The audit, tax and advisory firm, KPMG, is out with its latest U.S. CEO Outlook survey, and if these business leaders are right, the economy is in for some turbulence ahead.

Of the U.S. CEOs surveyed, 91% expect to see a recession in the next year. Only 34% believe that recession will be mild and short.

“Companies are certainly considering what they can do in response to an economic downturn. And ‘uncertainty’ is still the key word here, there is a lot of uncertainty about what that might look like,” said KPMG U.S. Chair and CEO, Paul Knopp.

A possible recession is just one of several topics the survey investigated. “Marketplace Morning Report” host David Brancaccio, spoke with Knopp about the survey’s findings. The following is an edited transcript of their conversation.

David Brancaccio: I see from your data that nearly every CEO thinks there will be a recession. But what is this, maybe I’ll be grasping at straws here, but maybe it’ll be a little recession? What are the CEOs telling you about if this is mild or severe?

Paul Knopp: David, what this survey revealed is that 91% of CEOs think there will be a recession in the next 12 months. And only one-third of those CEOs believe that that recession will be mild and short. So while the survey didn’t have anything affirmative about how long a recession would last, or the severity of a recession, it certainly is true that they’re expecting a recession, that’s not going to be just mild and short.

Brancaccio: Yeah, and I know what the opposite of mild and short is. But I mean, here’s the thing … It’s probably a major reason why you did this survey, whether or not indeed we get a recession say next year, if the boss thinks it might be getting bad, the company’s going to take action now that would have real effects.

Knopp: Well, companies are certainly considering what they can do in response to an economic downturn. And ‘uncertainty’ is still the key word here, there is a lot of uncertainty about what that might look like. Companies are considering workforce reductions, as they typically would during an economic downturn. But they’re also considering how they can be more operationally efficient. And what the survey also revealed, David, is that many CEOs are thinking about how they transform their organizations. It’s really interesting to note that 56% of CEOs are looking for a transformational growth through significant mergers and acquisitions, through continued digital investment, to ensure that their business models are a fit for a more dynamic, more digital future. So at the same time that we’re planning for the uncertainty, we’re also planning for growing our organizations.

What the possibility of recession might mean for ESG efforts

Brancaccio: Now we are in an era, some would say, ‘thankfully, we’re in an era,’ when many companies pledge not to just focus on profits or the share price, but to set goals to do better on environmental, social or corporate governance. Will this possibility of recession, do you think, take the energy out of those efforts?

Knopp: David, I do believe that some companies will consider the need to pause some of the efforts around ESG [environmental, social or corporate governance]. Having said that, though, what we do know is that our employees, our customers, investors, want to see us walk the talk. So from a longer term perspective, we’re all going to be thinking about how we are more environmentally sustainable, how we can be more diverse as an organization. Because those things are leading to, in the minds of CEOs, performance of the organization’s financially. What the survey revealed is that almost twice as many CEOs as our last survey believe that ESG improves their financial performance, moving from 37% to 70%. So from a longer term perspective, I do think there’ll be very significant continued to focus on the importance of ESG.

Where is the future of work?

Brancaccio: Yeah, but short term, you know, maybe something else. Now, a different topic pandemic and working from home, working from the office or hybrid work, just a guess here, are the captains of industry telling you they want us all back at the office by Halloween or something?

Knopp: No, that is not [laughs] what I’m hearing. What I’m hearing is that companies are absolutely focused on their hybrid work environment. So we’re all trying to determine how we best approach the work that we do. And, broadly speaking, the survey revealed that about two-thirds of CEOs saw that future as hybrid and remote. So we’re continuing to see investment in and focus on how we make those environments, more hybrid in nature.

Brancaccio: Yeah, because there’s so many ways to look at hybrid work. I mean, you do have some leadership that really just want people back doing it the old way, but others may see some cost savings in keeping the workforce spread out or working where they want to work.

Knopp: There’s no doubt about that. And with a looming potential recession, I think some of those cost savings might become more important. And there’s no doubt that there are leaders that would love to see employees back in the office more. But we’re trying to figure out as leaders and trying to calibrate to exactly what our needs are to ensure that we serve our customers with excellence, and that we meet the needs of our employees as they have performed with excellence in a more hybrid environment over the last two years.