UK CEOs drive the long-term value agenda. They are ahead of their global counterparts when it comes to understanding the importance of long-term value and taking direct action to create it.
- 90% of UK CEOs believe large corporations will take the lead in combatting global societal challenges over the next five years, compared with 77% globally.
- 96% of UK CEOs believe business models will increasingly incorporate circular economy dimensions, compared with 91% globally.
- 59% of UK CEOs say they have a clear sense of shared purpose, compared with 50% globally.
As a reminder, long-term value involves maximising outcomes for four key stakeholder groups: shareholders, employees, customers, and wider society. It is a more holistic view of value that extends beyond financial performance. It has been recognised and embraced by some of the world’s largest investment managers.1
Pressure from all angles
Why are UK CEOs so focused on long-term value? COVID-19 is undoubtedly a major catalyst. Whether it be income inequality, poor working conditions, climate change awareness or mental health concerns, the impacts of the pandemic have exacerbated major societal issues and made them plain for everyone to see.
Many CEOs believe that their businesses can play a role in addressing these challenges. But they also know that employees, consumers, and wider society – especially younger generations – will judge them on their ability to do so. Illustrating the imperative to act, Edelman’s 2021 Trust Barometer2 found that 59% of UK citizens believe CEOs should step in when the government does not fix societal problems. In parallel, 63% believe that CEOs should hold themselves accountable to the public, not just directors or shareholders.
Many CEOs saw this play out in reality as the pandemic first unfolded. Businesses that looked after employees by delaying or avoiding redundancies at all costs, implementing safe working practices, or supporting employees with remote working have been rewarded with higher employee engagement and productivity, while there was higher employee turnover and less productivity in companies that did not look after their employees. Likewise, businesses that took positive steps to look after customers – whether it be banks supporting customers to use online banking or retailers implementing COVID-19-secure shopping – have been rewarded with increased customer loyalty. In short, CEOs that put long-term value as their north star when dealing with uncertainty have benefitted. And they see the future potential.
“Long-term value has become mainstream,” confirms Kate Bamford, Partner and People & Workforce Experience Leader at EY UK. “Many CEOs have realised that it’s just good business sense, especially when millennials have very different expectations around the organisations they purchase from and work for. This has always been important, but the pandemic certainly accelerated the shift to a purpose-led approach.”
It would be wrong to think that CEOs’ focus on long-term value is purely driven by young consumers and employees. Shareholders increasingly want their business to act on combatting societal challenges too. This is evidenced by the recent public interventions of shareholder groups to force global oil and gas companies to pursue more sustainable business models. In addition, EY research (pdf) shows that 60% of investors support businesses investing to address global challenges even if it diminishes short-term performance.3
Given the UK government’s focus on ‘building back better’, major government procurements will also be based on suppliers’ ability to demonstrate that they are committed to long-term value. Major businesses may also start to make procurement decisions on the basis of these metrics.
Enter listening mode: how to pivot to long-term value creation
If they weren’t already convinced, COVID-19 alerted CEOs to the importance of long-term value creation. The next question is: how can CEOs pivot their business accordingly?
From adopting more sustainable business practices to rethinking corporate culture, there are many individual initiatives that businesses can pursue.4 But an often-overlooked starting point is to listen to what employees, consumers and wider society expect from a particular business. Essentially, what does value mean for them?
Businesses may think that they understand what’s important to employees and customers because they conduct annual surveys. But these can be complemented with more frequent pulse surveys to gauge opinions on particular topics. It’s imperative to do this frequently because stakeholder demands can change quickly. Indeed, UK CEOs identify changing customer expectations and experiences as the trend that is having the second greatest impact on their business, behind accelerating technology and digital innovation (see figure below).