Six Reasons Why Companies Should Start Sharing Their Long-Term Thinking With Investors
Companies need to be more forthcoming about their strategies for long-term value creation when they communicate with investors — especially about environmental, societal, and governance issues.
Leading Sustainable Organizations
Over the last five years, CEOs have faced mounting pressure to produce short-term profits, increasing the likelihood of management practices that reduce long-term value, such as scaling back R&D. Corporations and investors tend to blame each other for this situation. CEOs complain that investors don’t ask about the long term, and investors respond that corporate disclosures discourage engagement on long-term metrics, with quarterly calls exclusively focused on recent past performance.
But CEOs and their management teams do think about the long term. In fact, all CEOs have long-term plans, which are often detailed, extensive, and at the core of senior management’s work. To date, such plans tend to be closely held secrets, as many executives worry that competitive advantage may be undermined by detailed disclosure. Concerns around releasing forward-looking information prior to it meeting the standards required for securities filings have also given pause. As a result, corporate strategy and practice is inadequately captured in corporate-shareholder communications.
At the same time, elevated expectations about corporate contributions to society have become more common. Material sustainability issues are now broadly acknowledged as relevant to financial and operating performance. Investors have become more assertive in considering environmental, social, and governance (ESG) factors, identifying them as a potential source of long-term corporate performance.
If a subset of a corporation’s strategic long-term plans can be disclosed, CEOs may rightly ask two questions: “Why should I disclose our long-term plans?” and “How should I disclose our long-term plans?”
We offer six reasons to disclose and several suggestions about how to do it.
Why Disclose Long-Term Thinking?
1. To demonstrate that there is a long-term strategy.
Organizations oriented toward long-term value creation that better manage material sustainability issues have been shown to outperform competitors, demonstrating both enhanced resilience and ability to innovate. The investor-facing presentation of a long-term plan provides an opportunity for a meaningful conversation about continuing corporate performance involving two key elements: a long-term value-creation story (about the past) and a long-term value-creation plan (about the future).
Spending more time talking about the future corporate context does not mean less specific or meaningful disclosure. The CEO Force for Good (CECP), a coalition of more than 200 CEOs of some of the largest corporations, has launched the Strategic Investor Initiative, bringing CEOs together with large, long-term investors.