CEO Outlook 2012

If fear and loathing were any more palpable, American CEOs would be suffocating in their own apprehensions right now.

It’s true that after two years of the Great Recession and another two years of one of the weakest “recoveries” in U.S. economic history, some companies have gotten healthier, and many corporations continue to sit on hordes of cash. However, in industry after industry, at companies both public and privately held—regardless of size, there is one message emanating from CEOs as they look nervously toward 2012: They are basically on hold until something changes. The most important thing that must change, they say almost unanimously, is the awful economic influence of Washington, D.C. And while some fault both political parties, the balance of blame tilts toward the Obama administration.

This consensus is even more striking, given the wide variety of companies represented by the collective feedback of 15 CEOs from across the country, in response to these questions by Chief Executive: What concerns you most about the year ahead for your industry and your company? What about the general economy and political environment? What needs to be done—and what is your outlook for next year?

Here’s what they said:

Austerity, Yes—But Not Draconian

George Barrett
Chairman & CEO
Cardinal Health

Two areas that we will be watching closely are affecting our business and our industry. One relates to the demand environment. Although health care has historically been relatively insulated from economic swings, it’s not immune. Americans, particularly the large population out of work, are consuming health-care products and services with caution.

The second relates to the implementation of health-care reform—or the Affordable Care Act. Some uncertainties remain for us and for our business partners related to this law, and we will need to adjust as the legal and regulatory issues unfold.

At the moment, our nation is experiencing the opposite of a virtuous cycle as it relates to [the] interconnected components of the state of the general economy and the political environment. Consumer confidence will improve if Americans see that all of our branches of government are prepared to overcome partisan politics to mobilize together on actions directed at job creation now—while addressing issues around our long-term debt. This will require an acknowledgement that some of our most important safety-net programs must be reformed in order to be sustainable; that our tax code must be modernized to be more competitive and fair; and that innovation, education and repairing our crumbling infrastructure—not draconian austerity—will be critical to emerging from the downturn.

For next year, our outlook remains cautious but optimistic that we have in place the strategies to compete in a dynamic and somewhat uncertain environment [including] our focus on improving the cost-effectiveness of health care.

Based in Dublin, Ohio, Cardinal Health is a $103 billion healthcare services company.

Enough Momentum in the Tank

Jonathan Browning
CEO
Volkswagen of America

The U.S. auto industry has had some supply-side challenges recently, but the biggest issue for us transitioning to next year is that consumer confidence has slid. Underlying consumer confidence is the key to momentum in the marketplace.

For Volkswagen, we see sales continuing to grow strongly in the U.S. as they have over the last year, in part based on the inherent strengths that consumers recognize in our goods and services. And a number of factors suggest that we’ll see continued growth in the overall auto market going forward; we’re forecasting the industry’s approaching 14 million in sales next year [after the nearly 13 million predicted for this year].

Also, there is replacement demand to be met and some growth coming from demographic factors. Plus, the industry is very competitive at the moment, so it’s a good time to be buying vehicles. Fuel prices remain at a relatively high level, but they’re beginning to stabilize. That all paints a picture in which we will continue to see a modest recovery in U.S. auto sales.

But we’re not foreseeing as much of an increase as we did six to nine months ago. Largely, that’s because a number of things are shaking consumer confidence, including the debate over public finances and debt, the overall political situation and the potential stalemate in terms of policy-making.

If demand stagnates, and as supply re-sets itself, there would be a risk of the industry’s having to increase [sales] incentives in certain segments. But if the demand side continues to improve—albeit at the slower pace that we foresee—hopefully, we won’t be getting that mismatch between supply and demand.

Volkswagen of America, based in Herndon, Va., is the U.S. arm of Volkswagen AG, one of the world’s largest auto makers.

Boosting the Value Proposition

Sandy Cochran
CEO
Cracker Barrel Old Country Store

The external environment is having a major impact on the restaurant industry, as a whole, as well as on Cracker Barrel, specifically. However, Cracker Barrel is a highly differentiated brand, and that’s one of the keys for success in such a competitive environment.

With that said, we must ensure that our business remains relevant for the changing lifestyles of our guests, and we have to make sure we’re offering the complete Cracker Barrel experience at prices our guests can afford to pay and at prices they will choose to pay.

The industry is again experiencing a period of aggressive discounting, and we expect to see a great deal of promotional activity—even as the industry grapples with rising commodity costs and continued softness in consumer traffic, which means pricing will continue to be highly sensitive. Competition will continue to increase from all sides.

The ongoing softness in consumer sentiment means that businesses are confronted with the absolute requirement of offering value, but they also have to recognize that consumers have actual, hard-dollar considerations. Consumers only have so much money in absolute dollars for discretionary spending and, relatively speaking, compared to others, it’s likely that value perceptions have been altered. The value proposition has to be a key area of focus for success.

Based in Lebanon, Tenn., the $2.4-billion Cracker Barrel Old Country Store has 604 restaurants in 42 states.

Wanted: Clarity and Predictability

Rob Daly
President
Zumbiel Packaging

Actually, good things are going on in the economy for our company right now because we do paperboard packaging for bigconsumer brands. As more advertisers spend dollars on social and digital media, instead of TV and magazines, it puts more of a premium on packaging—on catching eyes at the shelf.

Politics sneaks into everything and I’m concerned that the big guys are going to keep sitting on all the profits they’re making in the marketplace because there is no compelling reason for them to start investing in plants, equipment and jobs to start moving things forward. They’re afraid about the future and not willing to
invest in it.

As for consumers, we are far away from their being able to elevate the economy right now. To the extent that impacts us at retail, that’s a real concern. Plus, there are the banks. It doesn’t look like they want to make any loans with the slightest modicum of risk associated with them.

We need to get movement in Washington that’s not hostile to capital investment. It won’t work to have the classic compromise, where we reduce taxes but put a bunch of spending bills out in front. There has to be some common sense about what happens to the federal debt burden, but getting something done is actually more important at this point than what it is—as long as it involves clarity and predictability.

Over the long term, I’m very optimistic because I just don’t think we can function this way forever. Some people have to get themselves positioned to win an election here, but I’m not excited about all the histrionics we’ll have to go through.

Based in Hebron, Ky., Zumbiel is a privately owned company with revenues of more than $100 million.

Reform is Not a Dirty Word

Diana Hendel
CEO
Long Beach Memorial Health Center

As a not-for-profit, community-based and teaching-hospital organization in a community that is quite diverse and a microcosm of what is emerging economically and politically at a national level, we’re witnessing a “perfect storm.” The weak economy puts more people out of work, which creates more folks who are uninsured or under-insured, and it’s a real concern. There are skyrocketing costs of providing health care and the seemingly unavoidable insolvency of Medicare. People will put off procedures they need, and the weak economy creates stress and impacts people’s health.

That has a direct impact on us. We often care for people who have acute or chronic illnesses without any ability to fund their care. In the past, hospitals were able to cover the costs through a balance of people with insurance and government reimbursement; but, with higher unemployment and more people going into Medicare coverage, the pressure of being able to care for people has really increased.

The other problem is rising health-care costs, making transformation of the health-care delivery system absolutely necessary. Even the prevalence of childhood obesity adds to the demand that something change.

What kind of reform and how the transformation occurs is the subject of debate, but the transformation must occur and not just incrementally. My worry over the next year or so is that “reform” has become kind of a negative, dirty word—a political, polarizing term that stops needed transformation in its tracks.

Health-care providers, systems and plans already are making changes, and we’re seeing a lot of progress that hasn’t been impacted by legislation. Still, we need to create more efficiencies and continually improve the quality of care.

Comprising three facilities in metro Los Angeles, Long Beach is a $50-million, not-for-profit organization.

Get Out of the Way

Diane Hendricks
CEO
ABC Supply

We made adjustments a long time ago, and we’ve been able to stay strong—even though building-supply distribution is our main business. There are too many regulations, making it more and more difficult to be in business. Everyone starts to pull in out of uncertainty. I’m more comfortable since the elections of November [2010], but I still have a very large concern about what might be coming down. It’s negatively impacting business. The economy is so weak and government is so strong. This is not a good combination.

We need government to stop thinking it can fix the economy with regulations, taxes and “incentives” that make no sense. We can’t survive with a government that thinks it’s more powerful than the voice of the people and [more powerful] than the determination of businesses to grow their companies. Look at the Boeing [plant-site] issue: It’s the epitome of Big Brother. The government doesn’t stop us from building plants in China, but it will stop us from going to the Carolinas?

Look at what has happened in Wisconsin [after Gov. Scott Walker’s reining in of public-worker unions]: He gave job creators a positive vision for growing businesses. Wisconsin is a state that is attractive to other businesses now and the president should follow Gov. Walker’s lead. We’re a country built on opportunity, so just give us the space to be able to do that.

I can’t even imagine [what will happen] if we don’t make some drastic changes, politically in 2012; that’s the scariest thing we’d have to face. We need to put certainty back in the private sector, so we can start from the ground floor and grow this country back [to its potential].

Beloit, Wis.-based ABC Supply is a $4.3-billion concern and the largest of 25 companies controlled by Hendricks.

Counting on Pent-Up Demand

Mike Jackson
CEO
AutoNation

The overall economic environment remains a serious concern; the recovery is fragile and tepid. It’s not as strong and sustaining as anyone would like to see at this point, so there’s still a risk that any disruption could throw this recovery off track.

Also, if you look at the deficit the federal government is running and the debt situation in Europe, there is concern that there might be another financial crisis and seize-up—and, let’s face it, credit is the lifeblood of the auto industry. You can’t sell a car without credit. We had that problem in 2008.

These challenges are so great that you need leadership in Washington, D.C. that gives you confidence. The Federal Reserve has done a brilliant job, but that’s not the case with the White House and Congress. They haven’t made the economy and jobs their priority year-in and year-out. They’ve been distracted by doing things such as health-care reform and Dodd-Frank, which have had a harmful effect on the economy.

They need to come together to fix the economy and create jobs; that should trump everything else. There’s a lot of pain in America right now and maybe they should form a task force on housing because you can’t have a strong recovery without housing. The auto task force did a brilliant job. Washington also should get the free-trade pacts done.

A recovery is still underway in our industry on a sales-volume basis. Many consumers have postponed purchases they planned in 2008 until now, so there is significant, pent-up demand. Recovery will continue at a moderate pace, but it’s a recovery—and that’s important. I don’t see a double-dip recession; I think we’ll plow through it.

The $12.5 billion company, based in Fort Lauderdale, Fla., is the nation’s largest auto retailer. Jackson is on the board of the Atlanta Fed.

Scraping by on Scrappage

John Krafcik
President & CEO
Hyundai Motor America

We have had a good run. We’re staying humble and hungry and working the plan that we instituted, but it’s always on our minds not to get complacent. For the industry, our biggest concern is the macro-economy. Economic conditions are very unclear and a vast majority of American consumers feel like they’re under [a] recession.

What’s keeping the industry going right now is the scrappage aspect: We’re benefiting from the need for vehicle replacement and that core level of demand could keep the industry moving. I’ve seen some fairly positive signals on pricing so far in 2011, but we don’t see much opportunity for significant improvement without substantial improvement in both jobs and housing. The association between housing and the economy is remarkable; when American consumers don’t enjoy the wealth effect of home equity, they’re much more reluctant to pull the trigger on new purchases.

We need to get the country on a simple business plan. With the substantial, [political] divide we have now, that’s a very difficult thing to do. The agendas are too divergent right now, but without [a simple business plan], we’re going to continue to struggle. With the road we’re on, it looks like fairly flat to minimal growth for 2012—say 1 to 1.5 percent GDP growth. We’re looking at about 800,000 incremental units for 2012 as a reasonable planning scenario. Last year, for 2012, a lot of forecasters were looking for up near 14 million sales, but that’s not going to happen. We’ll be in the 13 millions. Hyundai would love to have our fair share of that incremental volume, so we’re continuing to work to optimize our production.

The U.S. arm of the Korean chaebol based in Fountain Valley, Calif., has been the fastest-growing major brand in the U.S. car market.

Confidence Is What We Need

Bob McDonald
CEO
Proctor & Gamble

The spark we need now is confidence that elected leaders will put aside their political differences and genuinely work side-byside to find realistic, sustainable solutions. Economic growth and job creation are direct outcomes of business competitiveness—competitiveness that is jeopardized each time personal priorities or political agendas are pursued.

We also need the confidence that protectionism does not raise its ugly head, and we need strong patent law around the world to ensure that innovation is protected and investment in research and development continues to support growth. Lawmakers also need to ensure they conduct thorough, cost-benefit analysis before implementing new regulations.

In the specific case of the U.S., we need the confidence that Congress and the president understand that we have to win everywhere that American business wishes to compete. They should work together to pass the long-awaited, free-trade agreements with Columbia, Panama and Korea and to liberate U.S. multinationals, so they can compete fairly and become stronger growth engines for the U.S. economy. We have to responsibly reduce federal spending programs but not by sacrificing vital infrastructure investments.

Give business the confidence to invest and compete equally at home and abroad; and, in return, business will create the spark that reignites the engine of growth to ensure economic security and prosperity today and for generations to come.

P&G has continued to grow globally through the recession, but, clearly, economic progress in the U.S. and other developed nations has been slow. We can expect the pattern we have seen over the last two years to continue in the year ahead—slow growth in the developed economies and faster growth in the emerging markets.

Based in Cincinnati, P&G is the world’s largest consumer, packaged-goods company, with $83 billion in fiscal-2011 revenues.

He Must Be Stopped

Bob Murray
CEO
Murray Energy

The destructive presence of President Barack Obama and his radical followers and appointees throughout government and his determination to pick winners and losers is beyond any conception that I had before. This is a human issue to me because I know Americans whose lives and livelihoods he is destroying. There’s no other word for what he’s doing to the coal industry.

Congress must enact a number of current proposals that would stop the regulatory rampage of the Obama administration, particularly of the Environmental Protection Administration. In addition, we must put Mr. Obama and all of his appointees into unemployment as quickly as possible.

I’m not even encouraged by the administration’s [recent] abandonment of the EPA’s outrageous ozone requirements because this regulation would have had little effect on the current use of coal and employment in America. The regulation that is the most damaging of all is the so-called cross-state, airpollution rule, which becomes effective on January 1 [and would put new limits on sulfur dioxide and nitrogen oxide emissions from power-plant smokestacks in 27 Eastern states.] Mr. Obama and his radicals deliberately didn’t leave time for electric utilities to comply with this regulation or to provide for trading of emission allowances, as a previous Bush administration regulation did.

I really don’t know what’s going to happen to the economy any more than Mr. Obama does—who doesn’t have a clue and is far more socialistic than anyone thought he would be.

Along with most job creators in America, I personally am holding back in fear of this individual and the Democratic leadership in Congress. I am truly afraid for my 3,200 employees regarding the past and potential future actions of President Obama and his appointees.

Pepper Pike, Ohio-based Murray Energy generates about $1 billion a year in revenues as America’s largest privately owned coal provider.

Free Trade Creates Jobs

Keith Nosbusch
Chairman & CEO
Rockwell Automation

We just completed the ninth quarter of what has been a pretty robust recovery that I hope will be sustained next year. My concern is the tremendous uncertainty in the macro-economy. The recovery has been driven by industrial markets and industries, which is very unusual. We haven’t seen any strength yet on the consumer side, which would be normal in a typical recovery.

That’s because of continued high unemployment in the United States and Europe, and the U.S. housing market continues to be significantly depressed. With that uncertainty, our company’s challenge is to make sure we’re doing the best we can to balance short-term, financial performance with longer-term, growth initiatives and innovation. It’s critical for us to continue to invest in core technologies and customer-facing resources.

Also, we need political leadership to create an environment that is more conducive to business investment and the economic growth that will follow. We need a willingness among our political leaders to find common ground, so government can re-establish public confidence in its role.

In the U.S., we require a robust, vital manufacturing sector for recovery, long-term growth and to remain a prosperous country. We also need to modernize our infrastructure, change workforce-training curricula, reward R&D investment in manufacturing, and have more trade agreements. More American exports only happen with more free-trade agreements, so we should have new pacts in the funnel, beyond the three that are pending.

Rockwell Automation will continue to grow our percentage of business in faster-growth, emerging economies and, next year, we’ll see the introduction of some very important new products that will also generate increased revenues.

Based in Milwaukee, Rockwell Automation is a $5 billion provider of industrial-automation products and services.

Fighting Exasperation Everywhere

Mike Paxton
President & CEO
Chamilia

The consumer is pulling back on discretionary spending like jewelry, which is our business. We had seen some resurgence toward the end of 2010, more than a ray of hope that the economy actually was coming back; but, with the political environment, we’ve seen a decline in consumer confidence one more time. Consumers are just feeling battered.

They’re pulling back to where they were in 2009 and, this time, consumers are going to be a lot more cautious. Frankly, everyone is waiting for the elections and the political environment isn’t going to change until then.

We’re an affordable fashion accessory, and we’ve been a bright spot for a lot of the independent jewelers who are our customers. We’re continuing to see that with a new co-designed, Swarovskicrystal collection; we’ve got the plans and potential for global expansion. However, we’re anticipating that consumers will begin cutting back, maybe starting one of our bracelets with two beads instead of three.

An industry-specific issue is the escalating cost of precious metals. Because of the cost of gold, silver has become the biggest part of our line; and, now, it’s more than three times the price silver was just two years ago. That totally squeezes our margins and we can’t cover those cost increases.

The whole economy is going to tread water at least another year. Consumers are exasperated, retailers are exasperated and corporations are exasperated. [As a result], there’s going to have to be a change in attitude. There’s way too much [government] spending and misuse of funds and I think they will have to raise taxes. If they’re reasonable about it and truly cut spending, People’s confidence will grow again—even if they have to pay higher taxes.

Chamilia is a $100 million, privately held, personalized-jewelry brand based in Minneapolis.

Still Cherishing Digital Talent

Marita Scarfi
CEO
Organic

Even with the recession, the digital-marketing industry is still somewhat in a growth mode, even though budgets seem to be somewhat flat on an overall marketing level. We may be pitching seven potential new clients a week, but the areas where budgets are up tend to be those where we still have the biggest shortage of talent.

We need to make sure we have talent in our areas of growth, such as marketing analytics and search-engine optimization. Talent is still the major issue for us, and finding it and retaining it is what keeps me awake at night. We still have people who poach our talent and pay them 20 or 30 percent more than we’re paying them; and, when we get back to where budgets are opening up because the economy is better, this problem will be three or four times as bad.

Depending on the way they go, new privacy laws may affect our media business and how we go about getting the same return on investment. The biggest impact will be around targeting consumers behaviorally, which a lot of companies use quite extensively. If there are restrictions, we’d have to come up with other strategies to accomplish the same goals. It’s a pretty significant area for us.

I believe we’ll grow significantly next year. We have an in-house recruiting staff that we’ll probably have to beef up to make sure we’re ahead of the curve and [that] we can bring in talent quickly. We also have to make sure we’ve got a lot of flexibility in our spending [on personnel] because a lot of advertisers and brands right now are nervous about which way the economy is going to go.

Organic, a digital-marketing agency based in San Francisco, is a $140 million unit of Omnicom.

Try Teamwork

Jim Skinner
CEO
McDonald’s

Everyone has his or her eyes on the economy. It’s a common equalizer for folks these days. Whether you’re running a household or a global business, you’re keeping tabs on what’s happening on Wall Street and in Washington.

McDonald’s continues to operate from a position of strength in this uncertain economy; but, like others, we consistently monitor where consumer confidence is, what the job market is like and what’s happening with commodities and the strength of the dollar.

Our business model, known as the Plan to Win, remains a strong foundation for our global success. Like other businesses, McDonald’s does better when the economy does better, so we want our customers to feel good about what’s happening in the world around them.

I’m not an economist. I can’t presume to prescribe solutions, but I’ve learned that in business, things get done through alignment and collaboration and the name of the game is teamwork. We’ve seen some real stalemates in Washington over the last year and, at the end of the day, the American consumer is left wondering if things will get worse before they get better.

The failure [of politicians] to communicate and collaborate is fueling an increased lack of trust and cynicism over whether these major problems can be solved. I believe we have an uphill climb to economic stability until factors such as the unemployment rate and consumer confidence are stabilized and until the political stalemates give way to solid collaboration.

For McDonald’s, continuous improvement and innovation are the keys to building momentum, including giving our customers new menu choices at a great value, more remodeled restaurants that reflect a modern lifestyle and conveniences, such as extended hours and Wi-Fi.

With $24 billion in 2010 revenues, Oak Brook, Ill.-based McDonald’s is the biggest quick-serve restaurant chain in the world.

Rebuild the Infrastructure

Eric Spiegel
President & CEO
Siemens USA

There’s a lot of discussion about creating jobs and about budget deficits, but we don’t see enough commitment to strengthening three foundations: technological research, technical education and infrastructure. The U.S. became the strongest economy in the world in no small part because the federal government bolstered domestic manufacturing by investing heavily in these three areas. These have been among the biggest attractions of this country to Siemens.

Now, we need to put them back at the forefront of the national agenda. We would like to see more industries working with the federal government on important areas of research, such as Energy Department projects, for example. The U.S. has fallen quite far behind in technical education. We have 3,000 open positions in this country and there’s a lot of talk about America wanting to do more domestic manufacturing and more exports.

Unfortunately, if you don’t have the technological leadership to make these things happen, they go to other countries. If you want high-tech manufacturing here, you’ll struggle to find the people for the plants. We see the U.S. as an attractive market for investment, but we need to have the right environment—of the government working more with the private sector.

The global economy is continuing to grow, but the upswing has lost some momentum. Still, I don’t see a double-dip recession [coming].

At Siemens, we have had a really good 2011 because our products are well-aligned with the market, including gas turbines and renewable-energy products. However, we can’t expect the same kinds of growth rates in the near future. The questions hanging over us create a lot of uncertainty.

Based in Washington, D.C., Siemens USA is the $20 billion American arm of German industrial giant Siemens AG.