Introduction

The Australian Institute of Company Directors (AICD) has released its second bi-annual Director Sentiment Index for 2018: Director Sentiment Index Second Half 2018.  The report is a survey of AICD member opinions and future intentions on a range of issues including the economy, government policy and governance regulations.

[Note: For a summary of the H1 2018 survey results see: Governance News 23/04/2018]

Some Key Points

Climate change has emerged as a priority for directors

• Sustainability and long term growth prospects continues to be the main issue that keeps directors 'awake at night'.  This is consistent with the survey results from H1 2018.  Other concerns include: business reputation in the community, corporate culture, cybercrime as well as legal and regulatory compliance.
• Climate change is the top long term priority: Directors rate climate change as the top long-term priority the Federal Government to address, followed by an ageing population, energy policy, taxation reform and infrastructure.  50% of directors rate renewable energy sources as the top area of importance for infrastructure investment, followed by regional infrastructure and roads.

[Note: The H1 2018 and H2 2017 surveys both identified strong support for renewable energy sources as a priority for investment.]

• Energy policy is the top short term priority: Directors rate energy policy, taxation reform and infrastructure as the top priorities for the Federal government to address in the short term.

Regulation

• 'Red tape' is expected to increase: Directors continue to feel pessimistic regarding the level of 'red-tape' in the next 12 months, with 51% expecting an increase (as compared with 42% in H1 2018). 77% of directors identify corporate reporting requirements as the aspect of their business most affected by 'red tape' (as compared with 78% in H1 2018).  Consistent with the survey results for the first half of the year, this is followed by workplace health/safety and preparing/paying taxes.

Directors across all industries are focussed on governance practices

• 89% of directors believe their Board is trying to effect change in culture within their organisation.
• 69% of directors perceive there to be a risk-averse decision-making culture on Australian boards.
• Directors acknowledge the need for changes to effectively deal with the current governance issues with strong support (52%) for an increase in penalties for misconduct and an increase in funding for regulators (57% support).
• The top three steps for boards to take to rebuild/regain trust were identified as: demonstrating respect for customers/clients/communities (52%), trustworthiness of leadership (48%) and improving corporate culture (43%).  Increased 'genuine' stakeholder engagement (34%) and greater accountability in cases of misconduct (33%) were also identified as important steps.

Director liability

• Less willing to continue on boards/accept new board appointments: Directors continue to feel pessimistic about the impact of legislation on director liability in H2 2018. 33% of directors feel that it has negatively affected their business decision making, 40% on their willingness to continue on a board and 51% on their willingness to accept new board appointments.

Board diversity

• Consistent with the results of the H1 2018 survey, skills diversity remains a priority for boards: The effort made to increase the diversity of skills in board membership was stable in the second half of 2018, with 74% of directors stating that their business is actively seeking to improve in this area. 53% indicated that their business is actively trying to increase gender diversity.

Economic outlook

• Outlook for the Australian economy: Directors are more optimistic about the Australian economy in the immediate term compared to the first half of 2018, with 39% perceiving the economy as strong at present.  Directors are less optimistic about the Australian economy in the next 12 months compared to the first half of 2018, with 30% expecting it to be strong and 28% expecting it to be weak.
• Outlook at state level: NSW, VIC and ACT directors are the most optimistic about the health of their state economy in the next 12 months while QLD directors are the most pessimistic.
• Global outlook: The outlook for the Asian and US economies in the next 12 months is optimistic, continuing to grow in the second half of 2018.  Directors view ASIC as the strongest while the US and Australian economies are also regarded positively. By comparison the European economy is perceived as weak overall.
• The key economic challenge facing Australian business in H2 2018 was identified as rising global protectionism followed by global economic uncertainty and energy policy.
• Business growth: Directors' optimism regarding past and future business growth, although still positive (53% of directors expect their business to grow in the coming year), has had the first downward movement since the second half of 2014.

About the survey

• The survey was conducted with 1,252 AICD members: 12% from publicly listed entities; 42% from private/non-listed entities; 34% not for profit entities; 8% public sector government bodies and 3% overseas entities. 
• The majority of survey respondents were located in NSW (28%) and Victoria (24%). 70% of respondents were male.  30% female.  The report notes that results were weighted by gender to reflect the profile of the AICD member base.
• The survey was conducted over the period 13 to 27 September 2018.   

[Sources: AICD Director Sentiment Index: Second Half 2018; AICD media release 24/10/2018; The SMH 25/10/2018; The ABC 25/10/2018] 

Related News: Companies pledge to go 100pc renewable in absence of government action?

The AFR reports that a collective of Australian companies have signed onto a global initiative: RE100 to use 100% renewable power by 2050 both to be 'good corporate citizens' and in the interests of achieving cost savings by being more energy efficient.  
Reportedly, more than 154 companies worldwide have committed to the initiative to date including 75 countries with operations in Australia including Fujitsu, Mars Inc and Unilever.  
Speaking at the launch of RE100 in Australia RE100 CEO Sam Kimmins said that 'Australia has a golden opportunity to play a leading role in delivering a clean economy' and that signing onto the RE100 initiative would send a strong signal to governments about what Australia's future direction on energy policy should be. 'Australia's lack of clear energy policy direction has led to inflated costs and reliance on antiquated power sources, but forward-thinking businesses are planning for the long term - they want to be competitive globally' Mr Kimmins said.

[Sources: RE100 media release 25/10/2018; [registration required] The AFR 24/10/2018]