Canadian corporate directors have a cautious outlook on the Canadian economy in the near term.
In a survey commissioned by the Institute of Corporate Directors (ICD), only 34% of survey respondents believe the Canadian economy will improve over the next two to five years. That’s down from 52% in a fall 2017 survey.
While uncertainty over NAFTA negotiations may be a contributing factor, concern about Canadian political stability may be even more influential, says ICD in a release.
The proportion of directors who feel NAFTA won’t be renegotiated successfully remains steady at 51%, but there was an increase in respondents worried about Canadian political stability, with 34% saying it will worsen in the next two to five years—up nine percentage points in six months. Potential contributing factors influencing this sentiment include interprovincial political and trade disputes and populist challenges to incumbents in upcoming provincial elections.
An EY survey on capital allocation and Canadian competitiveness likewise paints a cautious picture of the Canadian economy. In that survey, 61% of respondents agree that U.S. tax reform will have negative repercussions for the Canadian economy. Further, 51% believe their U.S.-based competitors may now have an edge when it comes to competing for new business.
In contrast, only 24% of respondents to the ICD survey view recent U.S. corporate tax cuts as having a negative impact on their organizations. The survey, quoting a respondent, says, “The reduction in U.S. corporate tax rates is somewhat positive because we are actively eyeing expansion into the U.S.”
For EY respondents, concern isn’t focused solely on the Trump administration. Executives are equally concerned about recent changes to Canadian tax, regulatory and fiscal policies, with 59% citing their potentially negative impact on Canadian companies and, for 61%, the overall economy.
In a release, Fred O’Riordan, national tax policy leader for EY, says, “The response of the federal government to these concerns, and the speed of that response, will dictate how competitive Canada will remain in the short term, and could have a significant impact on business leaders’ decisions to recruit and retain, or even remain in Canada for the long term.”
Given that boards approve major capital spending, the drop in economic confidence could have important implications for the Canadian economy in the near- and mid-term, says the ICD survey.
That survey finds that more directors are confident in the global economy, but this number also decreased from fall 2017, to 38% from 43%.
Other headwinds for business
Rising interest rates are also a top concern for the majority of Canadian directors.
The ICD survey finds that 58% of respondents expect rising rates to have a negative impact on their organizations.
Minimum wage increases were also viewed negatively by 41% of respondents, but more than half felt that the increase would have no impact.
Trust and workplace culture
An overwhelming majority (90%) of directors in the ICD survey say trust is the defining feature of their organizations’ success, and virtually all respondents say their boards influence their organizations to make a positive impact on society (with only 1% disagreeing).
Workplace culture is also a top concern, with three-quarters of respondents either having a process in place for the oversight of workplace culture or having discussed creating a process.
Though 67% of respondents reported their organizations have considered workplace diversity and harassment in the context of organizational strategy, they were less likely to have considered the impact of worker displacement due to technologies such as AI and machine learning. In fact, 54% of those surveyed had not discussed worker displacement as it related to their organizational strategy.
About the ICD survey: ICD commissioned Environics Research to oversee an online survey of its membership, conducted between March 7 and April 4, 2018. A total of 584 responded to the invitation, yielding a response rate of 4.7% overall. A sample of this size produces results that can be considered accurate to within +/-3.8 percentage points, 19 times out of 20.
About the EY survey: Conducted in spring 2018, the survey gauged the reactions of 165 business leaders on a host of policy developments. The C-suite executives represented companies of different sizes, sectors and Canadian regions.