Something remarkable and little noticed happened on February 6, 2018. In its first quarter earnings call of the year the medical devices company BD (Becton, Dickinson and Company) began its journey of including sustainability and long-term content in its earnings call, something few companies are doing today.
The call itself followed the standard format of these highly scripted events. Vincent A. Forlenza, Chairman and Chief Executive Officer, started the call by presenting an executive overview, which included an affirmation of the company’s long-term strategy, before delving into highlights from the quarter. He was followed by Christopher Reidy, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer who discussed the company’s financial performance and provided a financial guidance update.
But during the concluding remarks of the presentation, Forlenza stated "I would like to point out that we have included a new slide in the appendix of today's presentation that provides an update on our sustainability initiatives. While we have always been focused on ESG and creating shared value, we have received feedback from the investor community about its increasing relevance to investment decisions. We hope you find the information useful in understanding BD's commitment to this important topic."
The slide provided a Q1 update on BD’s four pillars of sustainability:
- Innovation: Combating antimicrobial resistance (AMR) by launching a new CPO detect assay on BD MAX™ and Resistance Fighter communications campaign
- Access: Collaborating with the London School of Hygiene and Tropical Medicine to advance training on use of diagnostics to combat AMR
- Efficiency: Increasing use of renewable energy by installing a 1.5-Megawatt solar array at our largest China facility
- Empowerment: Assisting our colleagues in Puerto Rico, including the launch of an associate relief fund
So why am I so excited by this? The reason is simple. BD has taken an important first step in changing the content and tone of the quarterly earnings call, something that is a very hard thing to do. This practice has been around for decades, expectations about the purpose of the call with largely sell-side analysts are entrenched, and, well, it is called the “quarterly earnings call.” I’m not advocating that it should be completely changed, only that there is room for providing a more long-term perspective as building blocks to long-term sustainable value creation. Doing so immediately gets you to sustainability issues. Long-termism and sustainability are two sides of the same coin.
Both companies and astute investors have an interest in having a long-term perspective and sustainability issues related to financial performance incorporated into the quarterly earnings call. A common complaint of companies is that most of their investors are too short-term oriented, pressuring them to deliver ever increasing earnings on a quarterly basis even if this means hurting performance over the long term, such as by reducing advertising or R&D expenditures. A recent survey by CECP’s Strategic Investor Initiative found, for example, 86% of CEOs believe investors are pressing them to be overly short-term focused. Investors, in turn, claim that it is the companies that are too short-term oriented, at least in their communications, since they lack a generally accepted platform to convey their long-term plans and explaining their quarterly financial performance in this context. Finger pointing aside, this is a serious problem. For example, the 17 Sustainable Development Goals cannot be achieved without the support of companies and investors with a long-term perspective.
Fortunately, there are a number of initiatives addressing this problem from various angles including FCLTGlobal, the Coalition for Inclusive Capitalism and its affiliated Embankment Project, and CECP’s “Strategic Investor Initiative (SII).” One of the projects of the SII is giving CEOs the opportunity to present their long-term plans to a live audience of investors eclipsing $25 trillion in assets under management and taking questions from them. The CECP SII Advisory Board Investor Subcommittee has issued a letter providing guidance to companies presenting their long-term plans to investors.
CECP’s Co-Chair and Vanguard’s Chairman Bill McNabb said: "For too long, companies have sacrificed long-term value creation to generate short-term results, which erodes the sustainability strategic investors seek. It’s through the groundbreaking efforts of the Strategic Investor Initiative that companies and investors can change how businesses plan and act. CECP, with the 200 global CEOs in their coalition, is the right organization to lead this transformation."
A February 1, 2018 article in the Financial Times discusses a letter McNabb delivered to the presenting CEOs prior to the third “CEO investor Forum” on February 26, 2018 in New York City asking them “to talk about long-term growth plans and risks, ‘with a minimum five-year trajectory’, including their interactions with society.” This letter has been delivered to presenting CEOs. Five CEOs (David Abney of UPS, Kenneth Frazier of Merck, Alex Gorsky of Johnson & Johnson, Omar Ishrak of Medtronic, and Paul Polman of Unilever) will present their long-term plans in front of an audience of 275 investors representing $27 trillion in assets under management (AUM).
In looking forward to the third event, McNabb said: “We urge companies to embrace this investor letter guidance to focus on growth, strategy, and risk, sharing their long-term outlooks, as investors increasingly seek a more substantive dialogue about corporate long-term value creation.”
The first “CEO Investor Forum” was held on February 27, 2017 where eight companies presented their plans in front of an investor audience with a total of $25 trillion in AUM. The second was held in September 2017 with eight companies presenting their long-term plans to investors representing $25 trillion in AUM. “As we see the evidence bear out on the business case for ’patient capital’, CEO Investor Forums are a new way for companies to operationalize this guidance,” stated Mark Tulay, Director, Strategic Investor Initiative, CECP. “CECP supports leading companies through its long-term plan framework and provides the platform in which to share that information that will equip investors with the information needed to make better informed long-term investment decisions.”
Forlenza was one of the CEOs who presented at the first event. The title of his talk was “BD Strategy for Long-Term Impact: Advancing the World of Health.” Forlenza explained why he agreed to do this: “BD has been a health care leader for more than 120 years, and we believe it is important that our investors understand what the company is doing to ensure we continue to lead for the next 100 years. He began by identifying four key drivers of sustainable healthcare that BD can help healthcare systems balance: increasing access, improving outcomes, mitigating healthcare system cost pressures, and protecting patients and healthcare workers. After discussing BD’s growth profile and key financial priorities, Forlenza discussed the company’s 2020 sustainability strategy and goals in terms of:
- Innovation: Innovate to improve outcomes, reduce costs and enhance efficiency
- Access: Support health systems leapfrogging in emerging and developing economies
- Efficiency: Work across value chain to minimize environmental and social impacts
- Empowerment: Advance BD’s purpose-driven culture through workforce and community initiatives
In his talk, Forlenza did a masterful job of presenting both financial and nonfinancial information and showing they are related to each other, such as when discussing emerging market revenue growth, operational excellence, operating margin expansion, and decoupling growth from its environmental imprint. Forlenza also discussed the importance of partnerships (such as with UNICEF, the Defense Threat Reduction Agency, and the National Cancer institute), diversity & inclusion, the “BD Leadership Model’ (purpose, culture, leadership standard, and values), good governance, and long-term incentive plans. The results are in the numbers. BD has outperformed the market and healthcare sector by a factor of two over the past three years.
BD also demonstrated leadership in being one of the first companies to show how its strategy is contributing to the SDGs. Forlenza specifically highlighted SDG#3 (Good health and well-being), along with 5 (gender equality), 6 (clean water and sanitation), and 7 (affordable and clean energy), 12 (responsible consumption and production), 13 (climate action), and 17 (partnerships for the goals).
BD’s long-term plan presentation provided the context and framework for incorporating initiatives, such as sustainability, in their quarterly earnings calls, which the company plans to continue to build upon. Forlenza notes, “We recognize the shared value commitment our company has made to our customers, business partners, employees, investors and society as we focus everyday on the positive societal impact of our business. The earnings call is one significant way to share our progress with those key stakeholders.”
