Economy Stagnant but Directors Optimistic on Future

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Corporate directors remain uncertain about the future state of the economy, according to the National Association of Corporate Directors’ (NACD’s) Board Confidence Index (BCI). The BCI’s overall score represents directors’ uncertainty—or disbelief—that current general economic conditions have actually improved. Half of the directors represented by the BCI view economic conditions as unchanged since last quarter, while nearly one-third believe that current conditions have moderately or substantially deteriorated in the past year.

At the same time, in Q3 we note directors shifted to a more optimistic longer term view of the economy, in both the next quarter and in the next 12 months. Nearly 58 percent of directors believe economic conditions will be either moderately or substantially better over the next year. Just under 25 percent show a pessimistic view, believing conditions will be moderately or substantially worse.

“The Q3 2012 NACD BCI results indicate that boardroom confidence is tied to several significant geopolitical and economic issues,” said Ken Daly, president and CEO of NACD. “While corporate directors are focused on the performance of their own companies, they are well aware of their industry and the broader markets, as well as concerns expressed about Europe and the looming possibility of a year-end fiscal cliff.”

Essentially, the boardroom is waiting for the other shoe to drop. “Heightened economic uncertainty does directors no favors as they begin to calibrate 2013 performance goals,” said David Swinford, president and CEO of Pearl Meyer & Partners. For the last two years, data has shown that companies are hesitant to embark on anything requiring large capital outlays, from merger activity to employment. Looking one year ahead though, directors predict slightly better conditions.

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