December 2024 

The rise of generative AI (gen AI), fueled by OpenAI's ChatGPT release in November 2022, has led to significant global advancements, with Europe trailing behind its counterparts, particularly in the field of large language models (LLMs). Europe is behind in both the creation and adoption of these technologies, yet the broader gen AI landscape, encompassing raw materials, AI semiconductor design, AI applications, and cloud infrastructure, presents opportunities for Europe to capture substantial economic value. Despite Europe’s slower adoption, the technology has the potential to boost labor productivity by up to 3% annually through 2030, which could play a critical role in addressing Europe’s key challenges such as the energy transition, aging population, and economic competitiveness. In this article, McKinsey's Alexander Sukharevsky,  Eric Hazan, Sven Smit, Marc-Antoine de la Chevasnerie, Marc de Jong, Solveigh Hieronimus, Jan Mischke, and Guillaume Dagorret explore the reasons behind Europe's challenges with AI and the opportunities. 

A key issue they find is that most of the funding for LLMs has been concentrated outside Europe, with more than 90% of the investment occurring in the US and other regions. European companies also represent only a fraction of notable AI models—just 25 out of 101—underscoring their lag in technological creation. Moreover, Europe faces challenges in all but one segment of the gen AI value chain, with its presence in critical areas like semiconductor manufacturing, cloud infrastructure, and data centers being minimal. As a result, Europe risks falling behind in powering and scaling AI applications, which would further hinder its ability to tap into the economic benefits of this emerging sector.

In terms of AI adoption, the gap is evident. European companies are investing less in AI software and technology compared to their US counterparts, with the AI spend-to-sales ratio in Western Europe falling significantly behind the US by 45 to 70%. This slow pace of adoption is reflected in the 2023 McKinsey Global Survey, where only 30% of surveyed European companies reported adopting gen AI in at least one business function, compared to 40% in North America. On energy, the rise in data center power consumption due to the demand from gen AI is expected to contribute to more than 5% of Europe’s total electricity consumption by 2030, putting additional strain on the region’s energy infrastructure.

For Europe to fully realise the potential of gen AI, it must adopt a comprehensive approach, addressing gaps in investment, talent, and energy infrastructure. Recommendations for European leaders include fostering innovation in AI applications for key sectors like healthcare and defense, investing in next-generation semiconductor technologies like quantum and neuromorphic computing, and ensuring the workforce is adequately reskilled to leverage AI advancements. This multifaceted approach would allow Europe to better compete in the rapidly evolving global AI economy.

Why boards are focused on human capital governance and risk

Boards of directors are increasingly focusing on human capital governance to drive long-term value and strategic advantage. Post-pandemic challenges, such as labor market shifts, skill shortages, and technological disruptions, have made addressing people-related issues a core responsibility for effective boards. A recent survey highlights that over 90% of S&P 100 companies have expanded their compensation committees to include broader human capital topics like succession planning, leadership development, compensation, and diversity initiatives. John Bremen, Managing Director and Chief Innovation & Acceleration Officer at WTW, explores the findings. 

• Effective boards take several actions to oversee human capital governance:
• Strategic Discussions: Boards engage in broad, strategic conversations on human capital, using data to assess trends, risks, and alignment with business priorities.
• Clear Accountabilities: They define roles and responsibilities, ensuring a structured approach between the board and management for overseeing human capital.
• Performance Metrics: Boards focus on outcome-based human capital metrics linked to business performance, productivity, and risk, addressing areas like turnover, talent development, and employee well-being.
• Stakeholder Involvement: Boards align with key stakeholders, such as the CHRO and CRO, to integrate people risks into the overall enterprise risk management framework.
• CHRO Engagement: Regular one-on-one meetings with the CHRO foster open discussions on the organisation's people strategy.
• Governance vs. Execution: Effective boards maintain the distinction between governance and management, focusing on oversight and strategic decision-making rather than day-to-day operations.

By adopting these practices, boards help organisations build resilience and gain competitive advantage through strong human capital management.

A turning point for private brands: How retailers can seize the opportunity

In 2021, McKinsey explored whether the private-brand trend would last, and current research shows it has endured. Consumers in both the U.S. and Europe are increasingly choosing private-label brands over national brands, driven by affordability and a shift in shopping behaviour toward mass retailers, club channels, and discount stores. In the U.S., nearly 75% of consumers and 85% in Europe report "trading down" to private brands, with 25% of this behaviour attributed directly to private labels.

Private brands are now perceived as high-quality alternatives, not just cost-effective choices. Retailers are using private labels to build customer loyalty and differentiate from competitors. To excel in this space, retailers need to adopt CPG-like strategies that focus on three key capabilities: merchandising and brand building, insights-led product development, and next-generation sourcing.

Historically, private brands were seen as budget-friendly alternatives, but today’s successful private labels balance affordability with quality and differentiation. Retailers must strategically manage their private-brand portfolios, using AI and digital tools to streamline SKU complexity, personalize offerings, and leverage loyalty programs. European retailers like Aldi and Lidl pioneered quality-focused private brands through limited SKU sets to reduce costs, a strategy now being adopted by North American retailers such as Target and Albertsons, who are launching premium lines that emphasize both value and quality.

Product development is a critical factor for the growth of private brands. Retailers can leverage digital tools, such as AI and social media analytics, to identify consumer needs and trends, enabling quicker product innovation. By analyzing online reviews and digital data, retailers can pinpoint opportunities to improve existing products or introduce new ones, often testing new items in as little as six weeks—much faster than traditional consumer packaged goods companies.

Sourcing is essential for profitability in private-brand strategies. Digital sourcing tools help retailers track raw material costs and input prices in real-time, enabling better negotiation and cost optimization. A "should cost" approach allows retailers to make more informed purchasing decisions, while AI can help identify new suppliers and foster competition. To implement these strategies, retailers should create a private-brand center of excellence (COE), centralizing expertise in areas like product development and sourcing. By partnering with vendors or owning manufacturing facilities, retailers can secure innovation and quality while improving margins and customer loyalty.

KPMG 2024 CEO Outlook

The KPMG CEO Outlook, now in its tenth year, surveys over 1,300 global CEOs from companies with at least US$500 million in revenue. Despite the challenges of the past decade, including the COVID-19 pandemic, inflation, and geopolitical volatility, CEOs remain optimistic about their organisations' future. When surveyed in August 2024, 92% of CEOs stated they are planning to increase their workforce while focusing on upskilling employees and demonstrating a strong employee value proposition to retain talent.

CEO's have shown reduced confidence in the global economy, with only 72% optimistic about it, compared to 93% in 2015. A rising concern is the impact of supply chain disruptions on business growth, surpassing geopolitical issues. CEOs also see technological advancements, particularly AI, as a critical driver of future business growth, with AI now identified as a top priority in operational planning. AI has become a central focus for CEOs, with 64% planning to invest in AI regardless of economic conditions. They recognise AI's potential to improve efficiency and innovation, but they also acknowledge the need to upskill their workforce to effectively harness its benefits. Only 38% of CEOs feel confident that their employees currently possess the necessary skills for AI implementation.

CEOs are seeing a widening gap between their expectations and employees' demands, particularly regarding flexible working environments. While many CEOs (83%) expect a full return to office work within three years, there is a generational divide, with younger CEOs more likely to support flexibility. Additionally, 80% of CEOs agree on the need to invest in local communities to develop future talent, addressing concerns about labor market shifts and an aging workforce.

CEOs have increasingly prioritised ESG issues, acknowledging their importance for business reputation and value creation. However, the politicisation of issues like climate change and social mobility has created new challenges. Many CEOs are adapting their communication strategies and language around ESG to align with changing political and social forces. Despite these challenges, 76% of CEOs are willing to divest profitable but reputationally harmful parts of their business, and 68% are prepared to take stances on contentious issues even if it conflicts with their board. Supply chain disruptions remain a top concern, alongside the decarbonisation of supply chains, which is becoming more complicated due to geopolitical tensions. CEOs recognise the challenges posed by these global dynamics and understand that navigating them will be key to future-proofing their organisations.

In the UK CEOs remain confident about growth, with 75% optimistic about their company's future, 76% about their industry, and 79% about the UK economy, though 63% feel increased pressure to ensure long-term prosperity. Despite economic and geopolitical challenges, 60% have already adapted their growth strategies. Cybersecurity and supply chain risks are top concerns, while 68% prioritise investing in generative AI to upskill their workforce and drive efficiency. However, only 43% feel confident in their data readiness for AI, and 92% expect workforce headcount increases in the next three years. CEOs are also focused on ESG, with 55% confident about meeting net zero goals by 2030, although the complexity of decarbonising supply chains remains a significant barrier.

A CFO’s Best Defense Against Activist Investors? Think Like Them

A recent survey by Bain & Company reveals that more than one-quarter (27%) of CFOs expect their companies to face an activist investor campaign within the next two years. This expectation is grounded in reality, as nearly a quarter (23%) of surveyed CFOs reported already being targeted by activist investors, with over half of those encounters occurring within the past three years. The number of activist campaigns has skyrocketed over the past two decades, with nearly 1,000 such campaigns taking place annually now, compared to fewer than 20 in the early 2000s. In the U.S., which accounts for the majority of these campaigns, there was an 8% rise in activist actions during the first half of 2024.

The size of a company is no longer a safeguard against activist campaigns, as large and mega-cap companies represented 63% of targeted firms in 2023, up from 44% in 2020. Despite the rising frequency of activist campaigns, CFOs are often unprepared for them. While two-thirds of CFOs feel somewhat prepared for such actions, only half have a formal action plan, and only one-third have a dedicated response team. This lack of preparation can be costly, as 40% of CFOs who have faced activist pressure noted that the experience was a significant distraction for management, especially when the campaign did not lead to improved company value.

While activist campaigns often create disruptions, they can also deliver value. About 32% of CFOs said that an activist campaign improved their company’s value, and 57% of CFOs acknowledge that activists play a valuable role in the market by improving shareholder value. The survey highlighted that activist demands typically focus on strategic reforms (35%), revised portfolio strategies, improved operational execution, and changes in capital structure, such as increased dividends or share buybacks. The best defense against activists is for CFOs to think like investors—understanding their investors' perspectives and aligning their strategies accordingly. By proactively adopting this investor mindset, companies can avoid unwanted activist attention and be better prepared to respond to any that does arise.

Finally, successful companies often build strong investor relationships by delivering on their strategies and maintaining clear communication. Companies like Danaher and General Motors have excelled by adjusting their strategies in response to investor demands, such as Danaher's shift to a healthcare focus or GM's recalibration of its electric vehicle investment strategy, leading to significant improvements in share price and market performance. CFOs who understand and align with investor expectations are not only better equipped to defend against activists but are also positioned to create long-term value and achieve sustainable growth.

Designing for growth in the C-suite

Deloitte's Timothy Murphy and Andrew Blau explore the evolving demands within the C-suite, particularly in light of emerging technologies, changing regulatory environments, and the need for new skills to drive organisational growth. A study analysing over 46,000 C-suite job postings from 2018 to 2023 highlights two key shifts: an increased demand for quantitative expertise and a growing need for proficiency in navigating risk and regulation.

Quantitative Skills in the C-suite  
As businesses integrate technologies like generative AI, a greater emphasis is placed on quantitative expertise across various C-suite roles. This includes research, data analytics, and science-based skills, which are seen as essential for transforming AI and other technologies from efficiency tools to drivers of growth. Demand for quantitative skills has surged across roles such as Chief Strategy Officers (CSOs), where the need for research and development expertise grew significantly between 2018 and 2023. This shift is seen across the entire C-suite, suggesting a move toward a more data-driven strategic approach to growth.

Risk and Regulation Expertise 
Another critical change is the rising importance of risk management and regulatory knowledge in C-suite roles. The demand for risk and compliance skills has grown substantially, with CSOs seeing a 208% increase in the need for legal and regulatory expertise, and CFOs increasingly expected to handle risk management. This trend is driven by external uncertainties, such as the COVID-19 pandemic, geopolitical tensions, and climate challenges, pushing organisations to proactively adapt to regulatory changes rather than reacting to crises. Interestingly, while most C-suite roles are becoming more focused on regulation, the Chief Revenue Officer (CRO) has not seen the same level of demand for these skills, likely due to their direct focus on revenue growth.

Soft Skills for Leadership and Collaboration
In addition to technical expertise, the article emphasises the importance of "soft skills" like leadership, communication, and critical thinking. These skills are becoming more integral in C-suite job postings, with a marked increase in leadership and initiative, communication, and problem-solving requirements. While the growing technical demands are clear, organisations must also ensure that C-suite leaders possess the human capabilities necessary to collaborate effectively, communicate their vision, and drive strategic execution.

Preparing for Future C-suite Success
Organisations are advised to adopt a more agile approach to executive development, focusing on incremental change rather than rapid transformation. Initiatives like reverse mentoring, where younger employees guide senior leaders on emerging skills, can help executives stay ahead of evolving demands. Additionally, fostering leadership development through rotational programs and targeted skill-building can prepare future leaders for the changing demands of the C-suite.

In conclusion, the modern C-suite must balance technical expertise, risk management, and strong leadership capabilities to drive growth. As these shifts unfold, organisations that successfully adapt to these changes—by building the right skills and fostering collaboration—are more likely to thrive in the competitive business landscape.

The next big arenas of competition

The McKinsey Global Institute report identifies "arenas" as industries with two key characteristics: high growth and dynamism. These sectors capture a disproportionate share of economic expansion, and their market shares tend to shift rapidly. The report identifies 18 potential future arenas, such as AI software, cybersecurity, future air mobility, and non-medical biotechnology, which could reshape the global economy by 2040. These sectors are projected to generate between $29 trillion and $48 trillion in revenues by 2040, contributing 10% to 16% of global GDP, up from 4% today. This growth could also bring profits between $2 trillion and $6 trillion in the same period.

From 2005 to 2020, 12 existing arenas, including e-commerce, biopharma, and electric vehicles, experienced remarkable growth, with a revenue CAGR of 10% and market capitalisation CAGR of 16%. These arenas saw their global GDP share triple from 3% to 9%. In contrast, industries outside these arenas had lower growth, with only a 4% revenue CAGR and a 6% market cap CAGR. These arenas generate higher profits, foster the rise of global giants, and offer opportunities for new players to dominate their respective sectors.

The report outlines a framework for understanding how new arenas emerge, which it refers to as an "arena-creation potion." This includes technological innovations or business model changes, escalatory investments that improve product quality and scale, and the presence of a large or expanding market. These elements combine to intensify competition, pushing companies to make substantial investments in a race to lead the sector. The report suggests that this competitive environment is what allows arenas to grow rapidly and capture significant market share, changing the dynamics of the global economy.

The potential future arenas identified in the report could have a profound impact on various stakeholders, including entrepreneurs, incumbent firms, investors, workers, and policymakers. Understanding these emerging industries is vital for those who wish to engage with or adapt to the rapid changes in the global market. While the report provides a comprehensive analysis of these future sectors, it also highlights that uncertainties remain, and certain industries considered for inclusion were excluded due to a lack of certainty regarding their long-term growth and dynamism.

Excellence in Sustainability and Social Reporting

In 2024, the landscape of sustainability reporting for FTSE 350 companies is undergoing significant transformation, with new regulations like the Corporate Sustainability Reporting Directive (CSRD) set to drive deeper, more detailed disclosures. Key findings from PwC's 16th review on sustainability reporting in the FTSE 350 show that 89% of companies describe how their business activities are linked to sustainability, and 69% feature sustainability as a core element of their corporate strategy. However, only 28% mention new environmental regulations such as the CSRD or ISSB standards, and 25% have considered double materiality in their assessments, suggesting that while many companies acknowledge sustainability, few have fully integrated these frameworks into their reporting. Additionally, PwC's 2024 review of social reporting in the FTSE 350 unveiled that 26% of companies provide comprehensive, downloadable ESG data, including social factors, and 41% publish ethnicity pay gap data. Despite this, many still struggle to present a cohesive narrative around social factors, with 49% having some level of assurance over their social metrics.

PwC's reports highlight a growing emphasis on strategic sustainability as new regulations raise expectations for more thorough, performance-driven reporting. In particular, companies are beginning to adopt Net Zero Transition Plans, aligned with the UK’s Transition Plan Taskforce (TPT) framework, with significant growth expected in this area. However, some challenges remain, particularly in applying double materiality and incorporating nature-related disclosures, such as those from the Taskforce on Nature-related Financial Disclosures (TNFD). As the volume of sustainability reports increases, companies must focus on what truly matters, with better data quality supporting stronger alignment between social and environmental goals and overall business strategies. The future of sustainability reporting will likely be characterised by greater transparency and regulatory scrutiny, with audit requirements ensuring that companies meet higher standards of accountability.

In The Journey of Leadership: How CEOs Learn to Lead from the Inside Out, McKinsey Partners Dana Maor, Hans-Werner Kaas, Kurt Strovink, and Ramesh Srinivasan focus on the psychological traits required for successful leadership in an increasingly complex world. While many leadership books emphasise external capabilities, this one delves into the inner processes, emotional growth, and self-awareness needed to lead effectively. The book is inspired by McKinsey’s Bower Forum, a leadership development program that helps CEOs navigate challenges by fostering introspection and peer feedback.

One striking statistic in the book highlights that 83% of CEOs of the largest 2,000 organisations worldwide feel unprepared for their roles, with average CEO tenure shrinking from six to five years. Through real-world examples from Bower Forum participants, the book explores how CEOs overcome personal challenges—such as imposter syndrome, decision-making mistakes, and interpersonal conflicts. These experiences demonstrate how inner growth and vulnerability are key to leadership success. The Bower Forum itself has hosted over 520 leaders from diverse industries, offering intimate workshops where CEOs reflect on their leadership journeys and develop strategies to navigate their unique challenges.

The program is distinctive in that it brings together a small, diverse group of participants, including active CEOs and McKinsey senior partners, to engage in candid, self-reflective discussions. Unlike traditional programs with structured agendas, the Bower Forum focuses on peer-driven conversations about relationships, leadership struggles, and personal reinvention. Participants leave with actionable insights, such as one CEO's realisation that seeking input from others, rather than trying to go it alone, was essential to driving company change. The book and the Bower Forum emphasise that the journey of leadership involves ongoing self-discovery, humility, and a commitment to personal and organisational growth.

In Association with the KPMG Board Leadership Centre

Sam Allen Associates is proud to partner with KPMG’s Board Leadership Centre in delivering the latest insight to Directors. KPMG has an established reputation as a trusted advisor to many of the UK’s board members and KPMG Connect On Board, which is part of the Board Leadership Centre, has been designed to help non-executive directors, both current and aspirant to find their next appointment.

To hear about Board appointments and to support your non-executive career you will be able to register here.

SAA are an accredited Board Reviewer

SAA have been evaluated by The Chartered Governance Institute UK & Ireland, which concluded that our board performance reviews exemplify outstanding service and adhere to their Code of Practice. We continue to partner with clients across a range of ownership structures on value-adding Board Effectiveness Reviews. 

School for CEOs are leading an immersive two-day programme, The Vital Few, taking place over 19-20 March 2025 and the 8-9 October 2025. The programme is designed to expose new CEOs and Executives to potential derailers, learning through the experiences of those who have been there before, so that they can step up to CEO with confidence and eyes wide open. 

Listen In

A Deep Dive into Private Equity’s Future

Steffen Pauls, the chair and co-CEO of Moonfare joins host Hugh MacArthur, as he takes the hot seat in a special episode about the future of the private equity industry. This discussion highlights the ongoing evolution of private equity, with trends in portfolio management, secondary markets, and technology playing pivotal roles in shaping the future of the industry. The key insights from their discussion are summarised below. 

Challenges of Growing Portfolios: Over the last decade, private equity firms now manage more than double the number of portfolio companies per general partner (GP). This growth, alongside slower exit activity, creates a "portfolio burden" that stretches a GP’s resources. To manage this, GPs must ensure they have sufficient talent, from the board level to value creation teams, to optimise their portfolios and drive value creation..

Impact of Longer Holding Periods on IRR: The trend of longer holding periods and slower exits is likely to reduce internal rates of return (IRR). Hugh predicts that some funds may fail to meet their 8% hurdle rate due to these prolonged holding periods. In a cyclical market, some GPs may struggle and fail to raise new funds, while top-quartile performers will continue to thrive and attract more investment.

Expanding Secondary Markets: Secondary markets, which offer liquidity for private equity investments, are still much smaller than primary markets. Stefan discusses the need for a significantly larger secondary market to provide liquidity. While interest is growing from various institutional investors, including sovereign wealth funds and newer GPs, scaling the secondary market is crucial for increasing liquidity, especially for individuals investing in private markets.

Private Equity Going Retail: There is a trend of large private equity firms targeting individual investors, aiming to directly raise funds from them, bypassing traditional intermediaries. This is driven by the fact that individuals now control half of global wealth and have limited exposure to private markets. However, Stefan notes that while large asset managers may have the resources to go directly to consumers, smaller firms may need to leverage platforms like Moonfair or wealth managers to tap into this retail investor market.

Education on Private Equity: Education is essential for individuals to feel comfortable investing in private equity. The private equity industry has a responsibility to educate retail investors about the nature of private equity investments, their risks, and how to build a diversified portfolio. Many high-net-worth individuals are still unfamiliar with private equity, which presents an opportunity for GPs and platforms to educate potential investors.

Blockchain and Tokenization in Private Equity: Although blockchain and tokenization have faced setbacks, including due to the FTX scandal, they are seen as potential game-changers for improving transaction efficiency and reducing costs in private equity. Despite trust issues and regulatory hurdles, Stefan believes that blockchain technology will eventually play a major role in streamlining private equity transactions.

AI’s Impact on Investment Processes: AI is expected to significantly enhance the investment process by speeding up due diligence, automating data analysis, and improving sourcing efficiency. As private equity firms become more specialised, AI could help identify investment opportunities ahead of time and improve decision-making. This would ultimately increase deal flow and return profiles for funds.

Future of Private Equity and Democratisation: Looking ahead, Stefan envisions a future where individuals have greater access to private equity. As the market for private equity grows, the trend of democratising access to private markets will continue. However, this will require overcoming challenges in investor education and providing sufficient liquidity. Platforms like Moonfair and traditional asset managers are playing key roles in bridging the gap and enabling more widespread access to private equity investments.

And Finally...

The Best Inventions of 2024

Every year for over two decades, TIME editors have highlighted the most impactful new products and ideas in TIME’s Best Inventions issue. To compile this year's list, thyey solicited nominations from TIME’s editors and correspondents around the world, and through an online application process, paying special attention to growing fields—such as health care, AI, and green energy. They then evaluated each contender on a number of key factors, including originality, efficacy, ambition, and impact.

The result is a list of 200 groundbreaking inventions (and 50 special mention inventions)—including the world’s largest computer chip, a humanoid robot joining the workforce, and a bioluminescent houseplant—that are changing how we live, work, play, and think about what’s possible.