflation, CHROs say ongoing issues in the supply chain, talent troubles and the war in Ukraine drive down their ratings.

“We are subject to the economic factors such as rate increases by the Fed, which have the potential to stave off inflation or send us into a recession depending on how the changes are executed,” says the VP of HR at a community bank with between $500 million and $999 million in revenues. She believes that conditions will remain unchanged, at a 5, saying, “Little meaningful legislation has been passed in the first year of the Biden white house, should we see a change in control at the mid-terms I suspect even less will get done.”

 

CEOs’ and CFOs’ echo the concerns of their CHROs, citing inflation as their main challenge in the coming year. Another thing they all agree upon? Vast uncertainty. Many CHROs cite worries that there could be more issues related to Covid-19 popping up even as we transition into an endemic and that the longer-term effects of inflation are a toss-up.

 

CEOs concur. So much so that, when polled by our sister publication, Chief Executive, last month, they were split over their outlook. 38 percent of CEOs forecasted deteriorating business conditions in in optimism the months to come, while an equal number—38 percent—say conditions will improve.

 

CHRO ratings have even fallen below those of CEOs for the first time since the inception of the CHRO index.

The same proportion of CHROs and CEOs are forecasting improving business conditions, at 38 percent. That proportion of CHROs is still much higher than the 21 percent who forecast deteriorating conditions over the next 12 months. Still, the plurality of CHROs (41 percent) forecast that business conditions will remain unchanged over the next 12 months.

 

Joselyn Cassidy, CHRO of Points of Light, an international nonprofit organization, is one of the 38 percent who expect conditions to improve, growing from a 5 to a 6 over the next 12 months. “There is optimism,” she says. “New markets have opened up and the federal reserve bank is equipped to handle inflation.”

 

The end of the pandemic is another driver of optimism for CHROs who expect supply chain and labor issues to stabilize as public health does. Neil Everett, VP of HR at Hattie Larlham, a mid-size healthcare company, says, “Covid-19 will become endemic and there will be an increase workforce availability,” to explain why he thinks conditions will improve to a 7 from a 5 over the next year.

 

The cautious of the bunch, who predict unchanged conditions, are weighing the good signals—such as high demand and an end to the pandemic, including related mandates—and the bad signals—like inflation and global conflict.

 

Patricia Goodwin-Peters, CHRO at Atlas Air Worldwide, expects conditions to remain the same, at a 5/10. “Business conditions are challenging, but earnings have been positive,” she says. “It is too early to tell, but higher prices may be masking weakening underlying conditions.” She joins many CHROs who say that uncertainty is a main element of their forecast.

 

“Business Conditions could improve with better leadership in the government. Overreach with vaccines and mandates has caused more disruption than any other factor,” says Carol Hendrix, CHRO at Crest Industries, an energy/utility company. She believes conditions will remain at the 6/10 she rates them today.

 

Other CHROs who expect conditions to remain the same mention challenges over finding and retaining talent, mentioning a “revolving door” and not enough labor to meet demand, all while consumer culture changes post-pandemic as well.

 

The chief people officer at a large financial services firm expects the same conditions as Hendrix. “We’re in a business that is not impacted by the pandemic in terms of sales and revenue, but I think there has been a large cultural shift across the U.S. and priorities have changed,” he says. “I think it is this changed perspective that will ultimately suppress business productivity due to talent acquisition challenges, and also sales as customers change their habits for good.”

 

CHROs who predict worsening conditions also say that the changing culture has changed their forecast. The VP of HR at a large tech company says his forecast is driven by “global political conflicts, continued divisiveness on how to deal with the ongoing pandemic, supply chain issues, and employees/candidates choosing when/how to work.” He expects conditions to drop down to 5/10 from the 7/10 he rates them currently.

 

Richard Tyler, CHRO at Conway Regional Health System, also expects conditions to drop down to a 5, but he rates current conditions a 6/10, saying, “My economic forecast: high inflation and high energy costs will lead us to the path of recession in late 2022 and early 2023.”

The Year Ahead

Despite their rating falling behind that of CEOs, America’s CHROs are still the most optimistic of the bunch when it comes to predicting the year ahead. 71 percent of CHROs expect increases in profits in the coming year, surpassing the 60 and 64 percent of CFOs and CEOs who said the same. A whopping 85 percent of CHROs expect increases in revenues as we head into 2023, up 5 percent since last quarter.

In the fourth quarter of 2021, 75 percent of CHROs planned to increase their hiring over the coming months. In quarter one of 2022, that number fell by less than 1 percent to 74 percent of CHROs who plan to up their headcount—a much higher proportion than both CFOs and CEOs who plan the same.

Only 50 percent of CHROs are expecting increases in capital expenditures over the next 12 months, a smaller fraction than the 57 percent of CFOs and 60 percent of CEOs who expect capex to rise over the next year.  

About the CHRO Confidence Index

The CHRO Confidence Index is a pulse survey of U.S.-based CHROs and HR executives at organizations of all types and sizes on their perspective of the economy and how policies and current events are affecting their companies and strategies. Every quarter, StrategicCHRO360 partners with SHRM (the Society for Human Resource Management) to ask participating CHROs about their top issues and challenges for the months ahead. The results are published on StrategicCHRO360.com and a report is distributed to participants.

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