Tag Archive: Consumer Confidence

Boardroom Confidence Rebounds to Cautiously Optimistic

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Since the financial crisis, uncertainty in regulatory activity has been the sole constant factor. Dodd-Frank, resulting activity from agencies such as the Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB), and Federal Reserve, healthcare reform legislation, the JOBS Act, and now debates over the debt ceiling have kept those in the boardroom on their toes. Further, rarely have established economic indicators served as heralds of the market’s health—and this quarter proves no different. The metrics tell different stories: Executives think the economy is improving, but fewer mid-sized companies expect to increase capital spending. Consumer confidence fell nearly 10 points in March, but CEO confidence rose nearly 8 points in the first quarter. Similar to executives, directors are demonstrating optimism in the strength of the markets: the NACD Board Confidence Index (BCI) jumped almost 10 points in Q1 to an overall score of 61.

From one perspective, this improved confidence from both directors and executives may represent that business leaders have grown accustomed to the certainty of uncertainty. Despite insecurity caused by regulatory and geopolitical activity, the markets have shown slow but steady growth, which directors and executives seem more willing to bet on.

Looking at historical trends in director confidence, however, this first quarter jolt might not be much more than a blip. Consistently, the BCI score is most optimistic in the first quarter of the year. Throughout the rest of the year though, that optimism tends to dwindle and typically fails to reach that initial level. In 2011, Q1’s score of 64.9 lost more than one-quarter of its original value by Q3. In 2012, a similar trend occurred: the Q1 score of 60.6 dropped significantly, and each remaining quarter failed to regain such a level of confidence. In fact, in both 2011 and 2012 first quarter confidence was at least five points higher than the ensuing year’s average.

Interestingly, boardroom uncertainty may have manifested in a different metric—confidence in one’s own industry relative to the general economy. The first quarter of 2013 marks the first time that NACD’s BCI measure for overall board confidence in the market was substantially higher than the score for directors’ industries: 61 vs. 58, respectively. Since 2011, directors have scored their industry an average of 5.75 points higher than the overall index.

Although one could predict that this year will follow the observed trend of first quarter confidence dwindling through the rest of the year, several metrics show that boards may buck this trend. Setting it apart from prior first quarters, in Q1 2013, 36 percent more directors indicated their companies expected to expand their workforces in the next quarter. In comparison, those projecting to hire in Q1 2012 and Q1 2011 represented 14 percent and 16 percent declines from the previous quarters, respectively. Additionally, when asked about economic conditions in one year, directors responded with a relatively confident score of 65. The second quarter of 2013 will confirm whether this optimism is short or long term.

BCI Shows Improvement

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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.