Investors looking to companies for a longer-term view
While I was on the road for Center business a couple of weeks ago, I caught BlackRock CEO Larry Fink on Squawk Box. Fink is bullish on U.S. equities. With $4.4 trillion under management, he is someone who a lot of investors listen to, whether they agree with him or not. The panel of Squawk Box interlocutors was discussing with Fink how our dovish Fed is dampening volatility (and trading volume) in the markets, reducing the opportunity to make quick money. Fink’s position in this conversation caught my attention. “Lack of volatility is not an investor problem,” he said, “It is a trader problem.” During the 20 minutes or so I watched, Fink talked about a longer-term perspective as being important to the future of our national and global economy—promoting longer-term corporate governance, public and private capital investments, and public policy. He and others have noted that many large corporations are sitting on a lot of cash that can be put to work to create more business value and more social good.
This narrative is one that is becoming more pervasive among greater numbers of mainstream investment managers. This is a time of opportunity for well-prepared corporate citizenship professionals. Those of you who have done the work to understand your material business risks and opportunities understand the necessity and power of long-term view—and of long-term plans. Important investments like the innovation of green technologies, and the fights to promote access to education and build a well-prepared and engaged workforce, can’t be accomplished quickly. It can be frustrating at times to execute these larger goals when demands for short-term results—from customers, executives, and investors—seem to intensify daily.
The value placed on short-termism is not new. Nor are the arguments against it. Notably, Andrew G. Haldane and Richard Davies argued for a shift in perspective in their 2011 paper, “The Short Long.” Fink and his compatriots have been challenging investors to embrace longer-term investments, and—importantly—urging companies to help change our valuation horizons by better explaining strategies for long-term value creation and making clear their planned steps to success. Quarterly earnings have been the standard for success since the mid-70s. The market responded on a longer-time horizon before then and it may be time for us to think about how we need to change the way we operate and think about value-creation.
Companies, the investment community, and regulators all have a role to play in this effort. Corporate citizenship professionals are in a unique position to help drive this change by outlining the benefits of slower, more sustainable growth. Below are four areas to consider as you work to promote long-term strategies.
Understand and report on the value of your work
You work in corporate citizenship, so it’s a given that you spend time doing good work, but how much time do you spend letting people know? Stay on top of the trends in this space. We know that transparent reporting—in all aspects of business—makes organizations more attractive to investors, as the liquidity of transparent firms is more predictable. We also know that socially responsible firms are more likely to deliver transparent and reliable information to shareholders. Investors are hungrier than ever for environmental, social, and governance (ESG) information (if not because they are making values-driven investments, then because they increasingly see this practice as a proxy for good management), and will work to get that information, according to a recent study authored by Institutional Shareholder Services Inc. So, are you keeping up with the trends in reporting to make sure you’re delivering your message in the best way possible? What more can you do to educate your stakeholders?
Invest in insurance against risk
Corporate citizenship positively impacts economic performance. Efforts to improve ESG dimensions of business lower the cost of equity for companies, and perhaps more importantly, can lower stock risks by strengthening shareholder “goodwill,” generating consumer loyalty, employee satisfaction, and good relations with suppliers—all of which may strengthen a company against unexpected crises or pitfalls. On the flip side, organizations that engage in socially detrimental activities are, in fact, actively weakening shareholder goodwill, and dissolving the trust that long-term initiatives depend on for success.
Keep the horizon in mind
Successful long-term growth relies not only on clearly analyzing the present, but also on acknowledging and preparing for the future. Staying informed about emerging policy discussions is vital in this dynamic age. How is your company positioned to meet these requirements? Will you lead the charge or will you play catch up? Keeping in mind that investors are more interested in corporate citizenship than ever (former U.S. Treasury Secretary Robert E. Rubin urged the Security and Exchange Commission to require companies to disclose climate-related risks earlier this month), preparing to contend with change and managing issues NOW is not only smart, but will help you stay ahead of the game as new requirements unfold.
The success of any long-term plan hinges on careful planning, sound strategy and engaged employees. Do your employees and colleagues have what they need to meet new goals? Are they even AWARE of your goals? How do you plan to attract and retain top talent? Do you have processes in place to engage your aging workforce? To better prepare the next generation of talent? To prepare your suppliers to meet your changing needs?
Consider your part
The shift toward longer-term investment must involve companies—companies that value the economic and social benefits that can be realized when we stop living quarter-to-quarter, and start planning for the future we want to inhabit.
Are you leveraging corporate citizenship efforts create long-term value for your company? Tell us all about it here! We will invite contributors to guest blog or article in our Fall magazine.