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Director sentiment is at its lowest point since the Australian Institute of Company Directors started recording it two years ago.
For the first time, it showed falling confidence scores across every index segment, including economic concerns, business conditions, and regulation and government policy. The survey is conducted by research house Ipsos and surveys more than 500 directors in medium-sized and large companies every six months.
AICD managing director John Colvin told media this morning that increases in regulation had come at the same time as increased concerns over the global and Australian economy. He said this, coupled with a minority government – which most directors didn’t think understands business – has made directors in medium and large companies pessimistic about the future.
Colvin says the survey is especially concerning because, by their nature, directors are optimistic. “They want to make business work better,” he says.
“A lot of these things, directors said, had an even bigger impact on consumer confidence than they do on business,” Colvin says. “This all feeds into the current softness of the economy.”
Less than half (40%) of directors surveyed expect future growth in their business and most predict lower investment and staffing levels over the next 12 months. In the June 2012 survey, one in three (30%) of directors believed the Australian economy was strong or very strong. That figure halved in the most recent survey, to just 14%.
Between late August and October, when the survey was conducted, directors witnessed the national discussion about whether or not the mining boom was over. The Australian dollar remained stubbornly high, and concerns have grown about China, where a leadership transition is due shortly, and America, where a stalemate about how to deal with the budget deficit could trigger spending cuts that could plunge the country back into recession.
The biggest shift in economic outlook is on China, Colvin said.
Most directors (60%) say red tape and regulation has increased in the last 12 months, and directors believed compliance with such regulation took, on average, 26% of their total board commitment time.
For example, in April, new laws intended to target phoenix companies now see all directors –whether on private, public, or not-for-profit boards – made personally liable for any unpaid superannuation owed to staff, even if they are only newly appointed to the board. It’s also the second year since the introduction of the two-strike rule, which sees a spill motion of the board automatically triggered if at least 25% of shareholders vote against the remuneration report two years in a row. This means directors are having to spend more time and effort convincing shareholders to back their remuneration decisions.
Colvin is sceptical about both these changes. He says executive pay was always going to decrease in such an economic climate, as bonus targets and similar hurdles are not being met.
“Also, Australia is regarded as having some of the best directors. We (the AICD) export our company directors’ course all over the world.
“The question is: do we have such great directors as a result of their education and solid management backgrounds, or because of our regulations? I would say it’s more of the former than the latter.
“[Such legislation] is disproportionate, over the top, and creates new problems where there were none … Anecdotally, I know from conversations with the director community that many great directors aren’t sitting on boards right now. They say they don’t want to be compliance officers; they want to guide company performance.”
Amidst all the bad news, there were some glimmers of hope. Now that the carbon tax is operational, fewer directors expressed alarm at the impact it would have on their business (though 57% still think abolishing the tax would have positive effects on their business. On the national broadband scheme, another government policy currently being rolled out, 40% were in favour.
Another release earlier today, the November Westpac Melbourne Index of Consumer Sentiment, showed consumer sentiment was up 5.2% in November to its high