Winter is Coming. Is Your CEO Prepared?

By Michael Rosen Head of Capital Markets Engagement, CEO Investor Forum, CECP

Last week, I spoke on a NIRI Webinar, Leveraging the Power of Retail Investors: Your Company’s Invested Ambassadors. During the conversation, my fellow panelists and I delved into the challenges and opportunities faced by Investor Relations Officers (IROs) seeking to engage with this critical stakeholder group and explored the context and reasons why the retail investor will continue to become an increasingly important stakeholder for issuers. This discussion had a direct connection to my team’s work at the CEO Investor Forum. As a recovering sell side Corporate Access professional, I now help the IR community prepare for a coming paradigm shift in the capital markets. 

The foundation for this new paradigm has been building for years. As the next generation continues to play a more significant role in the economy, its expectations for companies and their role in society will inevitably change. The Purpose Generation (1), which already represents 50% of the U.S. workforce (2), believes business has a responsibility to be transparent about its values, make a positive contribution to society and align financial performance with its principles and corporate purpose. They are one of the fundamental drivers of the changing tide upending the sole focus of capital markets on just shareholders to now also include other key stakeholders. While there is early evidence that some companies are beginning to adjust their focus, today’s CEOs and IROs are not adequately prepared for this coming tsunami.

As this more just form of stakeholder capitalism takes hold, shareholders will continue to be one of the most critical stakeholders. However, corporate executives will also need to consider their strategy against a broader set of key stakeholders to deliver long-term value including employees, customers, suppliers and communities. As a result, the IR community will need to reassess its investor communications strategy, evolve its external engagement practices and identify the strategy that best balances the interests of all its key stakeholders.

While stakeholder capitalism has been a theory for decades, it has gained traction over the past few years:

  1. February 2017: At CECP’s 12th Board of Boards closed-door gathering of 50 CEOs, 86% admitted that the short-term expectations of the capital markets had prevented them from managing their businesses for the long-term. Specifically, these executives admitted that they would often forego investing in the short-term to yield a positive impact on society and shareholder value over the long term just to meet the short-term earnings expectations of the capital markets.
  2. August 2019: Approaching its one-year anniversary in August 2020, the Business Roundtable (BRT) updated its Statement on the Purpose of a Corporation. The Statement suggests that today’s CEOs are increasingly realizing that the conditions to have a license to operate are changing rapidly. In the BRT’s Statement, J.P. Morgan Chase CEO, Jamie Dimon and 180 of his peers formally acknowledged that in addition to generating profits for shareholders, a business can, and should also be a force for good by considering a broader range of stakeholders – not just shareholders but also employees, customers, suppliers, and communities.
  3. January 2020: Stakeholder capitalism arrived in Davos this past January with the theme, “Stakeholders for a Cohesive and Sustainable World.”
  4. April 2020: Even the U.S. Securities and Exchange Commission has entered the fray by encouraging the corporate issuer community to communicate more long-term, forward-looking disclosures for stakeholders.

The bottom line is the long-term view is becoming increasingly important to all stakeholders, including shareholders. To effectively communicate a company’s long-term strategy in this new era, IROs and their management teams will need to develop more long-term, forward-looking disclosures. In doing so, this transparency will not only allow investors to have more confidence in how the business will be managed over the long-term, but it will also prove useful to other key stakeholders seeking to assess whether corporations are thinking about their responsibilities over the appropriate time horizon.

Winter is coming for shareholder capitalism. Is your CEO prepared to communicate her long-term strategy to investors and key stakeholders? Or, will he be a laggard in the purpose-driven economy of the future? Contact me to learn how the CEO Investor Forum can prepare your CEO for this new reality and help her refocus investor expectations from short-term earnings to long-term value creation.

 

1 Korn Ferry: Millennials: The Purpose Generation

2 The Case Foundation: Millennial Engagement

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