News

CEOs Ponder Stock Impact

• 03/26/2001

Amid uncertainty about the direction of the global economy, chief executives worldwide are increasingly raising questions about the influences that drive the decisions of investors and have a significant impact on stock prices. Despite the market's preoccupation with quarterly earnings, CEOs from around the globe believe nontraditional market valuation criteria, such as intangible assets and non-financial measures, should be a factor in investment decisions. This was one of the findings to emerge from PricewaterhouseCoopers' fourth annual survey of CEOs worldwide.

"When the new economy sent share prices soaring, a lot of people started raising questions about how we value stocks," says James J. Schiro, Chief Executive Officer of PricewaterhouseCoopers. "The market may be in the midst of a correction, but we still must address the fact that traditional market valuation criteria, which are overwhelmingly focused on earnings and other historical data, do not -- alone -- effectively measure a company's worth in today's knowledge-driven economy. This survey backs up a number of other PricewaterhouseCoopers studies that all lead to one conclusion: we must bring corporate reporting into the 21st Century. That means we can't just focus on backward-looking financial measures, but must also look at value drivers like intellectual capital, brand equity, R&D, customer loyalty and other indicators of company performance and potential."

The survey, which was based on in-depth telephone interviews with 871 CEOs from Asia, Europe, Latin America and North America and Mexico, also surfaced questions about the influence of equity analysts. Fully half of the CEOs surveyed believe equity analysts exert little influence over individual investors. And nearly two-thirds say equity analysts have little or no influence over corporate strategy.

Another key finding to emerge from this year's survey focused on electronic business. Not surprisingly, CEOs in b-to-b sectors reported that e-business had much less of an impact on their companies this year than did CEOs in the business-to-consumer sectors. Nearly one-third of CEOs in the industrial services, products and transportation sectors reported that e-business had no impact at all on their companies. Only 12 percent of CEOs in the industrial services sector, 18 percent of CEOs in the products sector and 28 percent of CEOs in the transportation sectors reported that e-business had had a significant impact on their companies in the past year.

"The fact that e-business did not have more of an impact on companies in business-to-business sectors last year tells me that this year will witness a big step forward into b-to-b e-business, especially if the economy tightens further," notes Schiro. "The desire for productivity improvements and supply-chain efficiencies will drive e-tizing in b-to-b, and I expect explosive growth in e-markets, as well as a real push to embrace b-to-b e-business in Europe, Asia and Latin America."