Corporate Strategy

Five Challenges That Will Define CEOs in 2025

May 26, 2025

X min read
Business Resilience

Author

Joshua (Josh) Santiago, Managing Partner of Santiago & Company

Josh Santiago

Managing Partner

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Key Takeaways

Powerful forces are converging to reshape the competitive landscape. Chief executives must parse shifting trade regimes, translate artificial intelligence hype into profit, manage swelling climate risk, fund growth through disciplined cost management, and preserve unity in increasingly polarized workplaces. The leaders who read these signals early and act on them confidently stand to redraw their industry boundaries.

  • Turning AI Hype into High-Value Execution. Spending on artificial intelligence continues to soar, yet value creation still lags. Focusing talent and capital on a handful of scale-worthy use cases and leading the people transformation personally separates winners from the pack.
  • Tariffs, Trade Wars & Navigating the Global South Boom. Escalating tariffs and accelerating industrial-policy rivalries will redraw supply chains and rewrite cost curves. Chief executives who invest early in scenario planning and regional flexibility can turn dislocation into an advantage.
  • Unlocking Growth Through Smarter Cost Management. Sustainable efficiency demands a cultural and sometimes structural shift, not episodic austerity. The payoff is resources to fund innovation faster than rivals.
  • There is a need for a "Chief Unification Officer." Polarization outside the office is spilling inside. Employees want leadership that fosters psychological safety, civil discourse, and a shared purpose.
  • The rising cost of climate inaction. As extreme weather intensifies and regulatory regimes diverge, the price of delay mounts. Boards need a clear-eyed quantification of physical and transition risk to inform capital allocation and resilience moves.

For the CEO

Economic cycles, technological breakthroughs, and geopolitical swings have always shaped business agendas, yet the mix confronting leaders as 2025 begins feels unusually combustible. In a single planning cycle, tariffs once again dominate trade headlines, generative AI matures from novelty to strategic platform, extreme weather upends asset valuations, investors demand proof that efficiency funds innovation, and social fissures threaten corporate culture. For many executives, every month brings a fresh disruptor and a new acronym to decipher, leaving little time to connect the dots.

Over the past year, Santiago & Company surveyed over a thousand chief executives and senior board members, mapped policy moves across fifty countries, and back-tested AI deployments and climate scenarios. Five challenges emerged as the most universal, the most financially material, and the most intertwined. They do not replace sector-specific imperatives such as banking capital rules or semiconductor export controls, but they frame the baseline environment in which every CEO now operates.

The following narrative offers a checklist and a story arc: how each dynamic evolved, why it matters now, what leading companies are already doing, and which practical next steps can turn uncertainty into an advantage. While you may decide to emphasize one theme more than another, the evidence suggests you ignore none of them. Business history rarely repeats, yet it often rhymes: when multiple currents run fast at once, firms that keep their bows pointed forward, and their crews aligned tend to sail past those that hesitate.

Challenge 1: Turning AI Hype into High-Value Execution

The hype has not abated. Venture funding for GenAI start-ups topped $50 billion in 2024, and corporate investment grew even faster. A Santiago & Company survey of 2,500 senior executives shows that 77 percent of them place AI among their top three strategic priorities, yet only 25 percent report measurable EBITDA impact.

Why the gap? First, most organizations dilute scarce talent across too many pilots. Second, they underestimate the cultural rewiring required to turn prototypes into productivity. Third, they fail to prepare for the looming fragmentation of the AI supply chain as governments move to regulate data flows, chip exports, and sovereignty requirements.

GenAI will matter as much to the operating model as ERP did two decades ago. Technology won't scale itself, and only the CEO can knock down silos, redirect investment, and role-model adoption.

Santiago & Company's research points to three hallmarks of high-performing AI transformers:

  • Sharp focus. They pick three to five domains, such as coding copilots, hyper-personalized marketing, or predictive maintenance, and then flood those domains with talent.
  • People first. They put 70 percent of transformation resources into upskilling, workflow redesign, and change management, not algorithms.
  • Resilient tech stack. They hedge bets across U.S., European, and regional cloud providers, secure priority chip supply, and design architectures that can localize or federate data as policies evolve.

Autonomous agents will raise the stakes further. Nearly one-third of executives have committed to deploying agents that can reason, plan, and execute multi-step tasks with limited oversight. Early pilots suggest productivity uplifts of 15 to 30 percent in software quality assurance, financial reconciliations, and logistics scheduling. The winners will be the companies that craft guardrails governance, real-time auditing, and human-in-the-loop checkpoints before scaling.

CEO checklist items

  1. Tie AI to value pools. Start from the P&L: Where can AI release cash, grow revenue, or unlock new business models? Prioritize ruthlessly.
  2. Lead the upskilling wave. Personally sponsor enterprise-wide learning sprints, arrange reverse mentoring for senior teams, and reward cross-functional squads that deliver AI wins.
  3. Future-proof the ecosystem by diversifying chip and cloud partners, building multi-model pipelines, and developing compliance "playbooks" for different data sovereignty regimes.

Challenge 2: Tariffs, Trade Wars & Navigating the Global South Boom

Tariffs are staging a comeback. President Donald Trump campaigned on the promise of broad import duties and, within weeks of taking office in January 2025, raised levies on Chinese electronics, metals, and electric vehicles. Brussels and Beijing responded in kind. Mexico is considering compensatory measures. Other trading blocs are sharpening pencils. The only certainties: the direction of travel is upward, and volatility is the new normal.

For multinationals, the implications extend far beyond headline tax rates. Fresh tariffs ricochet through component costs, shipping routes, inventory buffers, and working capital needs. A Santiago & Company simulation shows that a blanket 60 percent U.S. tariff on Chinese goods and 20 percent duties on imports from the rest of the world could destroy more than $450 billion in trade value by 2030 and inject two percentage points into U.S. consumer-electronics inflation. Companies that map exposure across bills of material and secondary suppliers now will react faster and cheaper than peers that wait.

Yet higher tariffs tell only half the story. A parallel shift in demand is underway. The ASEAN region or "Global South," which is comprised of 133 low and middle-income countries outside China, already generates 18 percent of global GDP, hosts 62 percent of the world's population, and, according to Santiago & Company modeling, will account for nearly half of global consumption growth over the next decade. India, Indonesia, Nigeria, and Vietnam top the list, but Kenya, the Philippines, and Egypt are also surging. Crucially, these markets remain largely non-aligned, allowing them to court investment from multiple power centers without choosing sides.

CEO checklist items

  1. Invest in live intelligence. Build an integrated command center that is part data lab and part geopolitical radar to track real-time policy moves, port congestion, currency swings, and labor disruptions.
  2. Run strategic "war games." Model multiple tariff ladders, retaliatory cycles, and regulatory shocks; pre-arrange contingency production and supplier contracts for each.
  3. Lean into the Global South. Commit leadership bandwidth and capital to high-growth, lower-alignment-risk markets. Establish regional R&D and customer-service hubs to embed the brand locally.

Challenge 3: Unlocking Growth Through Smarter Cost Management

Inflation may be tempered in some economies, yet cost pressure remains acute. Energy prices swing wildly. Wage demands escalate in talent-scarce roles. Capital costs hover near a 15-year high. No wonder 65 percent of Santiago & Company's executives say they must recycle cost savings into growth investments to keep pace.

Many, however, still treat the cost as a budgeting exercise rather than a strategic lever. They slice discretionary spending, freeze hiring, and negotiate one-off supplier discounts. The result is predictable: temporary relief followed by relapse. Average companies capture barely 45 percent of targeted savings, and within a year, half of that evaporates.

Like a crash diet, rapid calorie cuts melt weight, but the pounds creep back. Enduring fitness comes from new habits, nutrition, exercise, and sleep you sustain long after the first weigh-in."

Enduring efficiency typically demands three moves:

  1. Zero-based redesign of work. Rather than trimming travel or postponing software renewals, leaders reimagine end-to-end processes. A bank cut mortgage underwriting turnaround from 40 days to under ten by automating document validation and rerouting exceptions to a specialized cell.
  2. Structural simplification. Consumer goods makers streamline SKUs and packaging formats; insurers retire legacy riders that drive outsized claims-administration costs. Each cut reduces complexity, not just expense.
  3. Culture of ownership. Best-in-class companies chain savings to reinvestment. Teams that beat target may keep a share of funds for innovation pilots, creating a virtuous cycle.

Generative AI magnifies opportunity. Advances in large language models allow chatbots to handle policy endorsements, GenAI copilots to accelerate R&D documentation, and computer vision systems to inspect quality on the line. Early adopters report 20-to-30 percent productivity boosts in knowledge worker roles and double-digit reductions in rework.

CEO checklist items

  1. Declare cost a funder of strategy. Link every efficiency program to a growth-investment roadmap visible to employees and investors alike.
  2. Attack the root causes of waste. Map cost drivers, product complexity, and customer segments; kill low-value variants and redesign processes end-to-end.
  3. Hard-wire accountability. Use digital dashboards to track savings weekly, celebrate wins publicly, and treat lapses as learning moments, not blame games.

Challenge 4: The Need for a "Chief Unification Officer"

Political and social fault lines rarely respect company turnstiles. According to Harris Poll research for Indeed, over the past two years, the percentage of U.S. workers who say political disagreements have lowered productivity leaped from 13 to 34 percent. Among millennials and Gen Z, nearly four in ten would quit if their CEO voiced opinions hostile to their own. Similar patterns are visible in Brazil, South Africa, and parts of Europe, albeit with different flashpoints.

The challenge for leadership is to ignore the tensions and risk fragmentation, confront them clumsily, and risk alienating half the workforce or half the customer base. Santiago & Company's CEO Advisory clients increasingly adopt a "constellation" model of engagement:

  • Early-warning radar. A small cross-functional team monitors social sentiment, regulatory signals, and activist campaigns.
  • Decision matrix. Issues get scored against two axes: relevance to the business and alignment with corporate values. Only when both are high does the CEO speak publicly, and even then, messaging is grounded in business impact, not ideology.
  • Internal forums. Structured discussion groups, moderated by trained facilitators, give employees a safe space to explore contentious topics. Participation remains voluntary, but guidelines on respect are mandatory.

While a psychologically safe environment doesn't eliminate differences, it channels them into constructive debate. Financial returns follow cultural health. Companies in the top quartile of Santiago & Company's unity index, which measures trust, cross-team collaboration, and inclusion, grow EBITDA twice as fast as those in the bottom quartile over five years.

CEO checklist items

  1. Scan for flashpoints. Maintain a living map of emerging political and social issues that could spill into the workplace; update quarterly.
  2. Anchor public comments on purpose. When speaking externally, link positions to the firm's mission, employee well-being, or customer value. Avoid partisan framing.
  3. Strengthen civil discourse muscles by offering conflict navigation training, establishing clear codes of conduct, and highlighting leaders who model respectful debate.

Challenge 5: The Mounting Cost of Climate Action Delay

Climate risk now carries a price tag that directors can measure line by line. Santiago & Company, in conjunction with data from the World Economic Forum, estimates that, on the current warming trajectory, more severe floods, droughts, hurricanes, and heatwaves could erode as much as 27 percent of corporate EBITDA by 2050. Sectors with asset intensity agriculture, utilities, building materials, and communications infrastructure stand at the front of the firing line. Still, service companies are not immune: disrupted data centers, splintered logistics, and insurance-premium spikes ripple far downstream.

The policy arena, meanwhile, is fragmenting. The European Union's Carbon Border Adjustment Mechanism (CBAM) will impose levies on imported steel, aluminum, and fertilizer that exceed EU carbon standards. Japan's GX Basic Policy ties tax incentives to green-transition milestones. China is expanding emissions-trading pilots. The United States, by contrast, is signaling softer enforcement of specific environmental rules, though state and municipal mandates continue to tighten.

Such divergence complicates capital planning. Should a manufacturer double down on renewable-energy investments in Europe to lock in CBAM advantages? Or prioritize storm-hardening Gulf Coast facilities to avoid physical risk losses? Woods argues that the answer lies in a portfolio view of risk, not isolated plant-by-plant analysis.

Executives will focus on first-order effects such as property damage and temporary downtime. However, the bigger hits come from second-order disruptions: lost customer trust, supply-chain refinancing costs, and sudden asset devaluation when a region tightens carbon pricing.

Materials companies illustrate the blind spot. They self-report only 1-to-7 percent EBITDA at risk from climate events. Santiago & Company's bottom-up model triples that estimate after factoring in power-grid fragility and infrastructure risks, water-use restrictions, and Scope 3 pressure.

The good news is that companies that invest early in resilience often find unexpected upsides, such as lower energy bills, faster product innovation, and privileged access to customers seeking green suppliers.

CEO checklist items

  1. Build a unified risk ledger. Integrate physical and transition risk into the same financial model. Stress-test under 1.5 °C, 2.0 °C, and 3.0 °C warming pathways.
  2. Protect the customer's promise. Align climate investments with customer decarbonization goals; secure price premiums or long-term contracts where you help buyers hit their targets.
  3. Collaborate to de-risk green-capex bets. Form alliances with peers and suppliers to share the cost and learning curve of new technologies such as green hydrogen, CCUS, or closed-loop recycling.

Looking Beyond 2025

These five dynamics weave together. A tariff shock might accelerate AI adoption in supply-chain planning; a climate-induced flood could expose cost-management gaps; an AI breakthrough might spark social debate over job security. The board agenda, therefore, cannot treat them as silos. Instead, forward-looking leaders create integrated strategy reviews that test assumptions across domains: trade, technology, climate, cost, and culture.

Santiago & Company's experience suggests a cadence that works. Twice a year, the executive committee revalidates macro scenarios and capital allocations. Every quarter, dedicated cells update leading indicators: AI-model performance, tariff filings, run-rate efficiency, carbon-price curves, and workforce sentiment. Monthly, cross-functional squads meet to translate signal shifts into tactical maneuvers, rerouting shipments, re-sequencing AI releases, hedging energy, and accelerating training. Such routines may initially feel onerous, yet they embed agility deep in the organization, allowing leaders to act before pressure becomes a crisis.

Above all, 2025 demands conviction. The evidence base for decisive action is richer than ever: real-time trade analytics, generative AI benchmarks, climate-risk heatmaps, cost-variance dashboards, and employee-sentiment data. The CEOs who integrate these insights, narrate a compelling ambition and mobilize people with empathy will not merely whether the next wave of shocks. They will shape markets, inspire talent, and expand the frontier of what their enterprises can achieve.

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