Nearly half of all corporate directors anticipate strong employment growth in their companies in the third quarter of 2011, despite a slightly decreased optimism in the economy. These unique perspectives result from the National Association of Corporate Directors' (NACD) Board Confidence Index (BCI), a leading indicator of the health of the economy as viewed through the corporate boardroom lens.

While directors' overall confidence in the economy fell slightly to 63.1 in Q2 2011 from 64.9 in Q1 2011, the bright spot for directors came around job creation. NACD's BCI found that 48.1 percent of companies' employment activities resulted in a net gain. Companies with market capitalization between $2-10 billion led the way with 61 percent of these companies seeing net gains in employment numbers.

"Since the last BCI, we've seen terrible natural disasters in Japan and the United States, rising food and gas prices, and fears of inflation. It is not surprising that directors' confidence is shaken," said Ken Daly, president and CEO of NACD. "Importantly, that is why NACD has been so active in director education—to ensure that directors have the tools and insights to guide companies, especially through tough times."

Despite the slight decline in confidence, directors were optimistic overall with positive expectations for the next quarter, increasing slightly from 57 in Q1 2011 to 58 this quarter, though confidence in projections for the next year dropped from 69 last quarter to 67 for Q2. Larger companies—those with market capitalization of $2-10 billion and more than $10 billion—were more confident across the board about both conditions compared to a year ago and looking ahead to the next year.

"Consistent with previous BCI results, directors are still optimistic about their companies' future," said Theodore L. Dysart, vice chairman from Heidrick & Struggles. "The great news is that nearly half of all companies plan to expand their payrolls next quarter."

When asked to compare the current state of the economy compared to a year ago, directors registered a confidence index of 68 in Q2 2011, down from a level of 73 in Q1 2011. Looking at changes in conditions from the previous quarter, as opposed to the previous year, directors' confidence also dropped slightly, registering a 59 in Q2 2011 versus 61 last quarter.

"Regulatory change breeds uncertainty, which tends to mitigate confidence," said David N. Swinford, president and CEO of Pearl Meyer & Partners."As directors better understand the impact of new requirements going forward, particularly with regard to say on pay, we believe confidence will tend to increase

NACD introduced its quarterly BCI in October 2010 in collaboration with executive compensation consulting firm Pearl Meyer & Partners and leadership advisory firm Heidrick & Struggles. The report is designed to measure corporate directors' level of confidence in the overall economy as well as provide a board perspective on the state of specific industry sectors. The NACD BCI for the second quarter of 2011 reflects the views of 185 leading corporate directors about the state of the economy and their own organizations' plans for the future.

Based on five key indicators, the NACD Board Confidence Index provides a snapshot of the state of the economy from the boardroom's perspective. For each question, there were five reply options: substantially better, moderately better, same, moderately worse and substantially worse. Each option was assigned a point value: 100, 75, 50, 25 and 0, respectively. The point values are averaged for each question. Based on the scale, scores can be interpreted as follows: scores above 50 are positive about the state of the economy, scores around 50 see little change, and those below 50 are negative.