Director Confidence Index – July 2023

July 27, 2023

Kira Ciccarelli

Director optimism climbs to highest level in 2 years

Latest survey reveals heightened optimism that the worst is now behind us, as directors bet on stabilizing conditions to permeate business in the months ahead. 

It wasn’t a surprise by any stretch of the imagination, and yet the Fed’s announcement to raise interest rates by another quarter point on Wednesday drove a wave of renewed optimism among public company board members.

Diligent Institute and Corporate Board Member’s Director Confidence Index for July finds directors’ outlook back up to levels unseen since July 2021. Prior to the announcement, directors polled had assessed their forecast for business 12 months out at 6.3 out of 10 (measured on a 10-point scale where 10 is Excellent and 1 is Poor). Post-announcement? The average rating climbed to 7.1, bringing the Index to 6.8 overall.

At that level, our forward-looking indicator is up another 5 percent since June. It is the sixth increase recorded this year (with only one loss observed in March), which is putting the Index 14 percent higher than where it started the year—and 25 percent higher than where it was at this time last year.

Directors’ assessment of current business conditions is also up, at 6.8 as well. That’s an uptick of 6 percent from prior month and the highest level since February 2022.The most cited factor for the optimism is the idea that inflation is slowing and that the Fed may have reached the end of its tightening strategy. Many also said demand has persisted through the increases in interest rates, while supply chains have stabilized and the probability of a recession is now negligible.

“After a 25 BP rate increase in September, the Fed will begin to lower the interest rate in the second quarter; the economy will begin to rebound in the second half the year,” forecasted Gaylyn Finn, who serves on the board of SB Financial Group.

Several others echoed the prediction. However, at this point, fewer directors expect conditions to continue improving in the months ahead (34 percent in July vs. 37 percent in June). Rather, 37 percent now say conditions are more likely to level off (vs. 32 percent in June) from here on out.

“Not much will happen until after the 2024 election,” said Tony Levecchio, executive chair of cybersecurity company Intrusion.

He isn’t alone in expecting next year’s election to add renewed volatility and uncertainty to the mix. Many others echoed the sentiment in this month’s poll. “There’s too much uncertainty,” said a fellow director who serves on the board of a large REIT. “While I believe interest rates will likely start to come down in early 2024, the current economic and political uncertainty will put fear into the marketplace I believe.”

A sector view 

As has been the case for the past few years, the sector plays a key part in determining the level of optimism among board members. In July, our data shows healthcare directors as most confident in their outlook, forecasting conditions for business 12 months from now to be 7.3 out of 10. Not far behind are directors in the industrials sector (7.2/10) and financial services directors (7.1)—the only two other groups where the outlook exceeds the average across sectors.

Board members in the technology sector were on par with the average, predicting conditions to be 6.8 out of 10 by this time next year.

At the other end of the scale, REIT directors offered the lowest forecast, 5.6/10, followed by directors in the consumer staples sector (6.0) and energy directors (6.2). One director in the real estate space said expectations for a quick recovery in the industry are low. “Interest rates are hampering growth and investment. Companies make capital allocation decisions a year or more out, so this will not turn around quickly if the economy starts to recover.”

For the Energy sector, one director said, to explain his forecast for flat conditions in the months ahead: “Continued government overreach is having a negative impact, costing more money, creating tail-chasing for no reason, driving up insurance and hindering valuations.”

The Fed

The Fed’s latest move may have bolstered directors’ outlook for what’s to come in the months ahead, but it is nevertheless impacting profit forecasts. The proportion of directors expecting profitability to be up by this time next year decreased by 2 percent in July, to 58 percent, as an increasing number of board members say they’re expecting profits to flatten out. A lesser proportion, however, are expecting profits to continue to shrink.

When it comes to revenue forecasts, fully two-thirds of directors are expecting revenues to continue rising (fairly unchanged since June)— 30 percent of whom expect the increase to be in the double digits.

The data shows no sizeable change in capital expenditures over the next 12 months, with a majority saying their company doesn’t plan to make any changes on that front.

About the author

Lead Research Specialist

Kira Ciccarelli is the Lead Research Specialist of the Diligent Institute, the modern governance think tank and global research arm of Diligent Corporation. In her role, Kira researches and produces high-level modern governance reports, blog articles and podcasts designed to inform director decision-making and highlight best practices.

Before joining Diligent, Kira worked in a variety of data-driven research roles, including analyzing global aid funds to the UN Sustainable Development Goals (SDGs) and compiling a meta-analysis of political experimental findings for the Analyst Institute. She holds a BA in Public Policy from the College of William & Mary.

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