Pressure on the short-term remains high amongst some investors, and with increased disruption and uncertainty, it’s easy to understand why some boards would be focused on quarter to quarter survival.
As EY and the Coalition for Inclusive Capitalism remarked in a recent report on measuring the drivers of long-term value, ‘the best businesses are defined by more than their short-term profitability. They drive broad-based prosperity by creating value for shareholders, customers, employees, and society alike.’8
Long-term strategies are important as a stake in the ground but must also be adaptable based on new intelligence, technologies and industry developments. Beyond technological developments, disruption can come from regulation, consumer behaviors, sector convergence, employment patterns, societal expectations, geopolitics, climate events and more.9
Future-fit boards are focused on identifying megatrends and guiding management to face new challenges and innovate to seize the upside of disruption.
Future-fitness is also about creating an environment for management which provides flexibility to develop better, more innovative business models, new collaborations and new ways of working, drawing on talent and incubating new ideas.
A recent EY study of 500 US executives found that 42% of executives cite limited budget as their biggest barrier to activation on innovation initiatives.10
Using intelligence gathered from stakeholders is important for shaping long-term value. For example, boards can sometimes make assumptions about what investors and stakeholders are interested in; what they value and support. Based on another recent EY survey, 42% of global board members felt that investors would support long-term investments that improve long-term business prospects even if they diminished near-term financial performance.
The same survey revealed that in fact 60% of investor respondents agreed that they would support this type of long-term decision-making.11 Customer insights on their needs and problems are also a vital source of information.
Future-fit boards are focused on clearly articulating their long-term strategies. What investments are they making to protect and sustain the value drivers underpinning the business? With no universally applied and disclosed metrics on value drivers from human capital, innovation, culture, customer loyalty and trust, it can be a challenge to communicate with investors on a consistent basis.
However, in today’s market, intangible assets make up over 50% of a company’s market value on average – up to 80% in certain industries - and information about how these assets are protected is of increasing interest to investors and other stakeholders.12 “There can be a disconnect between boards and investors, but future-fit boards communicate long-term value, build trust and inspire a new vision for growth and transformation.” Rohan Connors, EY Australia People Advisory Services
The Embankment Project for Inclusive Capitalism (EPIC) brought together companies, asset managers and asset owners in an effort to help businesses communicate how they are creating long-term value to markets and the resulting report identifies metrics for key drivers of long-term value. It also outlines the Long-Term Value Framework which is a helpful tool for boards to consider.13
We are in an age of superfluid markets and industry convergence. New markets are being created as industry lines are blurred and ‘social media companies are becoming live entertainment broadcasters, traditional car manufacturers are transforming into on-demand service companies and telecom companies are leveraging huge consumer bases, capital and data, to disrupt the banking sector’.14
Future-fit boards are focused on transformation and adaptation for the long-term. They are informed by megatrends and stakeholder intelligence and they clearly articulate their long-term strategies and their vision for growth. Future-fit boards reinvent a future fit for a better tomorrow.