5 minute read 19 Feb 2020
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Why it’s time to walk the talk on inclusive growth and long-term value

By Michael Bertolino

EY Global People Advisory Services Leader

Leader of growing, future-focused team of talent practitioners. Award-winner. Supporter of women in business. Extreme cyclist. Husband to Mensa-sharp wife and two thoughtful kids.

5 minute read 19 Feb 2020

Leaders will be defined by how they deliver long-term value to the human factor: employees, customers and society.

A new year is always exciting because of the opportunities a full year ahead holds – and a new decade is even more exciting. For myself, I’ll be using 2020 and beyond to focus anew on ways to measure and demonstrate long-term value beyond traditional financial metrics to include the human factor: employees, customers and society. I’ll do this by keeping this question top of mind: “What happens when people matter most?”

As this new decade unfolds, I know we will all continue to experience transformations of leadership and management styles that acknowledge and celebrate the power of the human element to accomplish desired strategy and outcomes. For more than half a century, companies around the world have diligently followed Milton Friedman’s economic theory that “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”1

Under Friedman’s economic model, companies have primarily demonstrated their value in terms of profits and shareholder returns. Profits and shareholder returns are important however, the strategy and tactics on how you arrive at the profits and shareholder returns are even more important.

Across the globe, what the world is experiencing of late is widening income inequality and fraying social safety nets, technology-driven income insecurity and climate change-driven displacement. Companies that used financial returns as their sole measure of value have reached a reckoning.

I remember the power of Jack Welch who, one could argue, used to follow Friedman’s theory of shareholder value. If you asked Welch today about his view on Friedman’s theory, you might get a different answer. In March 2009, Welch was interviewed by the Financial Times and he observed: “Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products… short-term profits should be allied with an increase in the long-term value of a company.”

Creating a customer requires employees

During the early 1970s, Peter Drucker’s work was in direct conflict with Friedman’s shareholder value concepts whereby Drucker focused on the power of the customer. He counseled that the customer should be the primary focus and that the creation of a customer defines the business and keeps the business in existence.

I agree with Welch’s point that the main constituencies of a company are its employees, customers and products – in that order. Employees are the primer that activates the assets of a company, enhances the dynamic of a company product and delights the customer. Companies that solve the equation for optimizing employee experience, health and wellness have a better chance at optimizing customer value, which has a corresponding positive impact on company performance. Arianna Huffington amplified the importance of the employee, and human livingness, in her profound leadership book, Thrive, where she portends human success through a prism of well-being, wisdom and wonder.

In her book, Arianna states, “we see an increasing recognition of the effects workplace stress can have on the well-being of employees – and on a company’s bottom line… There is growing evidence that the long-term health of a company’s bottom line and the health of its employees are, in fact, very much aligned, and that when we treat them as separate, we pay a heavy price…”

While I also agree with Drucker regarding the importance of customer, there is a strong correlation between enhanced employee experience to enhanced customer experience. Happy employees usually create happy customers, which leads to enhanced company brand and performance. Unleashing the power of the human to accomplish the extraordinary is an important key to unlocking long-term value and inclusive growth.

This is evident from the rumblings that began after the 2008 financial crisis; a deafening roar emerged around the world in 2016 when millions of people declared — through votes at the polls and feet on the street — that they no longer believed companies or governments cared about their interests.

New metrics for a new decade

As societal trust devolved to new lows, companies voiced the need for inclusive growth and long-term value creation that looked beyond shareholders. Talking the talk was a good start. But to walk the talk, the business world needed a standard means by which to more comprehensively measure value.

In 2017 The EY Organization joined forces with the Coalition for Inclusive Capitalism to create the Embankment Project for Inclusive Capitalism (EPIC). EPIC brought leaders from across business, government and civil society together to help make capitalism more sustainable and inclusive. Their overarching goal was to develop new, more holistic metrics to measure long-term value to financial markets.

What has emerged from this project, among many outcomes, is a long-term value framework that businesses can use to measure and demonstrate their long-term performance. Specifically, the framework breaks value down into four categories: financial, consumer, human and societal.

What excites me as EY Global People Advisory Leader is that three of these four categories focus on people – and if you get the human, consumer and societal equation right, the financial outcome usually follows suit and is optimized accordingly. What excites me more is the new global EY strategy — NextWave — based on EPIC’s long-term value framework, for creating and demonstrating EY long-term value as a trusted and distinctive professional services organization.

Leading for the long-term

Within the four value dimensions by which the EY organization has chosen to pursue its ambition, there are 10 measures of progress: client experience and account teaming as measures of customer value, professional experience and favored organization to measure people value, trust and lives impacted to measure social value, and revenue growth and income growth to reflect financial value. Across all four categories, EY teams have also developed metrics to measure diversity and inclusiveness and EY brand.

The EY organization is broadening the spectrum of measuring and demonstrating long-term value to all of EY stakeholders through the founding relationship with EPIC.

Our measurements to date suggest we are making great strides in achieving our ambition. But we know that we are only at the beginning of EY NextWave journey. As we leap into a new decade, we will take the “transformative twenties” by storm as we continue to explore ways for EY people to help build a better working world.

Summary

By asking ‘what happens when people matter most?’ leaders can measure and demonstrate long-term value beyond traditional financial metrics to include the human factor.

About this article

By Michael Bertolino

EY Global People Advisory Services Leader

Leader of growing, future-focused team of talent practitioners. Award-winner. Supporter of women in business. Extreme cyclist. Husband to Mensa-sharp wife and two thoughtful kids.