Companies are being asked by both investors and customers to better articulate their plans for making a profit and doing so in a way that doesn't damage the planet. These demands are taking on new urgency as the implications of climate change become more severe and disruptive technologies transform industries.
Successful corporations endure for decades, yet tend to communicate in quarters – through the earnings call they make with some of their investors. Many long-term investors don't listen to these earnings calls, as the time-frame they address isn't that relevant to their investment outlook.
This leaves a gap in the market: long-term focused information for long-term investors. This type of information about a corporation could not be more important, both for corporations and for the societies they operate in. Investors need to understand how a corporation's management and board frame its strategy and think about applying its capital in order to respond to the mega-trends impacting its business. Can the company describe a business that is truly sustainable? Over decades, that is, not just quarters. What is needed is a "fifth earnings call" – focused on the long-term – to tell this story and help investors support it.
Talking about the long-term
A group of investors, convened by the Strategic Investor Initiative, have called for corporations to deliver long-term plans. So far, 14 leading companies representing around $1 trillion have delivered long-term plans – with many more to follow, including Unilever and UPS.
Long-term plans are a relatively "new" tool for corporations to communicate with their investors. To help them navigate providing a strategic framework for long-term value creation, this group has set out seven key questions for corporations to reflect on when they're preparing their long-term plans, so that the CEOs can help meet the needs of these crucial holders of patient to permanent capital.
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These questions highlight that, in order for a corporation to meaningfully talk about the "long-term" – which for our investors means at least five years forward – it has to address mega-trends; environmental, social and governance criteria; purpose and human capital; shareholder engagement; and the board’s role and composition.
Several companies that have presented at CEO-investor forums have sought to address these issues. Mark Bertolini of Aetna dealt with the culture of health and pay-equity for employees as keys to long-term business performance. Kevin Clark of Delphi highlighted how the major disruptions of the Fourth Industrial Revolution were causing major shifts in technology and human capital investments, as AI and electrification changed the nature of the automobile as we know it. Vince Forlenza of Becton Dickinson described how capital allocation and business-relevant stakeholder investments were the keys to the long-term success of his business.
To succeed in an economy of extreme disruption and environmental uncertainty, corporations need to think long-term and to communicate this thinking to their investors. Constructive and regular dialogue about the long-term will achieve the best results – both for investors and corporations and the societies in which they operate.
The seven questions for CEOs
1) What are the key risk factors and mega-trends (such as climate change) your business faces over the next three to seven years, and how have these influenced corporate strategy?
2) How do you identify your financially material business issues and which frameworks do you use for reporting on these issues?
3) How do you describe your corporate purpose and how do you help your employees share your vision for the company’s role in society?
4) How do you manage your future human capital requirements over the long-term and how do you communicate your future human capital management to your investors?
5) What is the corporation’s framework or strategy for interacting with its shareholders and key stakeholders?
6) How will the composition of your board (today and in the future) help guide the company to its long-term strategic goals?
7) What is the role of the board in setting corporate strategy, setting incentives for and overseeing management?