The CEO Imperative: Why forward-looking businesses are focusing on long-term value
By Hywel Ball, EY UK & Ireland Regional Managing Partner and UK Chair
Forward-thinking CEOs are placing the needs of all stakeholders at the centre of business transformation.
?????????A recent survey shows that both business transformation and long-term value are high on the UK CEO agenda.
?????????We examine why meeting the needs of all stakeholders is crucial to the success of the modern enterprise.
As a long-time advocate for taking a sustainable, long-term value approach to business, it is heartening to see how many UK CEOs are coupling major investments in growth and transformation with an increasing awareness that businesses must deliver for all stakeholders.
Findings from UK responses to a survey of 305 CEOs of Forbes Global 2,000 companies (explored more fully in When transformation is essential, how can strategy be differential? reveal that a return to the pre-pandemic way of operating is simply not an option for UK CEOs. Instead, they are ready to make decisive changes to their businesses in response to rapidly changing markets, technologies and societal expectations.
In fact, UK CEOs are ahead of the pack compared to their global counterparts. Four-fifths (80%) of UK CEOs are planning a major investment in data and technology, compared with 68% globally. In parallel, 71% are also planning a major new transformation initiative, compared with 61% globally.
A sharper focus on long-term value
There can be little doubt that the pandemic has highlighted the importance of taking a long-term perspective and addressing the needs of all stakeholders. Businesses that looked after their employees during the pandemic have been rewarded with higher levels of employee engagement and productivity. Likewise, businesses that took positive steps to look after customers have gained greater loyalty. More broadly, major societal issues, from income inequality, poor working conditions and mental health concerns, have sadly been exacerbated by the pandemic but also made plain for everyone to see.
CEOs are also increasingly aware that they have a role to play in addressing these challenges. Nine in ten (90%) UK CEOs believe that large corporations will take the lead in combatting global societal challenges over the next five years, compared with 77% globally, and that their employees and consumers will judge them on what they do.
Shareholders increasingly want businesses to take action on combatting societal and environmental challenges. This is evidenced by the recent public interventions by shareholder groups which have forced global oil and gas companies to pursue more sustainable business models. In addition, EY research showed that, even pre-pandemic, 60% of investors supported businesses investing to address global challenges even if it diminishes short-term financial performance.[1]
The business case extends further. Given the UK government’s focus on ‘building back better’, major government procurement decisions will also increasingly be based on suppliers’ ability to demonstrate that they are committed to delivering long-term value across stakeholder groups.
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Counting what counts
Given this context, it’s vital for businesses to outline their strategies for long-term value creation and to be able to report on their progress. However, a lack of clarity around non-financial metrics currently threatens to hold back progress.
So, in collaboration with the World Economic Forum’s International Business Council, EY has worked with our competitors in the Big Four to identify a universal set of metrics to help businesses demonstrate their contributions toward sustainable, long-term value creation .[2]
Reassuringly, the global CEO survey finds that UK CEOs have high levels of confidence that common reporting standards will emerge: 92% believe that there will be a global standard for measuring and reporting on long-term value creation over the next five years, compared with 80% globally. With those common metrics, it will be possible to see who’s really living up to their rhetoric.
The pivot to long-term value creation?????
From adopting more sustainable business practices to rethinking corporate culture, there are many individual initiatives that businesses can pursue to create long-term value.[3] But an often-overlooked starting point is to ask and listen to what employees, consumers and wider society expect from a particular business. What does value mean for them?
You may think you know who your stakeholders are and what they want, but have you actually taken the time to ask them? At EY, that process has crystalised our focus on delivering value around four key areas: facilitating UK trade post-Brexit, accelerating the rollout and use of digital, building trust in business and tackling climate change.
Embracing the opportunity
As CEOs transform their businesses in response to rapid social, environmental and technological changes, it represents a once-in-a-generation opportunity to put long-term value at the core of operating models – from corporate strategy and reporting to day-to-day business operations. Those who do so can create sustainable businesses that will prosper long into the future.
[2] EY, Long-term value creation metrics , 2021
[3] EY, Long-term value , 2021