How excessive regulation is affecting Australian innovation and productivity

As we head into the Federal election on May 3, boards must stay alert to the key global risks and regulatory developments shaping governance practice.

Many, if not most of you, would have had a chance by now to catch up with our latest Director Sentiment Index (DSI) for the first half of 2025 — and thanks to all who answered the survey. Your responses and opinions provide valuable insights on what’s front of mind for directors. This is critical in helping determine important priorities for the AICD’s education, practice and policy work.

It’s a particularly interesting DSI report this time around, with responses informed by the current election cycle and events in the US under the second Trump presidency.

The overall DSI improved for the first time since 2021, up nearly 10 points, with notable rebounds in economic and business conditions. Despite these signs of recovery since the second half of 2024, the DSI is still in negative territory for the sixth consecutive survey, at –23.9. This will come as no surprise to those of you steering your organisations through these difficult times.

Global economic uncertainty is the top economic challenge seen facing Australian businesses. Concerns over global protectionism jumped significantly — clearly anticipating the Trump administration’s tariff regime, announced after the DSI survey closed. Nine out of 10 directors believe escalating trade tensions will threaten the economic outlook for both Australia and the world.

Given the developments in the US on diversity, equity and inclusion (DEI) agendas, we also took the opportunity to sense-check how this might affect the Australian market. More than 80 per cent of directors said they expected their boards to have the same or a stronger commitment to diversity over the coming 12-months. Thirteen per cent think their board will be less committed.

While this result suggests that the talk of a DEI backlash in Australia is overstated, I suspect, like most things, the “devil is in the detail”. While there might be no significant winding back of DEI policies, boards are still taking the opportunity to consider how to best position DEI activities in their organisations.

The emerging view seems to be to ensure that DEI policies — current or modified — align to and assist implementing the enterprise-wide strategy of the business. While somewhat self-evident, it seems to me that this is a sensible and enduring approach.

On the all-important question of regulation, this continues to climb in the rankings as we see the levels of regulation, duplication and overlap increase. Nearly 60 per cent of you rate compliance and regulation as the number-one issue affecting your board’s risk appetite. And 70 per cent believe a major deregulation agenda would have a positive impact on Australia’s productivity and economic growth.

Which leads me to the federal election. Productivity growth was nominated by directors as the main issue the federal government needs to address both in the short and long term. Economic management and cutting red tape were the main issues influencing directors’ voting intentions in the 3 May poll.

Election priorities

As the DSI makes abundantly clear, Australia is facing a productivity crisis.

The AICD has released an election platform titled: Better regulation to unleash innovation and productivity in Australia’s boardrooms (bit.ly/4ckqdmE). It calls on both major political parties to commit to a comprehensive deregulation agenda within the first 100 days of the next parliament, including a freeze on new regulation unless it’s deemed critically necessary.

Australian businesses, not-for-profits and community organisations are struggling with broad-brush regulation, often rushed through parliament and shoe-horned into existence, leaving stakeholders to pick up the pieces. Poor and excessive regulation has a chilling effect on innovation and productivity.

We know this has a flow-on effect for customers, shareholders, community members and ultimately the Australian economy. 

As part of our platform, AICD has developed a Three-Point Plan calling on the federal government to prioritise a better regulation agenda, to achieve more innovation in the economy and generate productivity growth through:

Better law-making with a 12-month moratorium on new regulation, a strategy to ensure regulation supports economic growth, and a dedicated Minister for Better Regulation in cabinet

Better digital governance to urgently clarify data retention laws, provide plain English AI guidance, and assistance for NFPs on cyber governance and implementing stronger cybersecurity measures 

Better targeted disclosures with NFPs excluded from mandatory climate reporting, modern slavery reporting to apply only to high-risk sectors and businesses, and a lifting of corporate reporting thresholds.

We are well aware that better regulation might not dominate headlines in an election, but it is a critical aspect of the path to  improved innovation and productivity — and subsequently improved economic outcomes for all Australians.

AFR Director Awards

I’m excited to be attending the inaugural Australian Financial Review Director Awards dinner in Sydney on 29 May. The AICD is proud to be a supporting partner of the awards, recognising the pivotal role board directors play in shaping strategy and fostering sustainable growth in their organisations. The awards include important categories such as emerging director, NFP director and lifetime achievement. I’m looking forward to celebrating with our winners on the night.

This article first appeared under the headline 'Global issues weigh on sentiment’ in the May 2025 issue of Company Director magazine.