What Your Company Cares About Fascinates Its Largest Shareholders
Author: Wesley Gee (Senior Sustainability Consultant, Stantec)
Shareholders matter, but some matter more than others. There are those who are in it for the long haul, with a vested interest in the success of a company, and in some cases they are actively involved in supporting shifts towards greater long-term growth and prosperity.
And there are shareholders who are extremely effective at profiting from ‘one night stands’ – or more precisely, one second stands – by betting on the immediate and incremental success or failure of companies they invest in. Using them, losing them, and then moving on to the next statistic.
Some publically listed companies have decided to actively discourage the later practice, by limiting their short term disclosure (e.g. led by its CEO, Unilever has shifted away from quarterly financial disclosures). Additionally some companies are improving their engagement with well-intentioned shareholders so that they can gain well-informed insights on how to address key market risks, consider new business enhancements and innovation, and evolve long term strategies.
Engagement is the type of term that resonates with many community affairs, public relations and corporate social responsibility practitioners, while mostly considering employees, communities, governments, consumers and clients as clear candidates from which to better identify their needs, expectations and priorities. However, rising public disclosure resulting in part from the recent financial crises has engaged even the most traditionally-minded institutional shareholders so that they can become more actively involved in identifying and incorporating broader notions of long term risk (and opportunity) into their projections.
Climate change adaptation (e.g. Hurricane Sandy), resource scarcity and political unrest are among the issues which are joining forces with mainstream financial modeling to support a company’s management disclosure and analysis (MD&A) submissions, which are mandatory for all publically-traded firms.
As leading investment experts such as Matthew Kiernan of Inflection Point Capital Management have noted that traditional financial forecasting has been incredibly inaccurate, some analysts and shareholders are looking for an edge on their counterparts by leveraging the knowledge gleaned from this evolving approach of evaluating long term risk disclosure, to improve institutional intelligence and enhance investment decision making.
Heavy hitting firms including Bloomberg and Goldman Sachs have joined the path of other niche indices and rating organizations, by investing in analytical tools which collect and assess data linked to the economic, social and governance (ESG) performance of publically traded companies.
While there is uncertainty on how to use this new and fuller suite of data effectively, it offers greater options for analysts and shareholders to incorporate aspects of it into their longer term forecasting (i.e. communicating downside risks), and for publically-traded companies to both recognize and disclose its material ESG risks, or cease to be an industry darling in a changing market.
While many companies are engaging with their stakeholders in meaningful ways few are having meaningful discussions with shareholders to better recognize their sustainability-related priorities and concerns. But they are engaging with shareholders. To engage meaningfully and by leveraging existing shareholder initiatives, companies may wish to gain valuable insights by using the language of ‘risk’ rather than using the big ‘S-word’ (sustainability). By meeting with them on their turf, using their language, show them that you understand their business model, and provide them with ways in which they can be more successful.
Companies with greater engagement have better financial performance than their competitors. So by helping analysts and shareholders better understand why ‘ESG metrics’ (what you may wish to call ‘new risk metrics’) matter and how they will make them more money, we will then collectively ensure that they matter.
About Wesley Gee:
Wesley Gee has worked within the management consulting and sustainability areas for 14 years. Based in Stantec’s Markham office, he has substantial knowledge of and experience in areas including strategic planning, performance measurement, governance, reporting and communication, stakeholder engagement, community investment, and integrated management systems.
As a former Senior Corporate Social Responsibility Advisor at Canadian Business for Social Responsibility (CBSR), he has worked with leading organizations – including De Beers Canada, Rio Tinto Alcan, Kinross Gold, Bombardier, Canada Post, Hydro-Quebec, and Siemens Canada – at executive and operational levels to improve their identification of, and leadership approaches in addressing, key business risks and opportunities.
Wesley has an extensive professional and academic background in sustainability, as Associate of the Institute for Environmental Management and Assessment, participant in the Business Leaders Program at the Sustainable Enterprise Academy (Schulich School of Business), and graduate of the M.Sc. Sustainable Business program from the University of Leeds.