Australian directors identify workforce shortages and cyber security as top economic challenges

The Australian Institute of Company Director’s (AICD) latest Director Sentiment Index (DSI) has revealed that workforce shortages and cyber security are emerging as the top post-pandemic concerns for Australian directors.

The second DSI of 2021, which surveyed more than 1,600 directors and was compiled by research firm Roy Morgan, reveals that overall directors have a bullish outlook for business and the economy.

More than two-thirds of directors are confident the country’s 12-month economic outlook is strong and half of all directors see strong Australian business conditions currently. In 12-months time, 64 per cent believe business will be on sure footing, with positive indicators like investment, turnover and profits expected to grow.

While the overall outlook from directors is positive, key challenges are emerging for the post-COVID era.

Directors have identified workforce shortages as the top economic challenge facing Australian businesses, above COVID-19, climate change and Australia’s relationship with China. 

Climate change remains the top short- and long-term priority for the Federal government, according to directors. Skills shortages are the second highest area for short-term government focus, with over half (55 per cent) of directors facing workforce shortages and many directors (63 per cent) saying their organisation has already been affected by the issue.

AICD Managing Director and CEO, Angus Armour, said, “The impact of COVID-19 was always going to be long-lasting and unpredictable.

“The vaccine uptake and the re-openings have given considerable optimism for the year ahead but there are challenges on the horizon. Some are borne of the pandemic while others have been looming concerns that have now been exacerbated, like workforce shortages.

“There are many factors at play that will need a whole-of-government approach to tackle Australia’s skills shortage. Our closed borders saw a lack of migration and backpacker-workers but there are other issues at play, such as considering our education and training priorities.”

The DSI revealed that cyber crime and data security is the top issue keeping directors awake at night with only 53 per cent of directors saying that their board has sufficient oversight of cyber security threats to their organisation.

Directors also identified cyber security as an issue that has been impacted by flexible working arrangements alongside organisational culture. However, working-from-home, they say, is better for staff health and wellbeing, staff retention and attracting new staff.

Mr Armour said, “There is a relatively new challenge here for directors as we navigate flexible working arrangements post-COVID. Businesses now need to balance the needs of attracting and retaining staff with that of managing cyber risk and overseeing organisational culture.”

Once again, climate change was prominently featured in the DSI with almost half (48 per cent) of directors saying it should be Canberra’s most important priority over the next three years. This rises to 59 per cent when considered over the next 10 to 20 years.

Tying closely in with concerns over climate change, the top priority for public infrastructure investment should be in renewable energy sources, say 70 per cent of directors. While, 60 per cent of directors support an emissions trading scheme.

As similarly reflected in the AICD’s recent Climate Governance Study, nearly half of directors surveyed say uncertainty around climate change policy settings is the key barrier for their organisation when it comes to climate governance. The AICD recently launched the Australian Chapter of the Climate Governance Institute, to support climate governance capacity with resources and research.

While a majority of directors view the current Australian economy as buoyant, with 58 per cent believing it’s in a strong position and 64 per cent saying business conditions are strong over the next 12 months, across Australia, directors have quite different perspectives on their state’s current and future economic health.

Currently, Western Australian directors are the most optimistic, with eight out of 10 directors confident their state will do well economically in 2022. Meanwhile, 30 per cent of Queenslanders have a gloomy outlook for their state economy - the highest proportion in the country.

The AICD’s Chief Economist, Mark Thirlwell, said, “Overall, director sentiment is well into positive territory and shows that directors are anticipating a strong recovery. According to the DSI, our respondents are expecting increases in employment, investment, turnover, profitability and wages over the year ahead. Granted, our survey closed before news broke of the Omicron variant. But the good news is that it suggests that economic and business conditions were enjoying some substantial momentum as the year drew to a close. 
 
“There are some significant variations in the results across states and territories, but this is not a surprise.  The DSI was in field between 28 October and 8 November, and New South Wales, Victoria and the ACT had all only exited from lockdowns earlier in October.”  

Other key findings from the Director Sentiment Index (Second Half 2021) include:

• 73 per cent are seeking to increase skills diversity on their board.
• 76 per cent say business should make COVID-19 vaccines mandatory for staff in their sector.
• 59 per cent of directors agree their board is seeking to increase diversity in digital capability and technology.
• Across the major states, trust for State Government is highest in NSW and South Australia.
• Sentiment towards the economies of the United States and Asia (excluding China) are positive for the next 12 months, but only 35 per cent believe Europe will be in a strong economic position.