Leading in 2025 - What Leaders Need to Know About the Year Ahead

Episode #331 Leading in 2025 - What Leaders Need to Know About the Year Ahead

I’VE DONE THE WORK SO YOU DON’T HAVE TO!

This newsletter is going to be a bit of fun. As I like to do each year, I’m going to take a look at what’s likely to be ahead for economies, businesses, and leaders in 2025. I’ve done the research so you don’t have to!

Without trying to make any fearless predictions, I like to have some sense of how the world is trending. Remember, trend is your friend, so rather than just making judgments based on a snapshot at any point in time, it’s way more useful to see which way an issue has been trending over time when you want an idea of where we’ll be this time next year.

You probably know that I subscribe to reputable information sources like The Economist, The Wall Street Journal, the McKinsey Quarterly, The Atlantic, Harvard Business Review, and of course, the most reliable website in the world, Wikipedia.

But of course, as independent media is on the rise, and mainstream media audiences are rapidly declining (at least here in the US), I also get a good sprinkling of podcast listening into my worldview. Some of my favorites are Huberman Lab, The Prof G Pod with Scott Galloway, and of course The Megyn Kelly Show.

Despite its misleading title, I also like to catch the odd episode of Diary of a CEO and when I have a really long drive ahead of me, I’ll even take in an episode of Joe Rogan.

Today’s newsletter is pretty simple. I’m going to take a look back on the year that was in 2024, and then lay out some thoughts for what might be ahead of us in 2025.

POLITICAL VOLATILITY DOMINATED 2024

2024 was absolutely huge. Let’s start with politics. I like the No Bullsh!t Leadership podcast to be a politics-free zone, but you can’t really talk about predictions for the future without mentioning it.

The US presidential election this year was crazy! My one sentence wrap-up is that President Biden was deposed a few months before the election (although, interestingly, he nominally remains president for another week) and Kamala Harris wasn’t able to improve people’s scorecard on the last four years of the Biden-Harris presidency.

Ironically, the US economy is in great shape at the moment but, despite that, Trump won all seven of the swing states to claim a decisive victory… and, talking of Joe Rogan and the rise of the non-mainstream media channels, his interview with Donald Trump leading up to the election received over 50 million views on YouTube alone – not to mention a Spotify audience of 14.5 million followers, and probably twice as many casual listeners like me.

2024 was one of the biggest election years in history. 76 countries conducted elections, with over half the world’s population – that’s 4.2 billion people – going to the polls. Of course, only 43 of those elections were likely to have been fully democratic.

As we analyze the results of these elections, it looks like it was a pretty tough year for incumbents. It felt like we were lurching further towards right-wing populism, but outside the US, this wasn’t as strong a trend as we might’ve imagined.

I’ve drawn on data from the Pew Research Center to fill in the blanks on this massive election year, and put it into context:

• In the UK political power swung to the left as the Labor Party brought 14 years of conservative party rule to an end;
• The most dramatic defeat for a long time incumbent party was in Botswana, where the Botswana Democratic party lost power for the first time in nearly 60 years;
• Just next door in South Africa, the ANC failed to win a majority of National Assembly seats for the first time since the end of apartheid in 1990;
• Japan’s Liberal Democratic Party, which has pretty much governed the country since World War II, lost its parliamentary majority;
• India’s Prime Minister, Narendra Modi, held onto power by the narrowest of margins, while in France, Emmanuel Macron’s Centrist Ensemble Alliance lost ground to both the far left and the far right-wing parties; and
• Opposition parties of various persuasions won power in pretty much every corner of the globe, including Ghana, Panama, Portugal, and Uruguay.

BUT 2024 WASN’T AS BAD AS MANY PREDICTED…

All right, enough of the politics (for now).

Many of the economic predictions for 2024 came true, like the trend of central banks easing interest rates, which was led decisively by the US Federal Reserve. But many other predictions didn’t pan out the way we thought.

Despite massive government subsidies and regulatory incentives, electric vehicle (EV) sales didn’t take off. Why not? I think part of it is the lack of installed charging infrastructure, which is still a barrier to rapid adoption.

But I suspect there’s another less obvious factor – people are now more attuned to the fact that, in many countries, plugging into the grid to charge your EV is simply consuming more coal-fired electricity. The green alternative offered by EVs is much less environmentally friendly than it looked on first blush. To get momentum going in favor of EVs, the ability to charge your car from publicly available renewable energy sources is critical.

We saw major car manufacturers posting big losses on their EV operations, and swinging their efforts from EVs to hybrid vehicles. No one was really spared as GM, Ford, Mercedes-Benz, and VW all made big financial losses on their EV operations and made the pivot to hybrids.

This is just another example of the fact that government subsidies and incentives don’t necessarily change people’s behavior. The outcomes actually have to offer rational choices to the individual.

For example, removing lanes in cities that were previously the domain of motor vehicles, so that they can be converted into bicycle or bus lanes does little to increase the number of people who ride bikes or take public transport. The well-meaning policy does little more than to increase traffic congestion.

The laws of human behavior didn’t change in 2024, and they won’t change in 2025 – or in 2050, for that matter!

There was also the big prediction that work from home would cause commercial real estate to slump further, as office space lay dormant.

Despite the advances in AI and other technology throwing an accelerant on the office occupancy fire, according to CBRE, the overall vacancy rate in the US held steady for a second consecutive quarter at 19%, following nine quarters of vacancy increases, and the prime office vacancy rate fell to 15.5%.

What conclusion can we draw from this? Well, apparently more companies than predicted have realized the benefits of having people working together, and they’ve politely encouraged their people to come back to the office.

Other (even gloomier) predictions for 2024 didn’t come to pass: 

• The supply chain risk posed by pirate attacks in the Red Sea and the Suez Canal didn’t materialize;
• There was no blockade on Taiwan, and the continued production of high-performance silicon chips fed the growth of everything from smartphones to car control systems and AI processing power;
• The fact that China managed to corner the rare earth minerals market – which is essential for manufacturing renewable energy products like batteries and wind turbines – hasn’t impacted global production… yet;
• Cyber attacks have continued unabated but so has the growing awareness in both personal and commercial risk, as has our ability to deal with them when they happen; and
• The (admittedly slim) possibility of a meltdown in private equity markets didn’t come to pass.

All in all, I think it’s fair to say that we came through 2024 in remarkably robust health.

KEY TRENDS TO WATCH FOR IN 2025

Let’s have a look at the key trends for global businesses in 2025. The Economist never disappoints when it comes to predicting trends, and this year I’ve drawn from three separate articles, Ten Trends To Watch In 2025, Ten Implausible-Sounding Scenarios for 2025, and What Donald Trump’s Election Means For the Global Economy.

Let’s start with the most controversial one, the impact of a Trump presidency.

My biggest gripe with both political parties in the US is that they’ve been progressively turning away from the global economy, preferring a regime of protectionist trade and economic policies. Rather than allowing competitive forces to shape markets, we’re facing another four years of increasing tariff protection, in an attempt to prop up uncompetitive industries that can’t survive on their own merits, using taxpayers’ money.

I’d love to be proven wrong on this one, but history tells us that increasing tariffs puts upward pressure on prices and acts as an anchor on economic growth. The Economist is, surprisingly, pretty sanguine. It points to the strength of the US dollar, the positive reaction of equity markets to a Trump presidency, and the handbrake that Congress is likely to apply as mitigating positives.

In terms of notable business trends, there are a few interesting predictions.

China will continue to lead a growing acceleration in clean tech. Unlike the EV saga, the rise in solar panels and battery storage remains on a sharp upswing, and this is critical for the world to reach peak greenhouse emissions.

AI seems to have stalled, and predictions on what happens next vary wildly. But one thing’s for sure – we have to move beyond that generative pre-training transformer (or GPT), which is just a useful productivity tool.

The question is, can organizations move closer to working out how to adopt AI to get more value from it? Will 2025 be the year where we see widespread adoption and a fundamental change in how we work? Personally, I doubt it’s going to happen this year, based on where we are right now, but it’s only a matter of time. I get the impression that AI is a sleeping giant.

One prediction that caught my eye is the forecast for increasing friction in global travel. The last couple of years have seen a major travel boom thanks to the post-COVID “revenge travel”. Now it’s predicted that the global movement of both people and goods could slow.

Conflict is disrupting global aviation. Europe is adding new border checks, as its borderless Schengen visa is fraying. The backlash against over-tourism may diminish in 2025, but restrictions that were introduced by many European cities, from Amsterdam to Venice, will probably remain in place.

THE FIVE TOP ISSUES FOR GLOBAL CEOs

McKinsey & Company, the world’s preeminent consulting firm, releases a quarterly economic conditions outlook report in which they distill the results of research conducted with their global CEO clients.

Given McKinsey’s reach and the quality of their client companies, this is a pretty good barometer for what’s on the minds of leaders who occupy the highest echelons. The most recent report was released in October, and I think it’s a pretty good guide to what these business titans are expecting 2025 to bring.

One comment, in particular, caught my eye, the author of the McKinsey report says, and I quote

“Rarely in this quarterly research do we see alignment between the most-cited risks to global growth and to domestic economies. Yet for the first time in 2024, respondents viewed geopolitical instability or conflicts, and transitions of political leadership as the chief concerns both globally and at home.”

The biggest concern by quite a margin is geopolitical conflicts. When we look at the Ukraine, the Middle East, and Africa, it’s indeed a tumultuous time, but this is also seen as the largest domestic threat in virtually every region.

Supply chain disruptions are the obvious weakness, but there’s also a threat that countries, which up until now have avoided the impact of global conflicts, are going to be drawn in more directly.

The next biggest concern was the transition of political power. As we’ve already covered, a lot of incumbents lost their country’s elections and new governments will be assuming power.

Interestingly, this report was written before the November election in the US, and I suspect that the rating for the threat posed by transition of power in the next report is going to be much lower. The previously gloomy predictions of the worst-case scenario in the US are extremely unlikely to materialize.

The next three concerns that round out the top five are things we’re already used to seeing and dealing with.

A slowdown in China’s economic activity. In Australia, this is an ever-present concern because of our trade dependence on China. As the old saying goes, when China sneezes Australia catches a cold.

The next concern was changes in trade policy and relationships. I’ve already expressed my views on the flight to more protectionist trade policies and its potential chilling effect on the global economy.

And finally, of course, there’s inflation. And, when inflation is no longer a concern, deflation – and its negative impact on asset values – will be.

OUTLIER PREDICTIONS FOR 2025

What’s the risk of some serious sh!t going down? The Economist article Ten Implausible-Sounding

Scenarios for 2025 looks at some lower likelihood possibilities.

The reason I think they rate a mention in this newsletter is that, even though they might be unlikely to occur, the consequences would be really high, which increases their risk rating significantly. And, to be perfectly honest, I just find it fascinating to see how people catastrophize when they’re asked to ponder the worst-case scenario!

One such scenario is solar storms, which could cause disruptions to our electrical infrastructure. Our sun is in a highly active phase at present, and the increasing intensity of solar flares can knock out transformers and affect the orbital trajectory of satellites.

In the worst case, if a large solar storm were to occur in 2025, its impact could be far greater than any in the past because of our increasing dependence on technology. A report prepared in 2013 by Lloyds, a global reinsurer, estimated that a major event in the US alone could cost up to $2.6 trillion. It could take months to repair the damage to electrical grids and to restore power. Water and food supplies would be interrupted. Thousands of satellites could be disabled, including those used for navigation, disrupting global aviation and shipping.

As frightening as this sounds, the odds of something this severe happening are less than one in 10. And let’s face it, if it does, there’s precious little we can do about it. But on the balance of probabilities, it’s unlikely to happen in 2025, and even if it does, it’s unlikely to result in a global catastrophe.

Then – hold your breath – there’s the possibility of another global pandemic. Hopefully, we learned enough from the last one to have a better idea of what actions to take.

But I’m afraid we didn’t quite learn enough. It’s only over a much longer time period that we’re going to see the economic and social impacts of COVID-19 play out, many of which are only just becoming apparent now. The economic consequences may take years to materialize in any meaningful way.

One thing’s for sure, though, we’re yet to see the full consequences and knock-on effects of the one-dimensional approach that many governments took to COVID-19. I don’t know about you, but I’m not quite ready for another pandemic just yet.

My favorite speculative prediction from this Economist article is that in 2025, we will detect evidence of alien life forms. This is super interesting, because I think that ship may have already sailed. Not necessarily in terms of aliens from outer space, but certainly life forms that have remained previously undetected or undisclosed.

I don’t really have an opinion on UFOs one way or another, but I listened to a pretty thought-provoking interview a few weeks back on Diary of A CEO. Luis Elizondo is an ex-Pentagon official who’s just released a book titled Imminent: Inside the Pentagon’s Hunt for UFOs.

It feels like a bit of a confluence of events at the moment. There are three things going on:

1. The release of ELizondo’s book and the renewed interest in UFOs;
2. The recent drone sightings over New Jersey and much of the northeast of the US; and
3. President-elect Trump’s promise to declassify top-secret documentation held by the US government.

This might just lead to a stronger landing on UFOs if you’ll pardon the pun.

WHAT AWAITS LEADERS IN 2025?

All right, finally, let’s talk leadership. To do this, I’ve chosen the Russell Reynolds Global Leadership Monitor survey. Let’s look at the three top insights that Russell Reynolds drew from its research of global leaders. These are the things that are top of mind for organizations as they go into 2025.

The first finding is that leaders feel increasingly less prepared to face technological change. There’s so much to get your head across – AI, machine learning, big data, robotics, the internet of things, 3D printing – it’s no wonder that this is considered to be a top-five threat to organizational health.

Leadership preparedness to deal with the tech revolution has declined in the last couple of years by 16 percentage points to 47%.

Think about that… in 2022, 63% of leaders felt prepared to deal with technological change. Today, only 47% feel prepared. I don’t know about you, but I’m blaming AI (and James Cameron’s Terminator movies).

The lack of preparedness reflects the growing complexity and pace of technological innovation, demanding that leaders keep pace with new developments and work out how to integrate them into their business models. To make matters worse, 93% of CEOs and C-suite leaders acknowledge the need for a complete change in the technology at their company. So, watch this space.

The second big ticket item is that leaders are still concerned about the availability of talent and skills. Even though it has consistently ranked as a top-five threat since 2021, a significant leadership preparedness gap is still evident. The majority of leaders don’t believe the talent they have is equipped to face what’s coming. The most noteworthy group here is senior leaders themselves.

89% of global CEOs and C-suite leaders felt that their own senior leadership team needs to meaningfully change. Right, so we have skill shortages in critical areas… we have changing workforce practices in terms of mobility and productivity… and, we have a lack of leadership capability at the top.

What could possibly go wrong?

And the third trend is that workforce transformation has emerged as a top-five threat. This is underpinned by a number of factors: the emergence of new jobs that haven’t previously existed; the need to re-skill process workers; shifting expectations of what work is; and new models of employment.

Only 38% of leaders feel prepared to face this risk. And, interestingly, after technology-driven transformation, the most prominent driver of workforce change was – wait for it – cost and profitability.

The more things change, the more they stay the same…

These three big issues are going to throw up daily challenges that leaders at all levels are going to have to deal with. Any uncertainty, hesitation, or lack of direction from the top is going to reverberate through the ranks and make your job of leading for performance just that little bit harder.

LEADERS HAVE CAUSE TO BE OPTIMISTIC

2024 turned out better than almost everyone expected, although I’m acutely aware of the fact that this isn’t true everywhere – and my heart goes out to anyone who’s living in a place where that’s not the case.

2025 is going to be challenging on many fronts. As conflicts continue to escalate on several continents, there’s a threat that the current wars are going to spill out into broader conflicts. And, since a number of other risks have either diminished or disappeared altogether, this is going to occupy the headspace of many global leaders. But that’s a cold hard fact. There’s no point in wasting energy on it.

Closer to home, technology change is going to accelerate, challenging leaders at all levels who are going to have to work out how to bite it off and swallow it in 2025. The brief hiatus we’ve seen recently in the advancement of AI platforms offers a little respite, but this is definitely the calm before the storm.

All in all, though, I am highly optimistic about what the world is going to bring to us in 2025.