Engage, Don’t Turn Your Back
Date: August 21, 2019
Chief Executives for Corporate Purpose (CECP) has always existed to encourage companies to do more, do better. The goal of our Strategic Investor Initiative is to add bandwidth to the communications between CEOs and investors, so investors have access to a broader range of information they need to make investment decisions and companies have access to investors who will support their long-term, sustainable efforts. CEO Investor Forums, organized and hosted by the Strategic Investor Initiative, is a place to share this future-focused information.
Some companies struggle to build trust with their stakeholders. But we work with them because many are making inroads in turning that around. We feel it would limit the massive changes necessary at companies to solve global social and environmental challenges to only work with those furthest along that path. And in the same vein, we feel it would harm capital markets to limit which companies can share information at our or other public forums. Knowledge is power and with every company able to present their long-term plan, every company can answer the questions, lay out the strategies, and report progress on goals we know lead to sustainable behaviors.
A growing number of investors choose investment products that exclude specific types of companies from their investable universe. For others, they choose divestment as a signal to a company that does not match their values. When one divests, that company loses the divested capital and that relationship comes to an end. The divested individual is now on the outside with very little opportunity to advocate for change.
We see an additional path. Intentional engagement by investors with companies on long-term themes can drive value, resilience, and improved corporate practice. Investors can buy stocks of the companies they do not agree with to influence said companies, a practice many already implement. They are now owners with rights. They can vote the proxy, set up meetings, sit in the audience at a CEO Investor Forum, and so much more.
CECP encourages investors to engage companies early and often. There are productive ways to do so, which have been identified through broad investor input. Our Long-Term Plan template outlines the questions companies should answer. Our guidance encourages companies to disclose material information, in context, and to avoid “marketing speak”. And publicly presenting that plan in compliance with Regulation Fair Disclosure ensures a company will be held accountable.
In fact, when investors engage companies, they can “accelerate corporate transformation,” as stated by Bob Eccles, the world’s foremost expert on integrated reporting, CECP’s collaborator, and a leader on how companies and investors can create sustainable strategies. Eccles is currently advising Phillip Morris International, Inc. (PMI), a company that is presenting at CECP’s CEO Investor Forum on February 24, 2020. PMI is a powerful case study playing out at this moment, as it shares its plans for massive transformation in preparation for what it calls a “smoke-free future”. Some feel companies creating controversial products should cease operations. But will the market create a new company or support existing companies to fill the void and meet the demand? You bet. Will the practice of divesting solve the world’s greatest social challenges? That’s far from clear.
Isn’t PMI just the kind of company we need to have complete candor from and to make itself available to answer questions? It is the only tobacco company that has publicly made a commitment to eliminate smoking, acted on that promise, and reported on it periodically. It has bold 2025 targets including 40 million cigarette smokers quitting or switching to what it calls “reduced-risk products”. Companies in controversial industries should candidly lay out a transformation story, in the same way that greenhouse gas emitters should credibly indicate how they will manage the transition to a low-carbon economy.
We understand the realities of change. It takes time. But we ask companies to demonstrate they are on the path—to be transparent about how they are addressing questions of growth, strategy, and risk over the long-term. What is their purpose in society? How is the board engaged? Who are their stakeholders–customers, employees, investors, community, and others–and do they have a plan to meet their expectations? We can only address massive social challenges with companies, not looking in from the outside. Are you interested in hearing PMI’s long-term plan? Register for the CEO Investor Forum, here.