Key takeaways from the latest Australian Institute of Company Directors (AICD) bi-annual Director Sentiment Index

The Australian Institute of Company Directors (AICD) has released its first bi-annual Director Sentiment Index for 2021. The report is based on the results of a survey of AICD member opinions and future intentions on a range of issues including the economy, government policy and governance regulations.

One headline finding that stands out in the report is the high priority directors place on climate risk and related issues. Another is the strong focus being given by many boards to increasing board diversity (and in particular skills diversity).

A high level overview of some of the key findings is below.

An increasingly positive outlook

  • Overall director sentiment continued its upward trajectory up from a low in H1 2020 of -59.6%, to -37.3% in H2 2020 to +7.2% (a record high point). This is attributed in the report primarily to uplifts in business conditions and a strengthening of domestic and global economic indicators.
  • Global economic outlook: The survey found that directors' expectations of the Australian, Asian, Chinese, US and European economies have also improved. Of this group, the outlook for the European economy is the most negative at +5% (up from -63% in H2 2020).
  • Australian economic outlook: Directors across all states are more positive about both current and future economic outlook than in H2 2020. Looking at the next 12 month period, the survey found that WA based directors are the most optimistic about the outlook for their state with 82% viewing it positively, followed by NSW (53% viewing it positively). QLD is the most pessimistic (51% holding a negative view and only 19% holding a positive view). The report suggests that the result in QLD could have been influenced by COVID-19 outbreak immediately prior to the survey period.
  • Outlook for individual Australian organisations: Directors are also more optimistic about the general business outlook and the business environment for their own organisations for the rest of this year (the period to 31 December 2021). For example:
    • Director confidence in the general business outlook has substantially increased since H2 2020 from 21% (H2 2020) to 50%.
    • The majority (60%) of directors now expect their business to grow and 13% of this group expect their business will substantially expand over the period.
    • Only 10% of directors surveyed expect that their own organisation to contract.

Key director concerns

  • Asked what issues 'keep them awake at night' directors nominated the following as their top five concerns: 1) sustainability and long term growth prospects; 2) cyber crime; 3) the impact of COVID-19; 4) data security; and 5) climate change risk.
  • Legal and regulatory compliance ranked sixth on the list of top concerns followed by culture.
  • Not top of mind:
    • Workplace sexual harassment ranked towards the bottom of the list at 19
    • 'Director reputation in the community' ranked 20
    • Shareholder activism ranked even lower down the list of concerns at 23.

Climate change

Climate change should be a key short and long term priority for government

  • Consistent with the last survey, directors nominated climate change as the key top priority for government to tackle in the short and long term.
    • Short term priorities: The top three short term priorities directors would like to see the government address are: 1) climate change; 2) energy policy; and 3) taxation reform.
    • Long term priorities: The top three long-term priorities directors would like to see the government address are: 1) climate change; 2) the ageing population; and 3) energy policy.
  • Priorities for infrastructure investment: The top three priorities in terms of infrastructure investment were nominated as: 1) renewable energy soruces; 2) regional infrastructure and 3) water supply.
  • Climate is also nominated as a key economic challenge: COVID-19 remains the main economic challenge currently facing Australian business, with 41% of directors surveyed listing the pandemic as a key challenge, followed by concerns around global economic uncertainty (31%) and climate change (25%).
  • Views on climate policy:
    • 67% of directors support a shift in policy focus towards building national adaptability/resilience to climate change
    • 63% of directors support having clear five-year emissions reductions targets in place to provide a clear pathway to the longer-term net zero goal
    • 51% of directors support the introduction of more ambitious targets for renewable energy
    • 58% of directors support an increase in government subsidies for business spending on green R&D and innovation
    • Only 6% of directors support the introduction of a price on carbon via a carbon tax

Commenting on the findings, AICD Managing Director and CEO Angus Armour said 'Directors clearly perceive that climate change risk is not a niche issue only relevant to some sectors, with the challenge now a mainstream item on boardroom agendas'.

Board diversity

The survey found that increasing board diversity is a focus for a number of boards though, overall boards appear to be primarily focused on increasing skills diversity (including enhancing technology skills in the boardroom) and increasing gender diversity.

Skills diversity: In particular, boards appear to be focused on increasing skills diversity. For example:

  • 80% of board are either actively or very actively seeking to increase skills diversity. Increasing digital literacy and technology skills appears to be a key focus: 63% said their board is either actively or very actively seeking to do so.
  • Only 9% are not actively or not at all actively seeking to increase board skills diversity.

Gender diversity: Gender diversity also appears to be a key focus with 57% of directors indicating that their board is actively or very actively seeking to increase gender diversity. However, over a quarter of directors surveyed (26%) indicated that increased board gender diversity is 'not relevant' and 17% of boards are either not actively looking or not very actively looking to increase board gender diversity

Ethnic diversity: Interestingly, the report found that though 39% of boards are actively/very actively seeking to increase ethnic diversity, 61% of boards appear not to see this as a priority. Of this group, 30% not actively or not very actively seeking to increase board ethnic diversity and 31% indicating that doing so is not relevant.

Age diversity: The report found that increasing age diversity in the boardroom appears to be less of a focus (relative to other forms of diversity). The report found that:36% or boards are actively or very actively seeking to increase age diversity; 64% are either not actively or not very actively seeking to do so (30%) or do not see it as relevant (34%).

[Sources: AICD media release 30/04/2021 - the full text of the report - Director Sentiment Index: Research Findings First Half 2021 - and the AICD's summary of the key results are available for download at the bottom of the media release]