Corporate and investment chiefs weigh in on the future of regional investment post-coronavirus

On 17 November, FCLTGlobal hosted a roundtable convening top investors and corporate leaders from the Benelux region, discussing how best to balance stakeholder interests for long-term competitiveness and how to optimize  the investor-corporate dialogue amid the pandemic 

Now more than ever, companies are operating in volatile and uncertain business environments that impact the way they develop business strategies, manage performance, and communicate with investors. What lessons can be learned from current global economic situation? Given the new realities businesses are faced with, is it still as important to emphasize a long-term perspective? CEOs and other leading voices gathered to weigh in. 

The session consisted of several breakout group discussions focusing on timely topics including the importance of stakeholder focus reporting on non-traditional metrics, and the state of play regarding short-term earnings guidance 

Transitioning away from short-term guidance  

Past research, including Moving Beyond Quarterly Guidance: A Relic of the Past (2017), shows that quarterly guidance is a detrimental practice that rather than reducing stock volatility, provides an opportunity for short-term investors to “play the quarter.” Furthermore, the focus on short-term metrics often drowns out discussions of long-term strategies. The sentiment in the “room” mirrored those findings.  

“We, and many others, stopped our short-term guidance at this moment in time,” a CEO pointed out. “At some point, we’re going to emerge from this pandemic, and it begs the question: is guidance coming back the way it used to be? Is it going to be more long-term guidance versus short-term guidance? It’s something we are deliberating within the company.” 

Another leader on the call remarked that they had also seen a fairly widespread departure from issuing short-term guidance, and that they were hopeful that the decision would stick once the economic volatility of the global health crisis subsides. The rationale and data support the decision to move away from guidance, the group agreed, but there are still those in the industry that favor more active trading and stand to make money from the side effects of guidance. Companies and long-term investors, however, are at a disadvantage should the practice return at scale.  

“In the middle of Q2, when there were no numbers that you could really talk about, everybody had poor guidance,” began one participant. “I had the best conversations with investors that I’ve ever had in 10 years of roadshows. Why? Because suddenly we were actually being asked the kind of questions that we feel passionate about, about where are you putting your focus? How do you take care of your people?”  

Balancing stakeholder interests for long-term competitiveness 

Particularly in light of COVID-19, stakeholder issues have become central to company decision-making and the dialogue with investors. Companies with strong records operating effectively in a multi-stakeholder framework continue to outperform. 

One participant noted that the trade-off mindset between stakeholders and shareholders is misguided. “Sustainable business is the pathway to superior financial performance.” 

Due to widespread health concerns, companies, and investors alike are prioritizing social issues. “The “S” in ESG has been brought to the forefront and, overall, all three components are much more integrated in risk management frameworks for asset managers,” said an asset manager on the call. 

In a crisis, one’s true purpose and culture are often revealed. 

“We wanted to have a moment to reflect together, asset owners, asset managers, and companies, in this very special year,” one remarked. “What are the kinds of trade-offs that we made? When push comes to shove, did we walk the talk in terms of our commitment to long-term decision-making, or were we struggling either because of internal dynamics, external dynamics, or interactions with society?” 

Prevalence of ESG or non-traditional metrics 

There was a consensus from the participants that though environmental, social, and governance (ESG) related metrics have become increasingly prevalent over the past few years, there is still much work to do from both a corporate and investor standpoint.  

Others agreed, expressing that reporting differs from company to company, and that there is not one “correct” way to manage ESG. Environmental discussions have now expanded to include issues of biodiversity, for example, and governance concerns now include many dimensions of diversity on corporate boards. There are considerations that were accelerated by a turbulent 2020.  

“I would encourage companies to really think about what ESG metrics matter specifically to you. They can be very companyspecific. For instance, think about disclosing Sustainable Development Goal (SDG) revenues or putting targets on that. Those can be very different for individual companies.” 

The discussion continued with evaluations of global efforts to synchronize non-financial or non-traditional reporting. By and large, those in attendance agreed that the time is now  to normalize this new model of corporate reporting. 

Non-traditional metrics for investors 

That changing landscape of reporting, will surely have a significant effect on the way corporations operate, but so too will it make an impact on the asset managers that invest in them. Specifically, a renewed focus on sustainable investing will undoubtedly affect the way asset managers are evaluated  

“To what extent,” one participant asked, “are the asset managers going to find their remuneration and their performance tracking to [ESG]? Because when you get asset managers and companies aligning remuneration to it, we really get systemic change. Asset managers, sometimes, are still working from short-term and traditional metrics.  

FCLTGlobal has done extensive work on the relationship structure between asset owners and asset managers entitled Institutional Investment Mandates: Anchors for Long-Term Performance which could provide a basis for further exploration of this issue. 

The stark reality of the COVID-19 crisis, and its implications for business, provide important lessons for companies and investors alike. The unstable circumstances are changing the way we strategize, report, and communicate long-term goals. Forgoing short-term guidance, emphasizing stakeholder management, and integrating  non-traditional metrics are just some of the many ways that global business can adapt.  

Thank you to the participants (listed below) for joining us for an enlightening discussion. Developing these key areas further will be crucial as we continue our mission to rewire global capital markets to support a  longterm, sustainable economy. To learn more about the topics discussed here, view our library of resources and follow us on social media @FCLTGlobal.  

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