When will you move long-term value from ambition to action?

Without trust, you can’t create value. So it’s vital to actively tackle the low levels of trust currently prevailing. In today’s climate, it’s not enough to publish audited financial statements and keep clear of tax scandals. Companies need to express and communicate their value beyond the balance sheet. And they need to tell a consistent and authentic story driven by purpose across channels and stakeholder groups.

Focusing first on trust within the organization contributes to a solid basis from which to inspire confidence among other stakeholder groups. Investors are already looking for companies that cultivate a culture based on openness, authenticity and accountability. They know it’s good for business. For example, a culture that rewards long-term value creation can tap into the natural desire of millennials and Gen Z workers to seek purpose in their work. These employees actively embrace responsibility to make their contribution to a better world. Likewise, modern work policies that recognize changing needs and priorities strengthen loyalty and trust. And with trust comes the confidence to make bolder strategic moves.

At the same time, it’s important to remember that building trust is a process. As companies transition to a long-term strategy, they still need to remain viable and profitable in the short term. Otherwise they risk alienating investors and jeopardizing jobs. 

The shift from shareholder to stakeholder value is already well under way – as witnessed by the very public, broad shift of capital toward organizations with a clear long-term strategy and purpose. In the past, 80% of the market value of a company could be read off the balance sheet. Nowadays, less than half is plain to see in most companies’ financial reporting. In fact, some sectors, like tech startups, record just 10% of their value on the face of the balance sheet.

In the absence of metrics that clearly articulate the value of a company’s long-term investments, it’s hard to blame investors for continuing to make decisions based on established, short-term metrics and reporting. But as companies grapple with the financial impact of COVID-19, it’s more important than ever to demonstrate to stakeholders a strong foundation in non-financial areas. After all, assets like corporate culture and trust boost resilience and help organizations stand the test of time.

To achieve their ambition, companies will have to rethink how they define, measure and analyze business-critical data beyond financial performance. Reporting frameworks do exist for measuring long-term value but not enough companies are using them yet. There are also issues around which metrics are relevant and comparable – especially as this can vary by industry.

Some companies are turning to the UN’s Sustainable Development Goals for inspiration, seeking out the most relevant targets and indicators for their business. Stakeholders will ultimately be looking for comparable reporting that is accessible, timely, and transparent. So it’s the responsibility of business leaders to find ways to track and report behaviors that add value over time.

The vast volume of data available to companies opens a whole new world of potential insights. With advances in technology still rapidly emerging, it’s important to strike a balance between the needs of the enterprise today and its stakeholders’ future interests. A flexible technology landscape that allows for future capability requirements is a good starting point and helps protect against costly investments that won’t add value in years to come.

Committing to a responsible data strategy is also vital. To truly add value, technology should do more than facilitate new products and drive efficiency. Used effectively, it can become the engine to power the human enterprise and create long-term value for all. For example, training people to use new tools and technology is a way to encourage upskilling and prepare for the future world of work. New technologies in themselves also actively empower employees to learn and develop.

With growing data can come growing mistrust. Business leaders should keep this in mind and proactively take control of the story their data tells to stakeholders. If they don’t, other parties will do so, based on their own interpretation of available data. CIOs also need to keep an eye on immediate issues like cyber security – protecting value now is essential to safeguard it for all stakeholders in the longer term as well.

Conflicts of interest or dilemmas in the investment chain are common among organizations wishing to refocus on long-term value Pension funds, for example, may struggle to juggle the need to provide income for retired members present and future, a desire for increased ESG investing and expectations around transparent reporting. Investors have traditionally focused on achieving financial objectives and much less on long-term value. But this is changing. Transitioning to, and communicating, a long-term value approach can help address imbalances and get all stakeholders onside.

People are increasingly seeking purpose in their work. They want to contribute through what they do, and they favor employers that authentically anchor their approach to long-term value with meaningful purpose. As old business models give way to new ones, companies wishing to actively shape a better future need to engage beyond their immediate surroundings. Media, policymakers and community groups are also all important. Empowering employees with the skills to engage with a range of stakeholders is a way to invest in the future of the company and the people who work there.

The time is now

As companies address various disruptive forces, it’s more important than ever to take a long-term view that safeguards value for all stakeholders. Putting long-term value at the heart of strategy helps business leaders focus their ambitions. By defining actions, companies will emerge from volatile times in a position of strength for all their stakeholders.