Far Beyond the Quarterly Call: Research Refutes "Short-Termism"

Strategic Investor Initiative and CEO Investor Forum in Journal of Applied Corporate Finance
Jul 24, 2017 3:30 PM ET

CECP’s Strategic Investor Initiative is a collaboration that leverages CECP’s CEO network to fundamentally change the conversation between CEOs, boards of directors, and investors, from a focus on short-term profits to “long-termism”--the creation of multi-year strategies that include financial and environmental, social, and governance (ESG) factors. 

In a paper published earlier this month in the Spring 2017 Journal of Applied Corporate Finance, Tim Youmans, Research Director, Strategic Investor Initiative, CECP, and Brian Tomlinson, Senior Research Advisor, Strategic Investor Initiative, CECP, detail how the existing structure of corporate shareholder communications encourages “short-termism,” or the narrow focus on immediate profit at the expense of long-term security. The paper summarizes the substantial evidence that corporate management, boards, and investors are concerned about the failure of quarterly earnings framework to adequately address the importance of long-term value creation. 

But how do we remedy this ingrained culture of report and repeat? Earlier this year, CECP hosted the inaugural CEO Investor Forum, which welcomed presentations from CEOs of five large public U.S. companies and the CFO of IBM to hundreds of buy-side investors on their long-run plans and visions for the future of their respective companies. CECP firmly believes the format and the substance of the discussions can create a more effective dialogue between companies and their investors. The goal is to spark the movement of trillions of dollars of capital to reward corporations that can demonstrate their company’s ability to achieve their long-term vision for future performance excellence by leveraging the risks and opportunities presented by ESG factors.  

What’s next for SII? On September 19, 2017, in New York City, CECP will host the second CEO-Investor Forum, along with a third in February 2018 and a fourth April 2018, with the aim of bringing about the broad adoption of long-term plans as a mainstream element in corporate-shareholder communications. For more information, visit cecp.co/sii.