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.