Part 1. Will There Be A ‘Next’ If Corporate Governance Is Focused On The ‘Now’?

in Leadership

By Julie Linn Teigland, Andrew Hobbs, EY 

The Ey Long-Term Value and Corporate Governance Survey draws on insights from a survey of over 100 CEOs, as well as C-suite and board members, from leading European companies to understand their progress and challenges in supporting sustainable, inclusive growth. We supplemented this with in-depth interviews with business leaders, academics and other professionals in this field, including EY’s own subject matter professionals. Three key takeaways emerged from this research:

1. The pandemic has reinforced the importance of a stakeholder-focused approach

While the COVID-19 pandemic has been financially challenging for many companies, it has also highlighted the benefit of a strategy that creates value for a broad set of stakeholders. Leaders emphasize that a focus on long-term value has been critical to building trust during the pandemic and believe it will be key to meeting changing expectations for the role of business in society.

2. Companies can directly address many of the key challenges to their long-term value strategy

Companies face a number of internal and external challenges to long-term value creation. Top of the list are how to create a strategy that balances near-term and long-term growth, and how to align management incentives to drive change throughout the organisation.

3. Corporate governance is critical to the long-term value agenda and needs to evolve

Leaders believe that corporate governance is foundational to a successful long-term value strategy. At the same time, they highlight the need for governance to evolve to support sustainable growth. This paper suggests there are five governance-related areas that boards should focus on: board attributes, including dynamics and values; risk oversight; long-term value remuneration strategy; shareholder and stakeholder engagement; and authentic reporting disclosures that establish accountability for long-term value performance.


1. The Pandemic Has Reinforced The Importance Of A Stakeholder-Focused Approach

  • The survey shows that the financial implications of the pandemic have challenged the long-term investment strategy of CEOs and directors. A majority (59%) say that the impact of the COVID-19 pandemic on financial performance has challenged their ability to focus on long-term growth.
  • Over half (60%) say that there are significant differences of opinion within their leadership team on how to balance short-term crisis response with long-term investments.

However, the pandemic has also reinforced the importance of a long-term value approach:

  • Stakeholders: it has increased the expectations of stakeholders — including employees and the wider public — that organisations should play a more active role in tackling major societal issues, such as inequality and climate change
  • Business leaders: CEOs and boards have questioned and changed the role of their organisations in terms of who they are serving, the contribution they can make to society, and what constitutes value. They have used these uncertain and anxious times to lead with increased purpose — focusing on employee well-being, developing products and services for frontline workers, making financial donations and cutting executive pay.

The survey sends a strong message that the net effect of the pandemic has been to reinforce the importance of an approach that looks to the long term rather than bowing to short-term earnings pressure:

It also reinforces the importance of stakeholder capitalism in rebuilding trust in businesses and their leaders. When we asked respondents to pinpoint the most significant benefits of pursuing initiatives that create long-term value, “improved brand, reputation and trust” emerged on top, selected by 53% as one of the main benefits, followed by “improved customer acquisition and retention” and “attracting new investors or different types of investors.” The importance of long-term value is also reinforced by the clear commitment of key C-suite leaders. In EY DNA of the CFO survey, 82% of finance leaders said that “CFOs are increasingly seen by key stakeholders as the stewards of long-term value.”

A Reset To Sustainable Growth

The European Commission reacted immediately to the COVID-19 outbreak with a focus on upholding its goals for high living standards for its citizens, protection of human rights and the environment, as well as quality of welfare. As it now looks to reset economic development in the long-term future, sustainable growth is a key platform.

The European Green Deal, in particular, has the potential to act as a multiplier of economic growth and includes initiatives that range from decarbonisation of the energy system, transport and logistics infrastructure to scaling up investments in the circular economy. Business leaders are also sharpening their focus on sustainability in investment decisions. In the latest EY Europe Attractiveness Survey 2020, almost six in ten (57%) survey respondents indicated a renewed focus on climate change and sustainability within the next three years.

Alongside this, the appetite from investors is also increasing as evidenced by Larry Fink’s 2021 letter to CEOs in which he highlights “companies with a well-articulated long-term strategy, and a clear plan to address the transition to net zero, will distinguish themselves with their stakeholders — with customers, policymakers, employees and shareholders — by inspiring confidence that they can navigate this global transformation.”

Financing that sustainable growth sits at the heart of the European Commission action plan, which was released in 2018 with the following aims:

  • Reorient capital flows toward sustainable investment
  • Mainstream sustainability into risk management
  • Foster transparency and long-termism in financial and economic activity

Key legislative proposals to achieve these aims are:

  • EU taxonomy — a classification system aiming to channel investments into sustainable activities. It requires large public interest companies with over 500 employees to align KPIs that encourage transparency in their activities.
  • Disclosure and reporting — introducing new requirements of the Non-financial Reporting Directive
    (NFRD) order to meet the European Green Deal standards. This includes nonfinancial information in the management report, to link financial and nonfinancial information better, and a new EU nonfinancial reporting standards setter.

The Sustainable Finance Disclosure Regulation (SFDR) — requiring financial market participants and financial advisors to make pre-contractual and ongoing disclosures to end investors when they act as agents of those end investors. It aims to create an even playing field for ESG products and distribution channels across Member States and to increase market awareness of sustainability.

Encouraging Progress In Turning Words Into Action

Today, boards and CEOs are making encouraging progress in turning their ambition into reality by deploying the approaches needed to drive a long-term, multi-stakeholder orientation. As part of the analysis, we segmented the survey respondents into two groups based on their long-term value maturity: firms that are “leading” (43% of all respondents) and those that are “developing” (57%). The leading organisations are making significant progress: for example, 89% continuously reassess their company’s strategy and organisational structure to improve the ability to generate long-term value. While progress made is encouraging, this long-term, multi-stakeholder approach needs to become the new normal for companies, not just a select group of high performers.



View Point 1:

Helena Stjernholm, CEO, Industrivärden

Industrivärden is a long-term asset manager and active owner in listed Nordic companies. Julie Linn Teigland, EY EMEIA Managing Partner, spoke to CEO Helena Stjernholm to understand her perspectives on long-term value, including the role of boards.

How has the pandemic affected long-term strategy and how leaders think about balancing long-term value goals while managing short-term pressures?

I think the overall impact is that the pandemic has focused companies on acceleration. Many trends that prevailed before the pandemic have been reinforced over the last year. This is around digitalisation, but also an increased focus on sustainability, trends which shape how you think about what your business needs to focus on going forward. This in turn puts pressure on speeding up existing initiatives. At the same time, of course, the pandemic has increased pressure on managing the short term.

When you evaluate your plan, which likely will be very different compared to the pre-pandemic plan, you need a long-term vision to be able to prioritise in an efficient way. If you do not have a clear long-term view, you will have a hard time prioritising where to dedicate your resources, capital as well as people.

The questions you are asking are ‘what projects can we put on hold and which ones do we need to sustain to not lose long-term competitive advantage?’ I believe strong companies with a long-term view will be even stronger after these tough times.

What do you see the pressure on leaders and businesses coming from mostly?

Today pressure on leaders and businesses is coming from several different stakeholders, but I do not think it makes sense to rank them. Capital markets and investors, for example, have an increasing awareness of and focus on sustainability, which has much wider implications than it had before. Also, employees of today, particularly younger people, want to work for a company that has a clear purpose and acts in a good way. Customer behaviour is also changing because of sustainability. If customer behaviour changes in a way where you find yourself not having relevant products and services to sell, this calls into question your whole long-term strategy and business model. Pressure also comes from getting the right talent onboard — especially in some industries which require highly technical skills. To conclude, policies and regulation and incentives can sometimes be helpful to enable the change, but the change needs to come from within the companies.

What do you see as the key role of the board in long-term value?

Given that one of the most important tasks of the board of directors is to find and employ a CEO, then a key responsibility is to find a leader with the right mindset and a view of the future that is shared by the board. Defining the long-term vision and setting the strategic agenda it is also a key role of the board. Especially in times of change like we have today, the board’s role is to stay close to the business and ask questions that challenge management while of course also supporting them.

The board’s role in long-term value creation is also about creating continuity. The time span of a CEO in a publicly listed company is getting shorter and shorter. If you operate in a heavy industry, like manufacturing, some of your capital investment decisions will not be up and running at full speed until possibly 10 years into the future. In that time, you may have changed CEO once or twice. So, the board has a key role in making sure that you are still striving towards your long-term goals. Successful companies that drive long-term value over extended periods of times have a clear long-term vision, strong execution capabilities and can explain why they are doing things, which secures you the trust of capital markets.

View Point 2:

Chris Hodge, International Corporate Governance Network (ICGN)

Chris Hodge is an advisor to the International Corporate Governance Network and chairs the Global Stewardship Codes Network. Ilaria Lavalle Miller, Associate Director of Regulatory and Public Policy — Ernst & Young LLP United Kingdom, spoke to Mr. Hodge to get his views on the regulatory environment for long-term value and the role of governance.

What do you think are some of the key attributes of a board that drives a long-term, stakeholder-focused strategy?

When I was involved with corporate governance standards setting, some companies embraced what we were trying to achieve — they would buy into the rationale and use the tools and requirements to improve their governance, with an eye on improving their long-term performance. However, there were others who would see it as merely a compliance exercise. In that sense, one of the biggest impacts on the company’s ability and willingness to be focused on long-term value is the mindset of the board.

What are some of the challenges for board members in driving a long-term value orientation?

I’m not sure that all boards have the time today to devote to the sort of issues that determine whether or not the company is able to create long-term value.

There are a number of possible answers, from changing what we expect the board to be doing to revised governance structures. One approach might be to reverse the trend that has seen all sorts of issues escalated to board level. Believing a board meeting eight times a year should be able to deal with everything that’s now expected of them seems unrealistic, so a different governance structure could be preferred. In a revised structure, decisions on aspects that are material to strategic goals and required to achieve long-term value objectives could be taken at the top. And other issues, which are all still important, but potentially distract directors from long-term value, might be better addressed elsewhere in the organisation.

What impact can regulatory requirements around reporting have on the behaviors that support long-term value?

Changes to reporting tend to focus on increasing transparency and accountability. I question the value of this where such changes don’t end up changing behaviors. Take the example of increasingly prescriptive reporting over the nearly 20 years on executive remuneration — what tangible impact has that had on behavior? That said, there are examples where it has made a difference. For example, reporting on the gender pay gap, which has seen great attention from the media and the public, bringing the debate to the boardroom and accelerating change in the right direction.

Part 2. Will There Be A ‘Next’ If Corporate Governance Is Focused On The ‘Now’?

Part 3. Will There Be A ‘Next’ If Corporate Governance Is Focused On The ‘Now’?


We are always on the lookout for inspiring management and leadership stories.

To find out how you or your organisation can be featured in the Management magazine, please email to us or call at +603-7711 2888.

To advertise, click here

Leave a Reply