Value of Value: The New Long-Term Horizon for Business Leaders

Posted
20 May, 2019

A majority of executives, nearly 9 out of 10, say that organizations need to do a better job focusing on wider value considerations beyond financial performance, according to a pulse check survey included in a new brief Purpose and Profit. Those considerations include value created for society and co-created through external relationships.

The brief, compiled by Black Sun and the International Reporting Council (IIRC) in collaboration with the Association of International Certified Professional Accountants (the Association), seeks to analyze trends and challenges in measuring, disclosing and understanding the value that companies create. It is a brief update of the current business environment and links its findings to previous editions in the Value of Value reporting series to illustrate change in thinking over time.

The new brief shows recognition from business leaders that future success will only be achieved by doing things differently, particularly in regard to engagement with stakeholders and the environment. But to do so effectively, they need more management and reporting information – beyond financial data – to understand and interpret their true value drivers, according to the brief.

And they need a longer-term view. Indeed, just 30% of executives use a strategic planning horizon that exceeds three years, according to the pulse survey, although 82% said that taking an even longer-term perspective to strategic planning would improve their organizations value creation potential.

“Short-term capitalism must change to long-term, sustainable growth and businesses need to lead the way,” said Dominic Barton, Chair of the IIRC.

Other key findings include:

  • Only 11% of executives surveyed believe that non-financial factors are extensively researched and significantly influence strategic decision making in their organisation. The good news is that almost half of them are currently developing tools and techniques to better understand non-financial or broader factors and incorporate them into strategic decision making.
  • The top three factors business leaders deemed important to the success of the organization are: meeting the expectations and needs of customers (97%), inspiring and engaging employees (90%) and profitability and financial return for investors (89%).
  • Integrated thinking is becoming mainstream, but needs board support to progress further. While 74% of executives think that integrated reporting will help to promote a more cohesive approach, only 35% feel that they receive the vital board level support needed to make progress on their integrated thinking and reporting journey.

David Christopherson, Black Sun’s CEO said, “It’s no surprise that in addition to meeting increased regulatory requirements, more businesses are trying to improve their communications to show transparency. The key benefit of clear and transparent communication is increased stakeholder trust, and in turn a social license to operate.”

Andrew Harding, FCMA, CGMA, Chief Executive Management Accounting at the Association, said “This research illustrates the continued recognition amongst business leaders of the importance of value considerations wider than pure shareholder value. Such integrated thinking is necessary to be able to deliver value beyond profit which is so necessary in today’s business environment.”

Richard Howitt, CEO of the IIRC said, “The evidence continues to demonstrate that moving towards integrated reporting is not just the right thing, but the best thing an organization can do for its long-term viability. 72% of executives believe it will reduce short-term thinking within the organization by supporting decision making and actions that focus on sustainable value creation over the short, medium and long-term.”

Read more and download the full brief here.