Seeking an authentic voice from the company about how purpose and profits are interlinked.
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Imagine an ‘earnings call’ where neither the CEO nor the CFO make a call on what they think their earnings might be next quarter but instead talk about their three- to five-year long-term plan. Imagine an ‘earnings call’ where the CEO and the CFO talk about the future prospects of the company rather than what happened in the last three months.
Investors who are members of the Strategic Investor Initiative (SII), part of the CECP CEO Force for Good, have already experienced such an earnings call. Several of them, in fact. CECP was founded in 1999 by actor and philanthropist Paul Newman and other business leaders to “create a better world through business” and has been running investor forums where CEOs can do just that.
At the first forum in February this year, shareholders with over $25 trillion in AUM listened to the CEOs of Citi, healthcare company Humana and the CFO of IBM, among others, talk about their long-term plans. It’s going to happen again on 19 September with long-term plans with the CEOs of Aetna, Delphi, Allstate and Prudential Financial presenting. And in February next year, Ken Frazier, CEO of Merck, one of the first CEOs to have left Trump’s American Manufacturing Council, will be presenting the company’s long-term plans for sustainability and sustainable value, joining CEOs from Johnson & Johnson, Unilever and others.
They will be listened to by senior executives from BlackRock, State Street, Vanguard, Wellington, MFS, Goldman Sachs and more.
To find out a little more about this somewhat revolutionary development in ‘earnings calls’, I spoke to Tim Youmans, Research Director for SII and Mark Tulay, Director at SII. I asked Youmans what were the main conclusions of the first forum. He said: “We have outlined some of the evaluation criteria in a Journal of Applied Corporate Finance paper that came out in July.
Long-term investors would like to see CEOs spending more time talking about their future story, talking about their long-term capital allocation plan, and, within the long-term capital allocation plan, to focus on ESG factors, especially laying out long-term measures for five years ahead in every single presentation. That’s what we’re trying to achieve.”
Tulay added: “We also are pushing CEOs to explain how they determine which ESG factors are financially material and why. And provide more of the story behind this, because we believe it’s better for a company to tell its story of long-term sustainable value creation. We’re trying to drive a race to the top, and for CEOs to provide the disclosures that Vanguard, State Street, BlackRock and others are seeking. What we’re looking for,” he continued, “is not CEOs speaking from scripted, teleprompter speeches, but an authentic voice from the company about how purpose and profits are interlinked. We don’t want to be overly prescriptive, but we want to drive comparability between these so that investors can get more value; we’re trying to find the sweet spot between those two. We found that CEOs really want to step up to this; they want to stand out and stand up.”
I asked whether CEOs were concerned about being ‘the first’ to disclose their long-term plans. “Gillian Tett from The Financial Times,” said Youmans, “asked Vanguard’s Bill McNabb, the new co-chair of our advisory council: ‘In your portfolio, if you had to list the saints, who would they be?’ He replied: ‘It’s not the majority, it’s definitely a minority, but you can start with the 200 CECP CEOs.’ We are getting zero push back from our member CEOs. The pushback we are getting is because of scheduling. We haven’t had any CEOs tell us ‘no’. What we have heard is things like: we’re locked in a competitive battle right now, we want to do a good job, just ask us next year.” I commented that this was not that far removed from my concerns about CEOs not wanting to be first
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