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Generating Sustainable Returns Through Long-Term Value Creation

Over the past few years, there have been increasing discussions around how corporate leaders can achieve consistent and sustainable growth. While this remains a hot topic inside many boardrooms, some executives have found that placing a laser-like focus on issues such as corporate citizenship, transparency, diversity, governance, and measurable values-based leadership can contribute to long-term value creation and favorable financial outcomes. In today’s turbulent economy, companies that establish and embrace these principles underscore their commitment to operational success.

“Companies that understand that corporate integrity is a key driver and provides a performance advantage are those that will continually lead their industries and be considered both trustworthy and successful,” said Sherry Barrat, Board member, NextEra Energy, Inc., a four-time World’s Most Ethical Company, Arthur J. Gallagher & Co., a six-time honoree, and Prudential Insurance Funds, an operating division of Prudential Financial, Inc., a two-time honoree. “Transparency and sustainability are no longer mere buzzwords for corporations. As a Board member, my role is not only one of oversight, but one of stewardship, that is, ensuring that these corporations are both valuable and worth preserving.”

Support for Long Termism

In February, Larry Fink, CEO of BlackRock, sent a letter to CEOs of S&P 500 companies and major European corporations to stress the importance of long-term value creation and strategic planning. For example, Fink said quarterly reports is a sign of short termism and companies should avoid taking this route. “Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need,” Fink wrote. “To be clear, we do believe companies should still report quarterly results—long-termism should not be a substitute for transparency,” he said. “But C.E.O.s should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their E.P.S. targets or analyst consensus estimates.”

In an effort to shift the mindset of companies to focus on long-termism versus short termism, within his letter, Fink suggests that organizations should provide shareholders with a detailed long-term plan for the business that consistently measures its performance to generate sustainable returns.

Fink has made a string of proposals over the years to facilitate long term behavior at companies, but according to reports, this letter to CEOs goes further than his previous attempts.

Read the full letter here.

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An Integrated Approach to Creating A Culture of Integrity

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