OPINION

Shifting the dialogue to the long term

On September 22, 2016 CECP, ‘The CEO Force for Good,’ will launch its Strategic Investor Initiative (SII). The purpose of the SII is to shift the conversation between companies and their investors from one about quarterly earnings to one about long-term value creation. The SII is funded by grants from the Ford Foundation and the Heron Foundation, in addition to robust support from CECP staff, CECP’s 217 member corporations (more than half in the S&P 500), and the Newman’s Own Foundation.

Based on the initial feedback received from the five-month listening tour, the SII’s initial focus areas will include:

  • CEO long-term plans that include stakeholders beyond shareholders

In order to move stakeholders, as building blocks to long term value, into the ‘CEO quarterly call’ discussion, chief executive officers  must first articulate how multi-stakeholder governance drives long-term value creation. In the afternoon following CECP’s 2017 Board of Boards, a three hour, closed-door networking discussion and Forbes-named top three “power player” event for CEOs, the SII will convene its first Strategic Investor Conference. This will be a ‘many-to-many’ engagement opportunity between CEOs presenting their long term value plans and a group of long term investment analysts. These conversations will be made public and archived and will provide insight and information needed by long-term investors.

  • Investor segmentation

Chief executive officers routinely segment customers, vendors, and other markets in order to allocate scarce resources to those segments which most efficiently contribute to long term value. However, segmenting investors is rarely done. If CEOs can promote and encourage a greater proportion of their investor base to be longer-term holders, and a smaller proportion to be shorter-term holders, it follows that the long term investor-CEO dialogue should have greater resonance. By leveraging well-established segmentation schemes such as Wharton Professor Brian Bushee’s Institutional Investor Classification system, the SII will arm CEOs with new measures of the holding term behavior not only of their own company’s investors.

  • Stakeholder mapping and disclosure

To our knowledge, no organisation has attempted to map industry-specific significant stakeholders across all industries. CECP has a multi-decade history of robust measurement and assessment in the corporate responsibility domain that can be leveraged in mapping these stakeholders. This mapping will help companies determine their ‘significant audiences’ so that their board can issue an annual Statement of Significant Audiences and Materiality (The Statement). One of the objectives of the SII is to encourage widespread adoption of ‘The Statement’ which will support a longer-term oriented quarterly call, long-term multi-stakeholder plans, and a higher promotion of long-term shareholders.

  • Cultural KPIs

In the SII listening tour, institutional investors expressed great interest in new metrics that can quantify qualitative factors such as corporate culture, so that these predominantly social factors can eventually make their way into valuation models, and as a potential antidote to greenwashing. Incorporating qualitative environmental, social and governance (ESG) factors into analysts’ models is a key focus of High Meadows Institute’s Future of Capital Markets effort. Using new ESG big data technologies such as TruValue Labs, the SII will bring to investors quantitative evidence of how corporations are working with their most significant stakeholders to create long term value.

According to Mark Tulay, director of the SII: “SII envisions a new platform for leading CEOs to develop, convey, and deliver their long-term plan to long-term investors – including specific commitments on financially material ESG factors and articulating their non-shareholder stakeholders. SII hopes to spark the movement of trillions of dollars of capital to companies demonstrating performance excellence over the long-term and will help build trust in capitalism as an engine of global prosperity,” and thus help evolve the role of the sustainable corporation in a sustainable society.

Robert G. Eccles is chairman of Arabesque Partners and Tim Youmans is research director for the Strategic Investor Initiative at CECP. They are research collaborators and global experts on materiality and integrated reporting. To learn more about CECP’s Strategic Investor Initiative, please contact Tim at [email protected]