NACD Blog

The Boardroom as Economic Indicator

January 27th, 2012 | By Kate Iannelli

In Tuesday’s NACD Directors Daily, a Chicago Tribune article reported that “Companies see growth but few new jobs.” According to an industry survey by the National Association for Business Economics, two-thirds of respondents expect no change in employment at their companies in the next six months. However, 65% of respondents predicted that a growth in gross domestic product of over two percent would accompany the stagnant job market.

According to NACD’s Boardroom Confidence Index (BCI), directors share this more positive view for economic growth in 2012. More than half of respondents (52.6%) forecast economic conditions to be at least “substantially better” in the upcoming year. The BCI also tracks expectations for employment growth. Specifically, whether directors forecast that their companies will expand, contract, or maintain the same workforce in an upcoming quarter. Throughout 2011, directors most commonly responded that their companies would retain the same amount of employees in the upcoming quarter. The most recent BCI, in line with the findings from the National Association for Business Economics, predicted that job growth would remain fairly stagnant in the first quarter of 2012.

Produced in collaboration with Pearl Meyer & Partners, the BCI measures corporate directors’ confidence in the economy on a quarterly basis. Results of the Q1 2012 BCI will be available in April.

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Annual NACD Private Company Governance Survey

January 20th, 2012 | By NACD Staff

While public companies often dominate the news cycle, privately held companies play a major role in the global economy. According to Forbes, the largest 212 private companies in the U.S. represent $1.33 trillion in revenues. Although they aren’t subject to the full gamut of requirements as dictated by listing exchanges and regulatory agencies, private companies are inching closer to their public counterparts in terms of governance practices, according to the 2011 NACD Private Company Governance Survey. To be released next month, this survey details the governance habits of America’s private company boardrooms. According to our data, in few cases do the practices between public and private boardrooms differ greatly.

All companies are faced with an extremely challenging economic environment. As a result, private company directors, like their public company counterparts, have maintained focus on strategic planning and oversight. In fact, boards have listed corporate strategy as their top priority for the past three years. Oversight of corporate performance is consistently ranked as second. These two concerns indicate that private company directors, despite the economic volatility, focus their attention on the long-term sustainable performance of their organizations.

While some priorities remain unchanged, private boards have also made adjustments in response to the current environment. This year, the need to build bench strength is a top issue for directors. Executive talent management and leadership development rose to the third most important issue, its highest ranking to date.

The findings from the private survey are typically a leading indicator of the “hot topics” being discussed in America’s boardrooms. At a time when corporate leadership is under heightened public scrutiny, the rising importance of executive talent management is a positive sign.

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Tags: Boardroom priorities, governance survey, Leading issues, Private companies

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BCI Shows Improvement

January 6th, 2012 | By Kate Iannelli

NACD’s Board Confidence Index (BCI) rose to 54.7 in the fourth quarter of 2011, showing improvement over the previous quarter, but reflecting boardroom confidence is more than ten points lower than one year ago. Economic confidence dropped to an all-time low in third quarter of 2011, according to the BCI. This pessimism was echoed in peer indices of CEO and consumer confidence.

In Q3 of 2011, the perspective from the boardroom was fairly bleak. In addition to relatively flat unemployment figures and rising inflation, many expected the Securities and Exchange Commission (SEC) to issue a stream of regulations before the end of the year. In Q4, much of the SEC activity was postponed until 2012, and we saw slight improvements to private-sector hiring and growth in the economy.

When reviewing conditions in the short term, the latest BCI found that 60 percent of directors surveyed characterize current economic conditions the same as the last quarter. When asked to forecast general economic conditions in the next quarter, 56 percent of directors anticipate the same conditions. The improvement seen in Q4’s BCI was not as much of an increase in confidence as a reflection that directors viewed conditions as “not worse” than Q3—the most pessimistic quarter to date.

Regarding hiring practices, 53 percent of companies plan on retaining the same number of employees in Q1 of 2012, while just below 30 percent have plans to expand the workforce.

If 2010 was the year of the Dodd-Frank Financial Reform Legislation, 2011 was marked by uncertainty over how and when the regulations would be implemented. Directors began the year expecting legislative activity to hit governance practices across the board—in compensation, audit, and nominating/governance. By the end of 2011, however, the only rules to take effect were say-on-pay and the replacement of proxy access with private ordering.

In its review of 2011, the Wall Street Journal concluded that companies spent much of the year recovering from prior strategic missteps. For 2012, the article forecasted “the trick in the year ahead will be to keep profits, sales, and share prices moving upward as U.S. consumers navigate a slowly improving job market and uncertainty.” As seen in the BCI, those in the boardroom have been facing these same challenges.

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