Board members’ attitudes in Q4 2011 reflected the nation’s slow but steady recovery. Reversing a downward trend that began in early last year, NACD’s Board Confidence Index rose to 54.7 from a dismal 47.5 in Q3, bolstered by a relatively improved outlook for the country’s economic health in the short term. Produced in collaboration with Pearl Meyer & Partners, the BCI measures and reports on corporate directors’ confidence in the economy and business, as well as the outlook for their respective businesses.
Q3 marked the BCI’s most severe decline to date, a drop of more than 15 points to 47.5. The Q4 increase to 54.7 suggests that directors feel slightly better than uncertain about the economy. The United States did not demonstrate any further proof of economic recovery in the last quarter—the debt-reduction “super committee” in Congress failed to deliver a solution by its Nov. 21 deadline. However, attitudes on the economy shifted only from “moderately worse” to “same.” Additionally, business leaders have had to divide their focus between the European financial crisis and the uncertain fate of the euro and the 2012 presidential election on the horizon.
The BCI represents confidence snapshots across five different areas. While confidence improved across the board, the most notable improvements were seen in directors’ short-term view of the economy. It should be noted, however, that this is a small victory. When asked about progress made over the past three months, confidence improved to 47— suggesting that directors feel present conditions are nearly the same as Q3’s all-time low. Looking three months ahead, directors predict little change as well, with a score of 53.
Directors consistently feel better about long-term progress than short term. Yet uncertainty still reigns. Compared to last year, boardroom leaders feel economic conditions are nearly the same, at 53. When asked to forecast one year ahead, directors responded that conditions would be slightly better, with 59. The smallest companies (those with revenues under $1 billion) are generally more optimistic about both short- and long-term prospects, a trend that developed last quarter.
Despite the general malaise, directors tend to view their own industries more favorably relative to the overall economy. Those representing industrial and information technology companies were more likely to feel their sectors were “substantially better” or “moderately better” than others. Directors from companies in the consumer discretionary sector were more likely to respond that conditions were “moderately worse” or “substantially worse.”
Consumers mirrored this improved perspective. According to The Conference Board’s Consumer Confidence Index, American confidence improved to 56 in November from 40.9 the previous month. That marks the index’s largest jump in more than eight years. The Thomson Reuters/University of Michigan peer survey noted a similar trend: consumer sentiment improved to 67.7 from 64.1, a six-month high. Economists cite falling gasoline prices, the drop in the nation’s unemployment rate to 8.5 percent and a rebounding stock market for bolstering consumer confidence.
Regarding hiring practices, directors indicated that their companies maintained the status quo in Q4. Given the choices of “resulted in a net gain,” “remained the same” or “resulted in a net loss,” nearly half of respondents (48 percent) indicated their company’s hiring remained the same as for Q3. However, perhaps reflecting more positive unemployment news, over a third responded their company’s hiring resulted in a net gain. In addition to a more positive outlook, the smallest companies were more likely to have hired in Q3. Looking ahead to the next quarter, the majority of directors (53 percent) forecast their company would retain the same number of employees.
Kate Iannelli is an NACD research analyst.
BCI Increases From Q3 to Q4
2010: 56.6 – Q3, 64.4 – Q4
2011: 64.9 – Q1, 63.1 – Q2, 47.5 – Q3, 54.7 – Q4
Source: NACD Board Confidence Index