Directors cite tight labour market as biggest impediment to NZ's Economic performance

Forty-three per cent of directors expect the country’s economic performance to weaken over the next 12 months, the Institute of Directors (IoD) and ASB’s 2018 Director Sentiment Survey has found.

The annual survey found that only 17 per cent of directors expect New Zealand’s economic performance to improve. The remaining 40 per cent expect performance to remain unchanged.

But directors are more confident about their own organisation’s performance – 52 per cent expect it to improve.

ASB Chief Economist Nick Tuffley says the survey is one of a number in recent months that reflect falling business confidence.

“However, at a high level, the global growth outlook remains firm and supportive of the New Zealand export sector and, domestically, a number of supports remain in place. Weak business confidence risks holding back investment by businesses.”

Sixty-one per cent of directors cited labour quality and capability as one of the biggest impediments to national economic performance; 28 per cent identified it as the biggest risk facing their organisation.

As the New Zealand economy has grown, firms are finding it difficult to attract and retain employees.

IoD Governance Leadership Centre General Manager Felicity Caird says boards have a key role in strategic talent management.

“Regarding workforce capability and the future of work, it’s good to see that 66 per cent of directors said their boards had discussed the impact of technology, automation or artificial intelligence on their organisation in the last 12 months.”

Ethics and culture

The survey’s findings on ethics and culture are timely, following the release of the Bank Conduct and Culture Review by the FMA and Reserve Bank of New Zealand on November 5, which again highlighted governance of conduct risks. Conduct risks are the risks of how people behave.

The survey found more boards have assessed ethics risks since last year – 55 per cent compared with 44 per cent last year. And more have also discussed whistleblowing and effective speak-up provisions – 44 per cent compared with 32 per cent last year.

“This is a positive development,” says Felicity Caird, “although more work is still needed.

“We moved this year to highlight ethics and culture as one of our key educational themes. The Institute of Directors is committed long term to driving excellence and high standards in governance.”

All boards have a core role in overseeing corporate culture, conduct risk and setting high standards of ethical behaviour. “They need to think beyond compliance, take the lead and set the tone.”

Conduct risk such as fraud, corruption, bribery, sexual harrassment and unethical behaviour can cause significant financial and reputational damage.

“By building good conduct into their business models, boards will focus on long-term sustainability, good customer and shareholder outcomes, and a healthy culture for staff.”

Increasing business complexity

The survey also found that only 57 per cent of directors think their board has the right capabilities to deal with increasing business complexity and risk. Only 33 per cent think their board is equipped with the right capability to lead their organisation’s digital future. But there has been a lift in the number of boards discussing succession planning.

“Boards are operating in a complex and dynamic environment characterised by a fast rate of change.

“As new technologies change the way we work, the way that organisations are lead and governed is also evolving. It’s critical that organisations ensure that they have the necessary capability to deliver future strategy,” says Felicity Caird.

Despite an increased focus globally on the importance of data governance and data breach reporting, only 47 per cent of directors received comprehensive reporting about data risks and incidents.

And only 29 per cent of boards were engaged and proactive on climate change. “We expect this to increase in light of the release of the Intergovernmental Panel on Climate Change, the introduction of a Zero Carbon act and initiatives such as the Climate Leaders Coalition,” says Felicity Caird.

The online survey of IoD members in late September to early October had 936 responses.

Read the 2018 Director Sentiment Survey report

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