The Australian Institute of Company Directors (AICD) has released its first bi-annual Director Sentiment Index for 2022. The report is based on the results of a survey of AICD member opinions and future intentions on a range of issues including the economy, government policy and regulation.
A high level overview of some of the key findings is below.
Directors remain 'cautiously optimistic' overall
Overall director sentiment fell to +10.8% (from a record +17.9% in H2 2021). The report interprets this as an indicator that directors remain 'cautiously optimistic', despite the 'strain of the complicated global context businesses are currently operating in'.
Global economic outlook
- Directors' outlook for US, European and Asian (excluding China) economies is negative. Directors are most pessimistic about the European economic outlook, with just 19% of directors viewing it as being in a strong position. Looking ahead, 46% of directors consider that Europe will be a weak economic position over the next 12 months (the lowest rating of all the major economies surveyed)
- In contrast, directors are optimistic about China's economic outlook, with 63% viewing China's economy as strong (up 16% on the last survey). Looking ahead, 59% of directors consider that China's economy will remain strong over the next year (up 13%).
Australian economic outlook
57% of directors overall view Australia's current economic outlook as strong, with the same proportion (57%) viewing it as likely to remain strong over the next 12 months.
Drilling down to state level:
- WA based directors are the most optimistic about the current economic outlook for their state with 87% of directors considering the WA economy is currently strong and 85% thinking it will be in the same position in 12 months’ time.
- Looking at directors' assessment of current business conditions in the state in which they are based, again WA directors were by far the most optimistic with 78% of respondents considering that the current outlook is 'very strong' (29%) or 'somewhat strong' (49%) and the same proportion (78%) viewing the outlook for the next 12 months as 'very strong' or 'somewhat strong'.
- In contrast, Victorian directors were the most pessimistic about their state economy: 35% of Victorian directors think their state economy is weak and will remain weak over the next 12 months.
- Though 49% of NSW based directors consider the state economy is currently strong, the proportion of directors who consider that it will remain so over the next 12 months dropped to 58% (down from 79% in the last survey. Victoria and Queensland also experienced (less significant) confidence drops in their 12-month outlook on business conditions.
Key challenges facing Australian businesses
- Directors nominated: 1) labour shortages (60%); 2) global economic uncertainty (55%) and 3) climate change (34%) as the top economic challenges currently facing their businesses.
- COVID-19 which ranked as the second biggest challenge facing directors in the last survey dropped back to fourth place.
Directors want the government to prioritise climate action
- Directors nominated climate risk as the key priority that they consider the government should address in both the short (3 years) and the longer term (10-20 years)
- In terms of other short term priorities, directors ranked addressing the skills shortage and energy policy as the second and third most important short term priorities for government (after climate change)
- In terms of other longer-term priorities, directors nominated the ageing population and international competitiveness as the key priorities (after climate change).
- Looking to the upcoming Federal election, directors nominated economic management and performance and climate change as the two issues on which they will base their vote.
Data security is a key concern for directors
Asked what issues 'keep them awake at night' directors nominated cyber crime and data security as the standout concern – primarily, these concerns centre around the scale/complexity of the issue and the difficulty in understanding it/being equipped to deal with it - followed by global economic conditions and structural change/changing business models.
Interestingly, despite ranking as key business challenges, labour shortages and climate change ranked at the bottom of the list.
Increasing board diversity remains a focus for boards
Overall, the survey found that 58% of directors consider the current level of diversity on Australian boards to be 'satisfactory' (25% of respondents disagreed). Interestingly, despite this, the survey found that increasing board diversity remains focus for most boards, with the primary focus on increasing skills diversity (including enhancing technology skills in the boardroom).
Increasing board skills diversity is a key focus
- The survey found that 73% of boards are seeking to increase skills diversity.
- Increasing boards' digital capabilities appears to be a key focus with 58% of directors indicating that their board is looking to increase their boards' digital capability. Interestingly, despite the focus on enhancing boards' digital expertise, the survey also found that 56% of respondents consider their board also has an 'appropriate technology strategy and agenda', and only 29% of directors consider their boards' oversight of cyber threats to be insufficient.
- Only 7% of directors indicated that their board is not seeking to increase board skills diversity.
Gender, Ethnic and Age diversity
- Gender diversity also appears to be a key focus with 51% of directors indicating that their board is seeking to increase gender diversity.
- 40% of boards are seeking to increase ethnic diversity.
- 37% are looking to increase age diversity
Finding skilled new directors is a challenge
- Overall, 44% of respondents indicated that they face challenges in recruiting talented new directors.
- The top three challenges in this context were: 1) finding directors with the right skills (59%); 2) finding candidates comfortable with the required time commitment (50%); and 3) the legal and compliance burden (44%).
[Sources: AICD media releases 21/04/2022; 21/04/2022; AICD summary; Full text report: Director sentiment falls amid global economic uncertainty: Director Sentiment Index 1H22]