Director sentiment drops to a three year low

Director sentiment drops to a three year low as over 60 per cent of directors expect weakened economic conditions over the next 12 months.

A record number of directors completed the latest AICD biannual member survey. Director views on the Australian and global economies, government policy and governance regulations are at a three-year low.

 Key findings from the Director Sentiment Index (Second Half 2019) include:

• Almost 60 per cent of directors expect weak economic conditions in Australia and globally over the next 12 months.

• Global economic uncertainty, low productivity growth and China’s outlook were selected as the top economic challenges facing Australian business.

• 74 per cent of directors say that the current level of government infrastructure spending is too low.

• Water supply, renewable energy sources and regional infrastructure were nominated as the top three areas that require additional infrastructure investment.

• 53 per cent of directors perceive governance regulations as onerous.

• 70 per cent of respondents agreed that there is a risk-averse culture on Australian boards.

Overall sentiment has fallen a further 4.5 points to negative 21.2. The decline is largely due to increased pessimism about the domestic and global economies. AICD CEO and Managing Director, Angus Armour, said that with Australian economic growth having slowed to its weakest point since the GFC, directors are calling for a new approach.

“With conventional monetary policy now reaching its limits we need to look at other options.

“Directors have identified increased infrastructure spend and further personal income tax cuts, perhaps by bringing forward already-planned tax measures, as options the Government should prioritise.

AICD’s Chief Economist, Mark Thirlwell, says the results suggest that directors are not convinced by central bank forecasts that the economy has passed a ‘gentle turning point’.

“The Reserve Bank says that the economy should strengthen from here, but for now directors aren’t buying it. Rather, they see the risk of further deterioration ahead.”

The results also highlight concerns with the current governance environment, with directors highlighting the lack of readily available Directors and Officers Insurance and the onerous nature of governance regulations as drivers of risk-averse decision-making in the boardroom.

“The trend towards over regulation, particularly of listed companies, is having a real impact on the economy. Too much emphasis on compliance obligations is driving a risk-aversion in boardrooms and stifling the ability of boards to drive strategy and innovation,” says AICD CEO and Managing Director, Angus Armour.

“To boost productivity and trigger the next phase of economic growth we need to strike the right balance between regulatory obligations and innovation settings.”

Director concerns with water supply have grown substantially over the last six months. It is now the number one priority for infrastructure investment and drought is also increasingly seen as an economic challenge.

The survey was completed by 1489 AICD members between 13 and 26 September 2019.