Topics:   Corporate Governance,Corporate Social Responsibility,Investor Relations,Leadership

Topics:   Corporate Governance,Corporate Social Responsibility,Investor Relations,Leadership

February 7, 2019

Leading Businesses Embrace New Role: Creating Long-Term Value Through Purpose

February 7, 2019

Board members don’t need another tome outlining the uncertain times in which their companies find themselves. What they need is a road map to guide their companies in sustainable value creation, which, in a sense, future proofs their business strategies.

Uneasy markets? Global political uncertainty? Environmental issues? These are all mega trends, risks, and opportunities for boards to assess and monitor. Are your company’s senior leaders developing a three- to seven-year plan demonstrating how they are a step ahead of known issues? When long-term business plans with forward-looking strategies for sustainable value creation are made public, investors take notice and move markets.

On behalf of CECP and the Strategic Investor Initiative (SII), we support a coalition of leading companies and investors committed to reorienting capital markets toward the long term. SII does this in four ways:

  1. Convene CEO Investor Forums to provide a venue for CEOs to share their long-term strategic plans with audiences of long-term investors.
  2. Share research on insights from the Forums.
  3. Provide answers and perspective to boards engaging on these issues.
  4. Assist companies in developing and communicating long-term plans, based on cutting-edge research. 

What Information Matters to Patient Capital Investors?

CECP’s guidance is rooted in the material issue areas that companies should share with investors, identified through investor feedback and CECP research, building toward consolidation and comparability. Through these long-term plan presentations, leading CEOs are setting examples for peer firms to follow.  

CECP provides long-term-plan support to the nearly 30 CEOs of companies with a market cap of $2 trillion and beyond who are presenting at SII’s CEO Investor Forums. They present to audiences of 200 institutional investors representing $25 trillion in assets under management.

The hallmark of CECP guidance is their Investor Letter, signed by us and a coalition of investors, including CalSTRS, Vanguard, BlackRock, andState Street Corp., which builds on the related work of FCLTGlobal and the New Paradigm for corporate governance. The letter shares the collective agreement by these investors about what constitutes a long-term view, and what should be shared with investors in the areas of growth, strategy, and risk.

Each company responds to CECP guidance in different ways, but CECP and George Serafeim from Harvard Business School and KKS Advisors studied the economic significance of plans presented at the CEO Investor Forum to date and found that when specific information is shared in nine key areas, it moves markets:

  1. Financial Performance
  2. Capital Allocation
  3. Trends
  4. Competitive Positioning
  5. Risks and Opportunities
  6. Corporate Governance
  7. Corporate Purpose
  8. Human Capital
  9. Long-Term Value Creation

For investors to get the most out of these presentations, CEOs should disclose forward-looking metrics on these subjects, rather than backward-looking data or boilerplate language. A key investor expectation is meaningful, future-focused information about corporate governance arrangements, particularly around the board’s involvement in setting long-term strategy and the extent to which board composition and executive compensation are aligned with that strategy. Such commentary can be a powerful supplement to proxy statement disclosures, and it enables long-term investors to have confidence that corporate governance arrangements are fit for future purpose.

What’s the Role of the Board?

Is your company sharing economically significant information with investors who are looking to invest in companies creating sustainable value? Here are the actions you can take with your fellow board members and senior leaders at your company to improve the quality of that communication:

  • develop a long-term plan and inform a new way to look at the company’s long-term, three-to-seven-year strategy.
  • long-term plan. CECP outlines the key questions through detailed, company-specific conversations and shares leading practices.
  • CEO Investor Forum. The event is at capacity for February 25, 2019, with the CEOs of AmerisourceBergen, APTIV, Equinix, JetBlue Airways, and Nestlé presenting, but CEOs are still being accepted for the May 8, 2019, event in Chicago. Or encourage the presentation of the company’s long-term plan in a way that fits your company’s cadence—investor day, annual letter, or a designated call.

Contact CECP to learn more.

McNabb is a former chair and CEO of Vanguard, and cochair of CECP’s Strategic Investor Initiative. Brewster is the CEO of CECP: The CEO Force for Good.

Comments

James NortzMarch 21, 2019

Dear Daryl,

I'm writing a book entitled "An Executive's Guide to Ethical Excellence." The book will provide nuts and bolts guidance on specific steps directors can take to promote and monitor a strong ethical culture. I'd welcome the opportunity to connect with you directly to learn what techniques you've seen boards use in order to achieve this objective. Please feel free to contact me via my email address above to let me know when you have time for a quick call.

Kind regards,

Jim N.