Friday, January 13th, 2012 - Australian Institute of Company Directors
The Directors Sentiment Index, a key sentiment indicator measuring the opinions and future intentions of the director community, has dropped by more than 32 points for the second half of 2011.

Australian Institute of Company Directors CEO and Managing Director, John Colvin, said the drops across almost every major component of the Index reveal the disheartened frame of mind of Australian business.

The Index for the second half of 2011 has ranked overall director sentiment as pessimistic, and has declined significantly from the first half survey released in April, said Mr Colvin. Directors are significantly more pessimistic about current economic conditions and the economic outlook.

Almost half of the directors polled identified minority federal government and low consumer confidence as key economic challenges facing Australian business in the next twelve months, with the Carbon Tax, skilled labour shortages and inadequate infrastructure spending rounding out the top five issues.

Nearly 70 per cent of directors surveyed believe the performance of the Federal Government was having a negative impact on their business decision-making, and nearly 90 per cent thought it was hurting consumer confidence.

The Index suggests that the political situation in which we find ourselves is seen as a real hindrance to future planning and business decision making, said John Colvin. All minority governments have difficulties maintaining electorate confidence, which has negative flow-on effects on the confidence of consumers, investors and business.

The Directors Sentiment Index has also highlighted company directors belief that there is currently an acute lack of meaningful consultation by the Federal Government - more than 80 per cent of directors surveyed said that the Government lacks an understanding of business.

We believe that when governments are considering new laws, whether in the area of regulation, tax, workplace relations or in any other area impacting business, there should wherever possible be appropriate consultation. It is good to see that the Government has also recognised this as a serious issue, and has moved to address it by reforming the COAG consultation process, to give business the opportunity to comment and help improve areas of regulation creating an unnecessary administrative burden or excessive compliance costs.

The November Index has found an eleven point net balance increase in the importance for business of Environmental, Social and Corporate Governance issues. Company directors ranked three different climate change-related issues in the top 15 economic challenges facing Australia, and nearly 90 per cent of directors believe that the level of regulation on climate change will increase in the next two years.

Sixty two per cent of surveyed directors believe the Carbon Tax legislation will have a negative impact on their business, up from 55 per cent in the previous survey. Fifty two per cent also believe that the abolition of this tax after it is already in operation would be positive for their business, while 23 per cent thought it would be a negative.

Most directors believe energy and non-energy costs, as well as domestic prices, will all be negatively impacted by the announced Carbon Tax - with both domestic and export prices likely to rise as a result.

The Index also found an increased effort by Australian businesses to reduce their carbon footprint, with nearly 90 per cent already making some effort, up from 85 per cent in the first half Index released in April.

More than 80 per cent of directors ranked infrastructure as a top priority for the Federal Government, followed by health, education and energy resources – with the vast majority, nearly 90 per cent, suggesting that the current level of government spending on infrastructure is too low.

Water supply, roads and telecommunications networks are still seen as the most important areas of infrastructure for investment, with an increased support for 'green' energy sources and urban rail,” said Mr Colvin.

However, in line with the results of our previous Index, more than half of directors disagreed that the building of the National Broadband Network was a positive for Australia.

In keeping with the previous survey results, most directors believed that the level of taxation in Australia is too high – with nearly three-quarters saying personal tax is too highand a fifty-fifty split on corporate tax, with half of directors saying that corporate taxation is too high and half saying it is about right or too low.

John Colvin said that this was an important message for the Government, as getting the tax balance right was essential to ensure Australia maintains its international competitiveness.

Getting the settings right for all of the key economic levers is absolutely crucial at this time, as the business sector is clearly bracing for a difficult twelve months. As director optimism on business conditions dives, the Government must consider the issues that the business community has clearly flagged as significant priorities.

Reform of director liability, onerous regulatory requirements and improved consultation with business are essential if we are to weather the financial storms raging across the globe, Mr Colvin said.

About the Directors’ Sentiment Index

The Directors' Sentiment Index is a biannual survey of company directors. The November 2011 Directors? Sentiment Index survey was conducted with more than 500 Australian directors, senior executives and managers of medium to large private, public and Not-For-Profit sector organisations between 8 August and 31 August 2011.

The Directors Sentiment Index canvasses directors views on current and future economic and business conditions, as well as key regulatory, governance and public policy issues and weights their responses to obtain an overall indication of director sentiment.

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Australian Institute of Company Directors


The Australian Institute of Company Directors provides education, information on corporate governance for directors and boards Australia wide, with offices in each state to cater for 28,700 members. Our members work in diverse corporations such as small-to-medium enterprises, the ASX200 corporations and public sector organisations.
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P: +612 8248 2786
W: www.companydirectors.com.au

Keywords

corporate governance, governance, board governance, australian institute of company directors

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