What keeps directors awake at night: insights from the Director Sentiment Index

Every six months, as part of the Director Sentiment Index, the AICD asks members what issues are ‘keeping them awake at night’. Carissa Simons, the AICD’s Media Manager, runs through the current challenges that are causing directors to lose sleep.

The AICD’s latest Director Sentiment Index (DSI) has shown that governance regulations and legal and compliance issues are leading to a risk-averse decision making culture in Australian boardrooms.

The fourteenth DSI, released earlier this month, found that directors are greatly concerned with matters of legal and regulatory compliance with it appearing as the third most likely issue to keep them awake at night.

Other issues causing a lack of sleep amongst directors included sustainability and long term growth, which came in at number one, followed by structural change and changing business models. Business’s reputation in the community, corporate culture and cyber crime also ranked high on the list. Despite recent media reports, increasing shareholder activism ranked lowest on the list of sleep depriving concerns, just below infrastructure security and annual accounts.

The bi-annual survey is the only indicator measuring the opinions and future intentions of directors on a range of issues including the economy, government regulation and governance regulations.

The DSI also showed that directors continue to be pessimistic about the current AGM system, with only 25 per cent of respondents agreeing that the current approach is working well.

Directors indicated that the director liability framework in Australia continued to lead to poor outcomes with over 30 per cent feeling that it has negatively affected their business decision making and willingness to continue on a board, while 45 per cent feel it impacts negatively on their willingness to accept new board appointments.

Confidence at record high

The news wasn’t all gloomy though, with director confidence at record highs. Continuing the trend from the second half of 2016, directors are feeling far more optimistic about domestic business conditions.

Continuing the upward trend since the first half 2015, directors are continuing to report business growth over the last six months, and continue to feel optimistic about the growth of their business with over 55 per cent of directors expecting growth in the coming year. There is increased optimism around investment levels and staffing levels/labour demand, both of which are at 6 year highs, whilst business exports and outsourcing remain have remained relatively stable over time.

Sentiment around actual profits for the current 6 months has increased in first half 2017, with almost 40 per cent expecting an increase in profits compared to the current budget forecast, and about 40 per cent expecting an increase in profits for the second half of this year (ending December) compared to profits for the current six months.