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EXECUTIVE PERSPECTIVE: CEOs creating value with long-term plans

Shari H. Littan

08 Nov 2018

CECP’s CEO Investor Forum:  Creating value by communicating long-term plans

Business sustainability leaders cite short-termism as a significant challenge.  Corporate chiefs express frustration that investors demand information that narrowly emphasizes short-term performance.  Conversely, vital investor constituencies criticize executives’ hesitation to share specifics on long-term value creation.

To enhance this dialogue, on September 20, 2018, CECP: The CEO Force for Good, a New York based not-for-profit, through its Strategic Investor Initiative (SII), held its fifth CEO Investor Forum, part of its innovative efforts to refocus attention to the value of long-term corporate plans.  The conference featured presentations by three corporate executives:  Emma Walmsely, CEO, GSK; Mauricio Gutierrez, President & CEO, NRG; and Martin Schroeter, SVP of IBM Global Markets.  Through these ongoing events, CECP aims to facilitate disclosure by CEOs to an audience that CECP’s CEO Daryl Brewster described as “patient capital.” This information exchange fundamentally differs from the quarterly earnings calls where active traders’ interests predominate.

Since CECP’s launch in 1999 by founders who include actor and philanthropist Paul Newman, the organization, with its mission to promote business as a “force for good,” has grown into a coalition of more than 200 CEOs who have expressed interest in its pioneering approach.  The September 2018 event hosted over 2,500 in-person and web-based attendees, primarily members of the investment community that collectively represented over $45 trillion in assets.  About half of the attendees at this fifth forum were first-time participants, which shows that interest in CECP and SII’s novel approach is gaining serious attention.

Led by Vanguard Chairman Bill McNabb and Johnson & Johnson President & CEO Alex Gorsky, along with a collaborative Advisory Board, SII’s core program includes a set of research-based guidelines on the content of a long-term plan presentation.   These guidelines, which generally call for a five to seven-year (or longer) horizon, outline three key elements:  growth, strategy, and risk.  More specifically, the guidelines suggest presenters include, for example, the operational effects of expected industry transformation, specific metrics or milestones to monitor plan effectiveness, capital allocation, the role of the board in monitoring long-term planning, mega-trends that raise material financial risks, and the identification of ESG factors.  The actual forum presentations reflect many of the elements suggested in the guidelines.

For example, Walmsely summarized GSK’s purpose of helping people “do more, feel better, live longer” amid worldwide concerns about affordability, data privacy, and access, particularly in the developing world.  Gutierrez addressed NRG’s ongoing multi-year diversification, adding retail delivery and renewable supply to its traditional power generation.  Stressing that the cost of renewable energy has dropped and will continue to fall, Gutierrez touted NRG’s decarbonization accomplishments and expectation of reducing emissions ahead of its 2030 plan.  Schroeter underscored IMB’s 102-year history of dividend payments and described the company’s transformation from its historical roots as a hardware producer to a provider of software and worldwide virtual data services.

Each company focused on sophisticated data usage as a growth driver, such as GSK’s development of gene-based pharmaceutical therapies and NRG’s targeting of customer-driven options for electricity delivery.  In these contexts, each speaker referenced the importance of agility and the value of finding and retaining diverse talent.  Walmsley emphasized her perspective of a CEO’s fundamental role:  guiding the company’s culture and encouraging thousands of employees to adopt and implement these long-term plans, particularly its priority on research and development for new medicines, which can result in greater short-term costs but is the engine of GSK’s long-term value creation.

With respect to governance, Gutierrez specifically referenced the recent additions of board members with consumer-based expertise, efforts to increase board diversity, and the implementation of compensation metrics that align with the company’s transformational objectives.

Each presentation underscored concepts of trust, accountability, and transparency.  Nevertheless, measurable indicators of trust remain a tenuous pursuit.  As presenter Erika Karp, CEO of Cornerstone Capital opined in a presentation about the quality of available ESG data, “G” can be considered the most important of the E-S-G factors, because it demonstrates active steering of material issues, including environmental risk and social performance.  Participation in the CEO Investor Forum with the purpose of publicly disclosing a long-term corporate plan indicates a willingness to enhance transparency.

There is some evidence that CECP and SII’s approach is yielding benefits.  Dr. George Serafeim (Harvard Business School) presented preliminary research that was co-authored with KKS Advisors colleague Christina Rehnberg (KKS Advisors) and SII Research Director Brian Tomlinson. This work revealed some positive market trends by companies whose CEOs presented the most comprehensive and detailed long-term plans at the first four CEO Investor forums.  This research, moreover, indicates no down-side effects for presenting a long-term plan.

SII Director Mark Tulay explained that the organization’s collaborative information exchange is an evolving process.  Quoting Ben Franklin’s anecdote about the value of a whistle, Tulay summarized the overall goal: avoiding the “miseries of mankind” brought about by making “false estimates of the value of things.”

Shari Littan CPA, JD is an Editor/Technical author for Thomson Reuters GAAP Reporter on Checkpoint.  She regularly contributes to Thomson Reuters thought leadership on sustainability-related corporate disclosure.

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