Far Beyond the Quarterly Call

Tim Youmans is Research Director and Brian Tomlinson is Senior Research Advisor for the Strategic Investor Initiative at CECP. This post is based on their paper Far Beyond the Quarterly Call, originally published in the Spring 2017 issue of The Journal of Applied Corporate Finance.

The structure and content of corporate communications with shareholders contribute to pressures towards short-termism. For example, the practice of issuing quarterly earnings guidance seems to reinforce short-term investment horizons. CEOs have also described short-term pressures as having intensified over the last five years, citing, in addition, the competitive environment, performance expectations from the board, economic uncertainty, and vocal activist investors as factors.

Intensifying short-term pressures are at odds with trends and evidence on the sources of corporate value:

Responding to this disconnect, CECP’s Strategic Investor Initiative has built a platform for corporate-shareholder communications that is designed to create a strategic focus on long-term value creation.

The first ever CEO-Investor Forum (held in New York on February 27, 2017) provided CEOs of leading publicly held corporations (representing an aggregate market capitalization of $600 billion) with an opportunity to present their plans to create long-term value to investors representing AUM of more than $20 trillion.

Aims of the CEO-Investor Forum:

  • Encourage innovation in corporate-investor dialogue;
  • Extend and rebalance the regular schedule of shorter-term CEO-investor communications; and
  • Catalyze the formation of coalitions of influential investors supporting long-term, multi-stakeholder value oriented CEOs—many of whom are CECP members.
Corporate leaders presenting long-term plans at the first CEO-Investor Forum:

  • Mitch Barns, CEO, Nielsen,
  • Bruce Broussard, CEO, Humana,
  • Thomas DeRosa, CEO, Welltower,
  • Anthony Earley, CEO, PG&E,
  • Vincent Forlenza, CEO, BD, and
  • Martin Schroeter, CFO, IBM. 

Investor questioners in Q&A:

Vanguard, State Street, Goldman Sachs Asset Management and Hermes (among others).

The long-term plans were presented in the format customary for periodic corporate-shareholder communications, namely a 30 minute CEO/CFO presentation, with 10 minutes of investor Q&A.

The vision of the CEO-Investor Forum is that corporations begin a cycle of delivering annual communications of their 3-5 year strategic plans, without reducing the frequency of shorter-interval corporate communications with investors. The CEO-Investor Forum can help reshape the content of existing quarterly investor communications in such a way that quarterly calls report progress on what management has identified as the short-term building blocks for achieving its long-term plan.

Criteria for effective communication of long-term plans

In our work to develop long-term plans as part of a new platform for investor-corporate dialogue, we developed evaluation criteria for the presentations at the CEO-Investor Forums through feedback from our Advisory Board and input from a large group of institutional investors (See table below).

Long-Term Plan (LTP) Evaluation Criteria
(post CEO-Investor Forum criteria)
Evaluation of 2/27/17 LTPs  Suggested Target for Future LTPs
Time spent talking about the future Half Two-thirds
Measures and plans for 3 – 5 years forward One-third of LTPs All LTPs
Significant stakeholders identified, beyond shareholders All LTPs All LTPs
Long-term capital allocation plan Half of LTPs All LTPs
ESG factors core to business strategy All LTPs All LTPs
Inspirational visionary statements All LTPs All LTPs
  • Feedback indicated that an effective presentation of a long-term plan required that at least two-thirds of the presentation should address forward-looking information. Consequently, the presentation would balance a long-term value creation story (about the past) and a long-term value creation plan (about the future).
  • Corporations should consider the appropriate metrics of long-term value against which they expect to be held accountable. We suggest that corporations evaluate measures such as the rate of investment, earnings quality, margin growth and earnings growth (as indicated in recent work by FCLTGlobal and the McKinsey Global Institute).
  • To realize the business benefits of stakeholder alignment with the interests of long-term oriented shareholders, corporations should identify their “mission critical” stakeholder sand ensure that their interests are considered in long-term strategy. Tools such as The Statement of Significant Audiences and Materiality can aide the board in structuring this thinking.
  • Measures of long-term value had to be understood in the context of the corporation’s long-term capital allocation plan, and the extent to which those are influenced by the meta-trends it faces (such as technological disruption or the transition to a low carbon economy).
  • Sustainability considerations were expected to be a core part of all business strategies. To identify financially material ESG issues relevant to investors, corporations could use frameworks such as that developed by the Sustainability Accounting Standards Board. Through telling “ESG war stories” the corporation can give investors management insight into the corporation’s approach to ESG issues.

Embedding the long-term: the future work of the Strategic Investor Initiative

The CECP Strategic Investor Initiative will convene two or more CEO-Investor Forums each year in the coming years to develop and deepen the practice of preparing and presenting long-term plans and to demonstrate their effectiveness. Our evaluation criteria will assist corporations in developing and presenting long-term plans and enabling that process to influence corporate strategy and governance.

For companies, long-term plans will provide a means for projecting management’s vision of the corporate future. For investors, long-term plans should augment the existing basis for making informed voting and investment decisions.

The intention is for CEO-Investor Forums to offer a robust and iterative process for developing and encouraging the broad adoption of long-term plans as a mainstream element in periodic corporate-shareholder communications and, in doing so, to help clarify the role of the corporation in a sustainable society.

CECP CEO-Investor Forums will take place on the following dates:

The complete publication, including footnotes, is available here.

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