Australia’s directors have lost confidence over the past six months, although they remain more optimistic about the economic and business outlook than they were at the end of 2017.

The Australian Institute of Company Directors’ bi-annual Director Sentiment Index is the only indicator measuring the opinions and future intentions of directors on a range of issues including the economy, government policy and governance regulations.

This 2nd Half 2018 Index reveals that while directors are generally confident about the current state of the Australian and global economies, they are much less optimistic about the outlook for economies over the year ahead.

Sustainability and long-term growth prospects are the main issues keeping directors awake at night, followed by business reputation in the community and corporate culture.

Directors also nominate less focus on short-termism and fostering innovation as the measures most needed to boost productivity. Their desire for more innovation has increased substantially in this wave of the Index.

AICD Managing Director & CEO Angus Armour FAICD said that the DSI highlighted a number of areas of concern for directors.

“Directors are concerned with the global environment, with rising global protectionism and global economic uncertainty rated as the top two economic challenges facing Australian business,” he said.

“At home there’s also increasing pessimism around Canberra’s impact on business, with 54% saying the federal government’s performance has a negative effect on their business decision making and 79% perceiving a negative effect on consumer confidence.

“In this uncertain environment, directors are conscious that they need to drive change to enhance public trust in institutions. Over 80% of directors support stronger penalties for misconduct, and 56% support an increase in funding for regulators.

“Almost 90% of directors are also working on cultural change within their organisation.

“Directors are certainly conscious of the lack of trust in society, and the results show that demonstrating respect for customers, clients and communities, trustworthy leadership and improving corporate culture were key areas of focus for rebuilding trust.”

For the first time directors nominated climate change as the number one issue they want the federal government to address in the long-term, followed by an ageing population, energy policy, taxation reform and infrastructure.

Renewable energy sources remain the top area of importance for infrastructure investment, with 50% of directors including it in their top three responses.

Other key findings from the AICD Director Sentiment Index 2nd Half 2018:

  • 84% of directors rate the current quality of public policy debate in Australia as poor.
  • 69% of directors say there is a risk-averse decision making culture on Australian boards. Of those, 28% believe the primary driver is a focus on compliance over performance, followed by pressure from shareholders for short-term returns (21%).
  • Energy policy, tax reform and infrastructure are the top priorities for the federal government to address in the short-term.

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