AICD survey results: Directors lose confidence in government

The latest Australian Institute of Company Directors’ (AICD) Director Sentiment Index (DSI) for the second half of 2018 shows directors have increasing pessimism towards Canberra’s impact on business and on Australia’s economic outlook but strong support for boards to rebuild public trust.

• More than half of directors surveyed felt that the government did not understand business and that government’s performance negatively affects business decisions
• More than half of those surveyed believe boards should prioritise rebuilding public trust
• For the first time, directors rate climate change as the top long-term priority for the federal government
• Directors have the lowest level of optimism on business growth since 2015

In a statement, AICD Managing Director & CEO Angus Armour said “Directors are concerned with the global environment, with rising global protectionism and global economic uncertainty rated as the top two economic challenges facing Australian business.

“In this uncertain environment, directors are conscious that they need to drive change to enhance public trust in institutions. Over 80% of directors support stronger penalties for misconduct, and 56% support an increase in funding for regulators.

“Almost 90% of directors are also working on cultural change within their organisation. Directors are certainly conscious of the lack of trust in society, and the results show that demonstrating respect for customers, clients and communities, trustworthy leadership and improving corporate culture were key areas of focus for rebuilding trust.”

Overall, the latest DSI shows that directors are less optimistic with sentiment falling for the first time in 18 months, reversing upward trends in the last three surveys.

Directors’ optimism regarding future business growth, although still positive, has recorded the first downward movement since the second half of 2015. Directors are less optimistic about the outlook for the Australian economy over the next 12 months, compared to the first half of 2018, with 30% of directors expecting the economy to be strong and 28% expecting it to be weak.

Disenchantment with government

The most negative result for three years is seen in directors’ perceptions of the effect of federal government performance on business decision making – reversing an upward positive trend in the first half of 2018.

Directors are now much more pessimistic, with 54% of all 1252 directors surveyed in September 2018 stating that government performance now has a negative effect on business decision making (compared to 29% in the first half of 2018).

More than three-quarters of directors surveyed now perceive a negative effect on consumer confidence from government performance (up from 54 %in the first half of 2018). Nearly half of those surveyed disagree that the federal government understands business.

Rebuilding public trust

On the positive side, more directors are now in favour of boards rebuilding public trust. In the survey, 52% (compared to 46% in the first half of 2018) believe boards should prioritise showing respect for customers/clients/communities in order to rebuild public trust and 48% (up from 41% in the first half of 2018) say trust in leaders should be a priority.

Climate change top long-term priority

Directors rate climate change as the top long-term priority the federal government should address, followed by an ageing population, energy policy, taxation reform and infrastructure.

The issue of climate change is rated by 17% of directors surveyed as the number one long-term priority the federal government should address and 11%of directors viewed this issue as the top short term priority. Climate change ranks in the top five concerns of 39% of directors long-term and 30% short-term.

Director liability

Directors continue to feel pessimistic about the impact of legislation on director liability in the second half of 2018:33% feel it negatively affects their business decision making; 40% their willingness to continue on a board; and 51% their willingness to accept new board appointments.

State-by-state

New South Wales, Victoria and the Australian Capital Territory directors are the most optimistic about the health of their state economy in the next year, while Queensland directors are the most pessimistic.

NSW directors are the most optimistic, with 67% believing their state to be strong, ahead of Victoria (63%), ACT (55%), Queensland (19%), WA (11%), and South Australia (12% ).