What do you say to your long-term investors? New guidance for CEO-investor dialogue

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Investors seem to think it is a great idea, an ‘earnings call’ that’s about future strategy and not just the last three months.
But as a CEO, what do you say on such a call? This is especially urgent for CEOs who will be presenting their long-term strategy on February 26 at the latest CECP’s Investor Forum to a room full of $25trn in assets under management and the new SEC commissioner Robert Jackson.
CECP is the CEO Force For Good was founded in 1999 by actor and philanthropist Paul Newman.
In an effort to provide an answer to that question, CECP’s Strategic Investor Initiative (SII) has produced a ‘what to say on your fifth earnings call’ guide. Its key phrase is: “This is intended as a focused narrative about future performance not past performance.”
As an ABC to talking about strategy, the letter is practical, leading CEOs to talk about long-term risk, mega-trends (such as climate change), financially material business issues and reporting frameworks, capital allocation, corporate purpose, human capital requirements, shareholder/stakeholder relations, board structure and role. And it’s signed by Vanguard’s William McNabb and nine other fund luminaries.
The letter is not overly prescriptive, rather it describes for CEOs what shareholders need to know and how to frame it. Such a call will be different industry to industry and even between companies within an industry; depending on the information that CEOs are willing to share, and because CEOs and boards have different approaches to strategy within the same industry.
I spoke to Brian Tomlinson, research director with CECP’s Strategic Investor Initiative and Mark Tulay, an advisory board director, about the genesis of the initiative.“Our letter is intended to provide a framework for CEOs to set out their strategy for sustainable growth,” said Tomlinson, “to help them talk about long-termism in a way that’s useful for investors. Earnings calls are low utility for many investors with long-term investment strategies. This letter helps to plug that informational gap.” Tulay added: “Investors want comparability consistency and standardization in the outputs of long-term plans, without being overly prescriptive. It still has to have the authentic voice of the CEO.”
I asked what kind of a reaction they had had from the CEOs with whom they had shared it. “The CEOs that we sent our investor letter to, all the CEOs who are presenting,” said Tulay, “responded with: ‘Hallelujah, we have some guidance’. There was certainly no blowback. We’re trying to show them what part of a long-term plan needs to be presented to long-term investors in order for them to make better long-term investment decisions. Our goal is to have every company present like this in the long-term. Vanguard has said they want to scale this to 3,500 listed companies.”
Tomlinson continued: “The guidance in the letter is to help give long-term information a home in the schedule of corporate communications with investors, and to get beyond the blame game, where CEOs and investors blame each other for the short-term cycle which is not providing the right information. Long-term holders of capital are going to hold stock if a company meets or misses its quarterly earnings guidance. These investors are interested in different information to the earnings call. They want to know how well you are governed and about the other issues set out in the letter.” Tulay added that this directly addresses the SII’s mission: “We want to create this movement towards long-termism and ESG integration. To watch and help steer how CEOs are putting these long-term plans together is a fascinating exercise.” Link