Far Beyond the Quarterly Call: CECP's First CEO‐Investor Forum

• DOI: http://doi.org/10.1111/jacf.12233
• Author: Brian Tomlinson,Tim Youmans
• Date: 01 June 2017
• Published date: 01 June 2017

In This Issue: Sustainability and Shareholder Value

How We Invest 10 Michael Bloomberg and Carl Pope

SASB 2016 Symposium

Sustainability and Rewriting the Book on Valuation: An Interview with Tim Koller

16 Tim Koller, McKinsey & Company, with Jonathan Bailey,

FCLT Global

SASB 2016 Symposium Roundtable

The SEC and Improving Sustainability Reporting

22 Keith Higgins, Securities and Exchange Commission; Alan Beller,

Cleary Gottlieb; and John White, Cravath, Swaine, & Moore.

Moderated by Mary Schapiro, Promontory Financial Group

SASB 2016 Symposium Roundtable

The Next Wave of ESG Integration: Lessons from Institutional Investors

32 Ted Eliopoulos, CalPERS; Kristi Mitchem, Wells Fargo Asset

Management; Chris Ailman, CalSTERS; and Michelle Edkins,

BlackRock. Moderated by Janine Guillot, Sustainability

Accounting Standards Board

SASB 2016 Symposium Roundtable

Analysts’ Roundtable on Integrating ESG into Investment Decision-Making

44 Dan Hanson, Jarislowsky Fraser Global Investment

Management; Jennifer Bender, State Street Global Advisors;

Robert Lamy, CFA Institute; and Tom Lyons, Montgomery

Fixed Income. Moderated by Bruno Bertocci, UBS Asset

Management

Far Beyond the Quarterly Call: CECP’s First CEO-Investor Forum 56 Tim Youmans and Brian Tomlinson, CECP Strategic Investor

Initiative

Evaluating Sustainable Competitive Advantage 70 Baruch Lev, New York University

The Purpose of the Firm, Valuation, and the Management of Intangibles 76 Bartley J. Madden

Investing in the UN Sustainable Development Goals: Opportunities for

Companies and Investors

87 Willem Schramade, NN Investment Partners

Evaluating the Effectiveness of Sustainability Disclosure:

Findings from a Recent SASB Study

100 Arturo Rodriguez, Henrik Cotran, and Levi S. Stewart,

Sustainability Accounting Standards Board

Lies, Damn Lies, and Statistics: Why a Widely Used Sustainability Metric

Fails and How to Improve It

109 Jon Bartley, Al Chen, Stephen Harvey, Scott Showalter,

Gilroy Zuckerman, North Carolina State University, and Levi

Stewart, Sustainability Accounting Standard Board

VOLUME 29 | NUMBER 2 | SPRING 2017

APPLIED CORPORATE FINANCE

Journal of

56 Journal of Applied Corporate Finance • Volume 29 Number 2 Spring 2017

Far Beyond the Quarterly Call: CECP’s First CEO-Investor Forum

1. CECP, or “The CEO Force for Good,” is a nonprot founded by Paul Newman and

John Whitehead on the idea that corporations can do more and do better for society.

2. Major mutual fund CEOs have ou tlined their expectations for lo ng-term value

creation. Black rock’s Larry Fink, for e xample, has asked companies to disclose their

“strategic frameworks for long-term value creation”: https://www.blackrock.com/corpo-

rate/en-us/literature/press-release/ 2016-larry-nk-ceo-letter.pdf; State Street’s Ron

O’Hanley requested that “corporat e boards develop principles for engaging with activist

investors to promote long-term value creation”: (https://ww w.ssga.com/market-com-

mentary/protecting-long-term-shareholder-interests-in-activist-engagements.pdf); and

Vanguard’s William McNabb indicated tha t boards “should be prepared to enter into a

dialogue on appropriate issues of interest to signicant, long-ter m investors”: http s://

about.vanguard.com/vanguard-proxy-voting/CEO_Letter_03_02_ext.pdf.

3. “How To Kill Quarterly Earnings Guidance” by Gabriel Karageorgiou, Daniela Salz-

man and George Serafeim: https://hbr.org/2014/06/how-to-kill-quarterly-earnings-guid-

ance.

4. “Integrated Reporting and Investor Clientele” by George Serafeim. Journal of Ap-

plied Corporate Finance, Volume 27, Number 2. Spring 2015. Available at SSRN:

https://ssrn.com/abstract=2378899.

he year is 2027. For the rst time, the CEO of

practically every constituent company of the

S&P 500 index has made a n online presenta-

tion of their plan for long-term value creation,

followed by a brief investor video Q&A. In aggregate, these

presentations were watched by millions of stakeholders and

investors on their mobile devices.

How did we get to this envisioned state?

One early milestone was the rst e ver CECP1 forum

bringing together CEOs and la rge investors, which took

place on February 27, 2017 in New York. At that event, six

pioneering corporate leaders presented their companies’ plans

for long-term value creation to an audience of over 200 long-

term investors representing over $20 trillion in asset s under

management:

Mitch Barns, CEO, Nielsen,

Bruce Broussa rd, CEO, Humana,

omas DeRosa, CEO, Welltower,

Anthony Earley, CEO, PG&E,

Vincent Forlenza, CEO, BD, and

Martin Schroe ter, CFO, IBM.

is pioneering group of leaders, whose companies ha d

a combined market capitaliz ation of $600 billion, were

supported by keynote speakers and pa nelists that included

the current or former CEOs of companies like Citi and Dow,

and investors like Vanguard and Fidelity, who came together

to help outline the “long-term imperative” for the modern

corporation.

In this paper, we describe how the existi ng structure of

corporate-shareholder communic ations creates biases toward

short-term time horizons. We outline the vast expansion in

the contemporary understa nding of how the sources of corpo-

rate value, the information requirements of investors, and

the role of the corporation in society converge over the long

term. We summarize the substa ntial evidence that corporate

management, boards and investors are concerned about the

failure of current corporate-shareholder communications to

adequately reect this perspective. We use this context to

reect upon the presentations made at the CEO-Investor

Forum and to propose some indicative criteria for assess -

ing the eectiveness of those presentations—criteria t hat

have been developed through ex tensive investor and CEO

feedback. Using exa mples from the CEO presentations, we

identify key elements that cou ld be layered into long-term

strategic plans.

We conclude by setting out the work program for

CECP’s Strategic Investor Initiative to furt her the develop-

ment of long-term plans. Building on the themes set out in

this paper, we describe three major issues we are helping

companies to address: investor seg mentation, identica-

tion of key stakeholders, and the de velopment of a common

language a nd tool-kit for long-term plans. is work also

builds on CECP’s traditional role as a CEO and corporate

advisory platform on “the S in ESG” a nd in enabling corpo-

rations and their CEOs to be “a force for good.” CECP

will convene furt her CEO-Investor Forums in 2017 and

2018 with the aim of bringing about the broad adoption

of long-term plans as a mainstream element in corporate-

shareholder c ommunications.

The CEO-Investor Forum: Why and How?

ere is broad agreement that the dialog ue between corpo

-

rations and their shareholders should be reoriented to

addres s long-term value-cr eation.2 For example, the practice

of issuing quarterly earnings guida nce seems to reinforce

short-term investment horizons.3 In contrast, corporations

that report long-term metrics and provide a consistent sta ke-

holder-oriented value-creation story tend to attract a higher

proportion of long-term focused shareholders.

4

is str ongly

suggests that t he current content and structure of corpo-

T

by Tim Youmans and Brian Tomlinson, CECP Strategic Investor Initiative