Four actions business leaders can take now to embrace long-term value creation

The debate around the role of business in society is not new. Yet the discussion has recently taken on a heightened sense of importance: last August, over 180 CEOs at the Business Roundtable publicly abandoned the principle of shareholder primacy in favor of the view that businesses have an obligation to a broader set of stakeholders. This public declaration sent a concrete signal that established business leaders have reached an inflection point.

It’s good news that more companies are recognizing the need to expand their focus and more closely consider their people, communities and customers. But we know this cannot remain just an ambition. Here are four things business leaders can do right now to move from ambition to action as they embrace long-term value creation:

1.     Engage your people

As business leaders, we know that our people are some of our most important stakeholders. As one of our biggest assets and most important investments, we cannot create long-term value without an engaged community of employees. No matter what else you do, the success of any strategy hinges on the people who will carry it out. So, leaders need to act to empower their people and equip them with the tools they need to succeed – now and over the long-term.

This means recognizing that the way we think about an individual’s career path needs to change. The rapid pace of technology means that new skills are constantly in demand. Career preparation is no longer a single moment in time or a series of standardized steps. Instead, people need to continuously reevaluate and reimagine their roles, just to keep up with the pace of change.

Organizations play a vital role in helping their people succeed in this tech-disrupted world through re-training programs and other similar experiences. That’s partly why investors, regulators and the business community are seeing the deployment of people, skills and capabilities as a strategic asset, with metrics like workforce cost, diversity, attraction, turnover, training and engagement as core elements of sustainable and long-term financial growth

We must move on from the outdated practice of measuring worth by looking at short-term financial performance alone.

2.     Measure and report long-term value

All these initiatives understand one thing: that to instill a long-term, stakeholder-focus we must move on from the outdated practice of measuring worth by looking at short-term financial performance alone.  

Quarterly earnings are no longer an accurate reflection of a company’s long-term value in a world where talent, innovation and societal impact ultimately contribute to financial success. Today, we need to be measuring intangible assets - such as human capital, innovation and our impact on society – and then linking those assets to our purpose-driven goals.

There are a myriad of standards, metrics and measurement tools out there to do this, but management teams and investors continue to struggle with complexity, a lack of consistency and comparability. That is why collaboration and engagement are so vital – to help drive that consensus and simplification and ultimately help us all contribute to long-term value creation for all stakeholders. 

3.     Engage your business community

If we’re going to make long-term value and broader stakeholder impact the new standards in the business community, no single organization can do it alone. We need to work together.

The good news is that there is a lot of momentum for collaboration on this issue. 

The Embankment Project for Inclusive Capitalism (EPIC), brought together more than 30 global companies with US$30t of assets under management to develop and test a framework to help companies measure and report the long-term value they create. Led by the Coalition for Inclusive Capitalism and EY, we all worked together—asset creators, asset managers, and asset owners—for over 18 months, to drive consensus on what creates long-term value, and how we measure it.

Many of these learning have contributed to an important, collaborative effort convened by The World Economic Forum’s International Business Council (IBC). Under the leadership of the World Economic Forum’s Klaus Schwab and IBC Chairman and Bank of America CEO Brian Moynihan, the WEF and the Big Four are working together to consolidate and simplify an approach to measuring long-term sustainability and its impact on the global community, inclusive of progress toward achieving the Sustainable Development Goals. This effort seeks to integrate and align with standard setters such as the Global Reporting Initiative and Sustainability Accounting Standards Board as well as other leading efforts to measure long-term value and stakeholder impact, including FCLT Global, Just Capital and the World Business Council for Sustainable Development.

This is what we need: collaboration and engagement focused on convergence, action and ultimately accountability. If we want to create a more inclusive future, we must join forces, create a shared vision, and forge a shared commitment.  

We have unimagined tools, knowledge and skills at our disposal, and if we better utilize these assets, we can address many of the world’s toughest social and environmental challenges.

4.     Support your communities and protect the environment   

Business leaders need to include their communities and the environment as one of their key stakeholders. The global youth unemployment rate is three times higher than the rate among adults.[i] Automation is projected to displace up to 800 million workers globally by 2030.[ii] And, as a planet, we are far off the goals set by the Paris Climate Change agreement.

These are clearly huge societal challenges. They also present an enormous opportunity for business to be a force for good in the world.

Businesses have always occupied a unique role in society, with the power to shape markets and impact communities in ways that other organizations can’t easily replicate. Now, we can use that power to help rebuild trust in our communities, address their greatest challenges and strengthen economies around the world.

More and more, it’s also what people expect from us. In fact, 76% of respondents in Edelman’s 2019 Trust Barometer Report say CEOs should take the lead in driving change rather than waiting for government to impose it.[iii]

We all live in a remarkable time. We have unimagined tools, knowledge and skills at our disposal, and if we better utilize these assets, we can address many of the world’s toughest social and environmental challenges. EY Ripples is our commitment to playing a leadership role in the communities where EY operates. Across 150 countries, we’re using a wealth of talent, know-how and powerful networks to ultimately create long-term value and achieve the EY purpose of building a better working world. We are also starting with ourselves, assessing our own carbon footprint, and committing to necessary change to reduce it.

This is a pivotal moment for business. It’s clearer than ever before that success is about more than our bottom line today; it’s also about helping those around us thrive in the long-term. CEOs don’t have to choose anymore between doing what’s good for business and good for their stakeholders. They can – and must – do both.

When will you move long-term value from ambition to action? Join EY to discuss pressing economic and social issues as we look to the World Economic Forum Annual Meeting 2020 – from 21-24 January. Join the conversation via ey.com/wef and using #WEF20 and #BetterWorkingWorld

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

[i] https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/-publ/documents/publication/wcms_615594.pdf

[ii] https://www.mckinsey.com/featured-insights/future-of-work/jobs-lost-jobs-gained-what-the-future-of-work-will-mean-for-jobs-skills-and-wages

[iii] https://www.edelman.com/sites/g/files/aatuss191/files/2019-03/2019_Edelman_Trust_Barometer_Global_Report.pdf?utm_source=website&utm_medium=global_report&utm_campaign=downloads