ALMOST HALF (45%) OF CANADIAN CEOs FORESEE ECONOMIC DOWNTURN OVER THE NEXT TWO YEARS

ALMOST HALF (45%) OF CANADIAN CEOs FORESEE ECONOMIC DOWNTURN OVER THE NEXT TWO YEARS

BUT, SILVER LINING IN THE DARK CLOUD IS CEOs ARE OPTIMISTIC ON HIRINGS, THE BOTTOM LINE AND BELIEVE THEY'RE WELL-EQUIPPED TO COMPETE GLOBALLY

ONLY HALF (51%) OF CEOs GIVE TWO THUMBS UP TO FEDS FOR CREATING RIGHT ECONOMIC CLIMATE (DOWN 19% OVER LAST YEAR). ALMOST 2/3 (62%) WANT CHRЙTIEN TO RESIGN

This year's Fifth Annual Angus Reid Group/Report on Business Magazine survey asked CEOs and the general public for their opinions on the most respected corporation as well as various business and economic issues.

The CEO component of this Report on Business/Angus Reid survey was conducted by telephone or mail-out survey between November 30th, 1998 and January 26th, 1999 among a representative cross-section of 272 CEOs.

A new survey indicates that almost half (45%) of Canada's captains of industry think there will be an economic downturn in the next two years and six in ten (59%) indicate that their risk strategy is now "caution". But, the silver lining in this dark cloud is that CEOs are optimistic on new hirings, the bottom line and CEOs believe they're well equipped to compete globally. Confidence in the feds to create the right economic climate has dropped by a stunning 29 percentage points over last year with almost two thirds (62%) wanting Chrйtien to resign.

CEOs are clearly detecting a potential economic downturn on the horizon. Having just pulled out of the worst recession since the 1930's depression, Canadians figure this is the last thing they need to hear. But Canada's captains of industry are sounding a warning signal. While they're optimistic in the short run on everything from hirings to the bottom lines, their traffic signal for the economy and the business risk barometer has moved from green to caution yellow since last year's exclusive poll sounding.

Perceived Possibility for an Economic Down-Turn is On the Rise

Once again, CEOs were asked to indicate if they agree or disagree with the statement, "I think there will be a major economic downturn in the next two years." Last year, only 34 percent agreed with the statement. This year, a full 45 percent of CEOs think there will be a major economic downturn in the next two years. In spite of this downward trend, a slim majority (51%) opines that a major economic downturn is not on the horizon (compared to 64% last year).

Albertan CEOs demonstrate the most guarded position as almost half (45%) agree with the assertion that a major economic downturn will occur in the next two years while CEOs from Saskatchewan/Manitoba are the most optimistic as 67 percent disagree with the proposition that a major economic downturn is eminent.

CEOs Continue To Expect Their Workforces to Expand

Once again, three in five (62%) anticipate a growth in their company's workforce over the next two years (compared to 63% in 1998). This expectation is most pronounced among Quebec CEOs (70%) and in the services sector (71%) where a larger proportion of CEOs expects their workforce to expand.

One in ten (11%) continue to expect that their workforce will be downsized (compared to 10% in 1998). This view is most often expressed among CEOs operating in the resources sector (17%).

In addition, one quarter (26%) do not foresee any changes (compared to 26% in 1998). British Columbian CEOs (44%) and those CEOs from Manitoba/Saskatchewan (44%) are the most likely to predict a stable workforce.

CEOs Continue To Be Bullish About Bottom Line

CEOs were asked how they expect their company to do financially during the year -- better, the same or worse. Three-quarters (75%) of CEOs indicate that they expect their company to improve its financial performance over the next year. One in seven (13%) believe that their financial performance will be the "same as last year" and 11 percent anticipate a downturn. These results are almost a mirror image of last year's results when three quarters (76%) forecasted things would improve, 14 percent expected things would remain the same and 8 percent indicated that they were anticipating worse times ahead.

Unlike last year, this enthusiasm is more consistent across the country. Last year, only half (53%) of British Columbian CEOs and 40 percent of Atlantic Canadian CEOs were forecasting a healthier bottom line. Today, 62 percent of British Columbian CEOs and 86 percent of CEOs from Atlantic Canada expect a healthier bottom line in the year ahead. Quebec CEOs are the most likely to be optimistic (93%).

However, there are still some pessimists among Canadian CEOs. They are most likely to be found in BC (20% expect things to be worse than last year) and Alberta (21% expect things to be worse than last year).

Similar to last year, it is those CEOs operating in the resources sector who are most modest about the prospects for the future (66% expect an increase compared to 75% cross sector).

Global Competition: Key Issues

Global competition has once again captured the hearts or minds of Canada's CEO as one in five (18%) indicate that it is the most serious issue facing Canadian business (last year, competition was the most frequently mentioned issue). This predilection is most acute among CEOs in Quebec (33%) and least prevalent among British Columbian CEOs (11%). While two in five (37%) CEOs under forty years of age consider competition to be the most serious issue facing Canada, it is far less pronounced among older CEOs (15% among those between 41 and 55 and 13% among those over 55 years).

Other issues that figure prominently on this list include productivity (8%), government regulations/red tape and general government intervention (7%), fluctuation in the value of the currency (4%), educated/skilled workforce (3%), international economy/global market conditions (3%) and the economy in general (3%). While a range of other issues was mentioned, these failed to capture the 3 percent threshold that was imposed on this list.

Esteem For Federal Government's Role in Creating Positive Business Environment on the Decline

Once again, CEOs were asked to indicate if they believe that the federal government has created a business environment conducive to economic growth and development. Last year, seven in ten (70%) CEOs indicated support for the government's role in creating a positive business environment. However, this year, only half (51%) of Canadian CEOs agree with the assertion that the federal government has created a business environment that is conducive to economic growth and development. The other half (47%) disagree.

CEOs from Atlantic Canada (71%) and those operating in the manufacturing sector (65%) are the most likely to demonstrate support for the government's role in creating a positive business environment.

Majority (62%) Support Chrйtien Stepping Aside Before Next Election

A majority of CEOs (62%) agree that Prime Minister Chrйtien should resign and let someone else lead the country before the next election (28 percent disagree). Atlantic Canadian CEOs are split on their views on the future for Chrйtien (43% agree that he should resign while 43% disagree).

Keeping up With the Jones's

This year's survey included a series of questions that asked CEOs to consider how their own company measures up against others in their sector. Specifically, they were asked to indicate if their company is performing much better, somewhat better, the same, somewhat worse or much worse as other companies in their sectors in terms of various performance indicators. Their answers reveal that CEOs are quite confident about the performance of their company vis а vis their competition.

Regionally, however, British Columbian CEOs are among the most likely to indicate that they fall short of the standards established by other companies in their sector.

Long Term Investment Value

Seven in ten CEOs (72%) believe that they are performing "better" than their competition in terms of long term investment value. One in five (17%) indicate that they are on par with the rest and nearly one in ten (8%) believe they are worse off.

CEOs from Quebec are the most confident about their competitive position in terms of their long term investment value (81% indicate better), while their British Columbian (58%) and Atlantic Canadian (57%) counterparts are least likely to believe they are in a better position than others in their sectors.

Innovation and Product/Service Development

Three in five (59%) Canadian CEOs believe their own company is "better" at innovation and product/service development than other companies in their sector. One quarter (27%) believe they are "the same" as other companies while only 7 percent indicate they are "worse" than their competitors.

While Ontarians are the most likely to indicate they are ahead of the pack (69%), British Columbians are the most modest about their company's innovative and product service development capacities (only 42% indicate that they are "better" and 33% believe they are "the same" as the rest).

Human Resources Management

Only half (50%) of Canadian CEOs indicate they are in "better" positions than their competitors in terms of human resources management. An additional two in five (41%) believe they are "the same" as other companies in their sectors and 5 percent indicate they are "worse".

Atlantic Canadian (71%) and Albertan (59%) CEOs are the most likely to indicate they are better than their competitors in terms of human resources while their colleagues in Quebec are the hardest on their own performance (41% indicate "better").

Financial Performance

Three in five (63%) CEOs indicate that their company is performing better than others in their sector in terms of financial performance. One quarter (23%) believe that their company's financial performance is "the same" as their competitors while one in ten (12%) posit that they are in fact performing below the level of their competitors.

CEOs from Quebec are the most boisterous about their companies' financial performance as three quarters (74%) indicate that they are performing "better" than their competitors. Alternately, British Columbian CEOs were the most likely to indicate that their companies are performing "worse" than others in their sector (24%).

Corporate Social Responsibility

Asked to consider how their record on corporate social responsibility stacks up against others in their sector, half (54%) indicate that they are performing "better" than their competitors. However, a large proportion of CEOs believes that their own company's performances is "the same" as other companies in their sector (38%). An additional 5 percent indicate that they are "worse" than others are.

Atlantic Canadian (14%) and Quebec (11%) CEOs are the most likely to indicate they fall short of the performance of their competitors in terms of corporate social responsibility.

Taxation and Competition

CEOs were asked to indicate what they consider to be the most serious issue facing Canadian business today. This year, taxation/corporate taxation (28%) was mentioned by the largest group of CEOs (last year this issue recorded the second highest number of mentions). This issue is most acute among British Columbian CEOs (49%) and those employed in the resources (31%) and service (30%) sectors. Notably, older CEOs are almost twice as likely as their younger counterparts to believe that taxation is the most serious issues facing Canadian business today. In particular, only 15 per cent of CEOs less than 40 years of age consider it a serious issue while 31 percent of those between 41 and 55 years and 28 percent of those over 55 years consider it a serious issue.

Proceeding With Caution

CEOs were told to pretend that their company's current risk strategy is a traffic light and asked to indicate if it is on red, yellow or green. Three in five (59%) indicate that their traffic light is on yellow. Thirty percent indicate that it is on green and 7 percent describe their traffic light as red.

Those CEOs who are most likely to indicate that their strategy has put them at a stand still (that is, on "red") are CEOs from BC (11%), Quebec (11%) and those operating in the resources sector (10%).

Dollar Fluctuations Believed To Have Positive Effect On Canadian Business

When CEOs were asked to indicate what effect the change in the value of the Canadian dollar in 1998 has had on their company, three in five (60%) indicate that it has had a positive effect. Three in ten (31%) indicate it has had a negative effect.

Albertan CEOs (77%) and those operating in the resources sector (76%) are the most likely to indicate that the dollar fluctuations have had a positive effect on their businesses. Conversely, Atlantic Canadian (57%) and British Columbian (36%) CEOs and those operating in the services sector (38%) are the most likely to cite a negative effect.

CEOs Split On Cause of Dollar Fluctuations

CEOs are split on the rudimentary cause of the dollar's recent fluctuations. CEOs were presented with two possible explanations for Canada's declining dollar and asked to indicate which is closest to their opinion. Half (50%) indicate that the decline in the Canadian dollar reflects fundamental weaknesses in the Canadian economy. The other half (47%), indicate that the dollar is fluctuating because of global financial issues which have nothing to do with the Canadian economy.

Opinion is not evenly split across the country. In fact, CEOs in Quebec (59%) are more likely to blame global financial issues while those in British Columbia (64%) are more likely to point to fundamental weaknesses in the Canadian economy. In addition those operating in the manufacturing sector (66%) are more likely to cite global financial issues while those operating in the resources sector (54%) are more likely to blame weaknesses in the Canadian economy.

Majority (63%) Do Not Support Increased Role For Federal Government And The Bank Of Canada In Protecting The Value Of Canada's Dollar

Three in five (63%) do not believe that the federal government and the Bank of Canada should do more to protect the value of the Canadian dollar. However, one-third (33%) believe that they should assume a greater role.

Ontarians (37%) and British Columbians (36%) are the most likely to support more action on behalf of the federal government and the Bank of Canada to protect the value of the Canadian dollar. CEOs employed in the manufacturing sector are the greatest opponents (74%) of the federal government and the Bank of Canada doing more to protect the value of the Canadian dollar.

Nine In Ten CEOs Recommend Sticking To Core Competencies to Succeed in 21st Century

When CEOs were presented with two competing strategies for success in the 21st century, an overwhelming majority (89%) of Canadian CEOs indicates successful companies of the 21st century will be those who focus on their core competencies and minimize diversification. One in ten (9%) indicate that the successful companies will be those who diversify their business beyond their core competencies. These results are almost identical to the results yielded in last year's study.

While this is the majority opinion across the country, CEOs from Saskatchewan/Manitoba (67%) are the least likely to recommend focusing on core competencies and one third (33%) believe that businesses should diversify. Notably, almost all CEOs from BC (98%) believe that focusing on core competencies will lead to successful companies in the twenty-first century.

Canadian CEOs Believe Their Companies Are Positioned For Global Competition

Consistent with the findings revealed in last year's survey, 86 percent of Canadian CEOs believe their businesses have what it takes to compete in a global marketplace (compared to 87% last year). CEOs across the country are upbeat about their company's potential to compete globally. However, those CEOs who are employed in the services sector are the least likely (80%) to indicate their companies are well-equipped for global competition.

Six In Ten (57%) Report Need To Solidify Existing Markets

Six in ten (57%) CEOs agree it is more important for their company to solidify its current market than to expand into new markets. An additional two in five (40%) disagree with this premise. CEOs in Alberta (61%) and Ontario (62%) and those employed in the resources sector (61%) are the most likely to indicate that they must focus on their existing markets before expanding into new ones while those from British Columbia (53%) and the manufacturing sector (49%) are the most likely to disagree.

Assessing Priorities

This year's CEO survey also asked respondents to consider various business priorities and to rank each item on a four-point scale where one is the most important and four is the least important.

• Three quarters (73%) of Canadian CEOs consider ensuring the long-term financial health of one's company the most important priority for their companies.
• Thirteen percent (13%) consider maximizing profits in the short term to be the most important priority to their company.
• Seven percent (7%) indicate that expanding into new products or services is the most important priority for their company right now.
• Seven percent (7%) indicate that expanding into new markets either inside or outside Canada is the most important priority for their company right now.

Majority (60%) of CEOs indicate that all of management, shareholders and employees have benefited from the economic upturn

CEOs were asked to indicate who they believe has benefited most from the economic upturn -- management, shareholders, employees or all of the above. Similar to the results collected in last year's survey, a majority (60%) believes that all of management, shareholders and employees have benefited from the economic upturn (compared to 56% last year). One-quarter (28%) indicate that the benefit has been largely enjoyed by shareholders (compared to 31% last year). In addition, 7 percent believe it is management (7% last year) while 2 percent indicate it is employees (3% last year) who have benefited from the economic upturn.

While these patterns are consistent across all regions and industrial sectors, CEOs in Alberta and Ontario (70% each) are more likely than their counterparts in the rest of the country to indicate that all of management, shareholders and employees have benefited from the economic upturn.

People with the right skills becoming easier to find

A majority (55%) of CEOs agrees that it is difficult to find people who have the skills needed for their companies. This marks a considerable improvement over last year's results when seven in ten (69%) indicated that finding people with the right skills is difficult. Forty-four percent(44%) indicate that it is not difficult to find people with the necessary skills.

The problem of finding the right people is most acute in Quebec (63%) and in the manufacturing sector (70%).

Biggest customer takes priority over biggest shareholder

CEOs were asked to consider a situation wherein they receive two simultaneous phone calls - one from their biggest shareholder and one from their biggest customer -- and indicate which call they would answer first. Seven in ten (72%) indicate that they would attend to their biggest customer first while one quarter (24%) indicate that they would give priority to their biggest shareholder.

While the biggest customer would still receive priority from a majority (54%) of CEOs in Alberta, the biggest shareholder stands the best chance of being looked after first in this province (39% would take the call from the shareholder first). CEOs operating in Atlantic Canada (86%) and Saskatchewan/Manitoba (83%) are more likely than others to give priority to the biggest customer.

Half (50%) of CEOs describe investment style as aggressive

CEOs were asked to consider their investment style and to indicate if they are aggressive and risk-taking or if they are conservative and avoid taking risks. Half (50%) indicate that they are aggressive while 44 percent indicate they are conservative.

CEOs from Saskatchewan/Manitoba (78%) and Alberta (60%) and those employed in the resources sector (65%) are the most likely to demonstrate aggressive investment strategies while those in British Columbia (53%) and Ontario (48%) and those employed in the service sector (53%) are the most likely to adopt more conservative approaches.

For further information, please contact:

John Wright
Senior Vice-President
Angus Reid Group
(416) 324-2900