Covid response bears fruit, economic outlook challenging

One in four directors say responding to Covid-19 has improved their organisation’s performance over the past 12 months, according to the Director Sentiment Survey 2022.

Produced by the Institute of Directors (IoD) in association with ASB, the survey takes the pulse of New Zealand’s governance community to identify issues and challenges.

“It is encouraging that a full quarter of respondents feel their pandemic response is now bearing fruit for their organisations, beyond simply riding out the storm,” says IoD Chief Executive Kirsten Patterson CMInstD.

“This finding demonstrates the value of the hard work put in by directors – and their management teams and staff – to find new, better ways to operate. Good governance can help make the best of a bad situation.”

Perhaps unsurprisingly, the survey found Covid-19 has continued to have an overall negative impact. Fifty-six percent of directors said it had adversely affected their organisation’s performance, but this was down from 61% in 2021 and 60% in 2020.

“While we are currently watching closely as the latest Covid-19 wave impacts, in the survey just 14% of directors saw Covid-19 as one of the top three impediments to New Zealand’s economic performance,” Patterson says.

Sixty-eight percent of directors expected New Zealand’s economic performance to decline over the next year, which surpasses the survey’s previous high of 63% back in 2020, and is a significant jump from 51% in 2021.

Directors said “labour quality and capability”, “supply chain disruption” and “immigration policy” were the top three issues facing the economy.

Inflation – in part driven by global supply chain disruption triggered by the virus and the policy stimulus that helped the economy ride out the early stages of the pandemic – was another concerning factor. New Zealand’s annual inflation rate was 7.2% in September, and hit a 32-year high in 2022.

“Covid-19 directly created huge economic upheaval, with flow-on effects continuing to bubble through. A lurch to record-low interest rates has been supplanted by rising interest rates. Inflation is back with a vengeance and wages are being driven up by labour shortages,” says ASB Chief Economist Nick Tuffley.

“Economic uncertainty has long been a fact of life, but the past few years have brought huge volatility. Directors need to ensure their organisations have strategies that are resilient to – or readily adaptable to – changes in the economic environment.”

This negative expectation for the economy was not mirrored in expectations for directors’ own organisations. Fifty percent expect their organisations’ performance to improve over the coming year.

“Directors tend to feel a greater degree of control and influence over their organisations than over the country, which undoubtedly influences optimism levels,” Patterson notes.

“While the range of global and national uncertainties influencing the New Zealand economy is broad, the range facing individual organisations is generally narrower.”

Other major concerns for directors that emerged from the 2022 survey were climate change, changing community expectations and the need for boards to prepare their own capabilities for an uncertain future.

Increasing expectations for transparency from stakeholders and shareholders in areas such as climate change reporting and supply chain transparency, as well as emerging issues around organisational culture, values and trust, were now firmly on the board agenda, Patterson says.

“Values and beliefs are increasingly influencing how and where people shop, who they work for, and where they invest. With changing customer and community expectations, particularly around climate change and environmental, social and cultural impacts and outcomes, organisations are reflecting on their purpose, value proposition, social license to operate and business model.

“In terms of staff, boards have talent and people capability in their sights more than ever. Eighty-seven percent of directors say their boards are having strategic discussions on talent.”

One note of concern to Patterson was that a significant proportion of boards do not appear to be sufficiently prepared for a digital future.

“Just over half of directors (54%, down from 60% in 2021) reported their boards’ regularly discuss cyber risks and are confident their organisation has the capacity to respond to a cyberattack. There is a ‘it won’t happen to us’ sentiment evident from the survey. Only 46% (down from 51% in 2021) are regularly discussing the organisation’s privacy practices and risks,” Patterson says.

“Further, only 37% of directors reported their boards have the right capability to lead their organisation’s digital future and less than half of directors (49%) say their board has assessed the impact of technology on their organisation, their workforce and future skill needs.”

Patterson says boards have many pressing issues competing for attention and the reduced focus on technology likely reflects this. “Technological disruption was only perceived as the biggest risk facing organisations by 8% of directors.”

This was the ninth annual survey of IoD members and had 964 responses (around 10% of the IoD’s membership). See the full Director Sentiment Survey 2022 report. 

For more information, please contact:

Aaron Watson
IoD Communications Team
021 144 9016
aaron.watson@iod.org.nz