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.