A potential recession is ‘certainly something we’re closely watching’: KPMG U.S. CEO

KPMG U.S. CEO Paul Knopp joins Yahoo Finance Live’s Brian Sozzi at the 2022 World Economic Forum (WEF) in Davos, Switzerland, to discuss the possibility of a recession, rising prices, inflation, the labor market, and the outlook for the global economy.

Video Transcript

JULIE HYMAN: We continue our coverage of the World Economic Forum wrapping up this week in Davos. Our Brian Sozzi spoke with KPMG US CEO, Paul Knopp, about the latest uncertainty surrounding the markets and what it's like leading a company through geopolitical troubles.

PAUL KNOPP: The topic of geopolitical cooperation is huge. The economy is bringing us some uncertainty right now. So we are hearing a lot about the impacts of supply chain disruption, inflation. Yeah, there's no doubt, too, that we're talking a lot about future technology. And whether it's technology for a green transformation, the fourth Industrial Revolution, harnessing the power of it with internet of things, with 5G, robotics, artificial intelligence, those have been very important topics over the last two days, too.

BRIAN SOZZI: There's one thing I didn't appreciate coming into this, a lot of focus on a US recession. But as I talk to leaders, I hear concern about what's happening in Europe. Are you hearing the same thing?

PAUL KNOPP: Well, certainly, the world economy is interconnected. So we certainly pay attention to what's happening in Asia, Europe, and the US, as we think about what outcomes might be for the economy. And we're on the watch for a potential recession. It's unclear as to whether or not that's going to happen in the US or not. But it's certainly something that we're closely watching.

BRIAN SOZZI: Is it-- is Europe in a recession?

PAUL KNOPP: Well, you know, I'm not an expert on Europe. But certainly, it's a very complicated environment right now when it comes to monetary policy, fiscal policy. And we're very attentive to the risks that come out of any potential economic downturn and constantly looking for the signals that might tell us how we might need to adjust in the future.

BRIAN SOZZI: Are you getting the signals in the US that we might near a recession?

PAUL KNOPP: Well, in the US, certainly, there's a bit of a lack of clarity about the potential for a recession, just given some of the unprecedented things we've lived through, right? $5 trillion of stimulus for one thing, rising wages, which help mute the impact of that, but we certainly know that cost of food, fuel, have a disproportionate impact on those that can probably afford it the least. So we are watching very closely what signals that sends and whether or not it might result in a more severe downturn. We're very hopeful that if there is a recession, that it's going to be short and shallow.

BRIAN SOZZI: Are we near peak inflation? Give us some optimism.

PAUL KNOPP: Well, I'm not an expert on whether or not we're near peak inflation. But I will tell you that it seems like that the action that the Fed is taking is in response to the inflationary environment. And it seems like they're doing the things that we need to do to try to tamp it down. So we're going to be watching that very closely.

BRIAN SOZZI: We've talked a good bit in the past about the war for talent. Finding best in class talent continues to be very hard. How is it looking over there at KPMG?

PAUL KNOPP: Well, we are certainly doing fine in finding talent. It's almost like a bit of a Where's Waldo now when you're looking for talent to serve the needs that you have in your company. So we are attracting a lot of talent. We're really focused on retaining our talent, too, though. It's building a best in class culture, and we're using culture as a differentiator to ensure that our talent stays with KPMG to build a career.

BRIAN SOZZI: I think it was Bank of America yesterday. They raised their starting wage for employees to $22, with a goal of taking it to $25 by 2025. But you also have been raising wages very aggressively over the past few months. Where does that stand now?

PAUL KNOPP: Yeah, we have raised wages very significantly by double digits, record annual wages, raising them, as well as bonuses. So we're meeting the market when it comes to compensation and definitely trying to differentiate, as I mentioned earlier, based on our culture for the future.

BRIAN SOZZI: Increasing wages by double digits, is that the new norm in this environment?

PAUL KNOPP: You know, I think it's the norm for where we are today in a very unusual time in our history, where there's tremendous demand for a certain talent and technology, cyber, digital transformation, transaction related work. So there's definitely pockets of real hot labor market right now. And we're very much focused on this, but it's happening in every sector. So, you know, it is not something that will persist forever, but I think we're going to see it for the next one to two to three years.

BRIAN SOZZI: If I'm right, you took over as CEO during the pandemic, correct?

PAUL KNOPP: Right, July 1, 2020.

BRIAN SOZZI: What has it been like from a leadership perspective running a company like KPMG when up is sometimes down, and down might be up?

PAUL KNOPP: Yeah, so first, I'm honored and humbled to lead KPMG. And it's just been an amazing experience to lead KPMG through a period with enormous change. And you think about the pandemic and what that has changed. And it's changed everything. You think about the social justice crisis we faced after George Floyd was murdered. You think about the economic uncertainty that the pandemic brought and now that supply chain disruption and inflation is bringing, and then just the complexity of the geopolitical environment.

It's given us all as leaders a lot to think about, a lot to ensure that we're digesting and making sure that we're focusing on what the change might do to our business models for the future and how we change to make sure that we stay relevant for decades to come.

BRIAN SOZZI: Last one-- have you closed any big deals yet?

PAUL KNOPP: We have not made any major acquisitions recently, but of course, we're always looking.