• mark goldstone

Sustainable Value – What does Value for Shareholders Really Mean in the 21st Century.

Updated: Jun 26, 2019

Recently I really enjoyed our advisor Dr Andrew White’s Article “lessons from companies that put purpose ahead of short-term profit.”

In it, along with some great examples, he provides a framework for senior leaders to compare inconsistencies between the need for short term profits and overall company purpose.

This made me think about what the term “value for shareholders,” really means in the 21st century. It is too trite to say that there is no point in making profits now if the shareholders who benefit have such a poor world to spend it in – a dead end then?

Maybe not, what if the share price began to fall if the management team could not present “sustainable value” to shareholders – by sustainable value here I mean two key things:

1. That the profits we enjoy now can be enjoyed in the future

2. That the company is taking sufficient measures on sustainability and CSR

Think about a coal mine, however profitable in the short term it is an outdated technology, damaging to the environment and a finite resource. Thus, presenting low sustainable value, which no doubt is already being reflected in the share price.

Andrew provides the example of CVS Healthcare which stopped selling cigarettes wiping out $2bn in revenue. Selling cigarettes created a conflict between the purpose of the company as a healthcare organisation and the desire to maintain these revenues. Eventually this conflict would have made CVS less investable and therefore the share price would have fallen. By accepting the short-term pain CVS increased its sustainable value and since then the company has continued to appreciate.

Can you imagine investing in a public company with no CSR policies? A $500m industry has grown dedicated to analysing these issues and determining associated risk factors – insufficient measures in these areas being identified as risks. It is the case that share price does not improve directly as a result of a great CSR strategy. However, it is also the case that companies with poor CSR performance are considered higher risk and therefore of lower value. Herzberg uses the term “hygiene factor” to describe aspects of the workplace that do not cause greater satisfaction but their absence breeds dissatisfaction. Sufficient CSR policies can therefore be considered a value hygiene factor.

This combination of financial performance, sustainability and responsibility “sustainable value,” is already working force in the market. Here at Circle Squared we try to understand the effect of company CSR performance on the purchase decisions of consumers, another key aspect of sustainable value. This combination of economic, public and governmental pressures will only increase over time. This means that there will not be a such a clear choice between profits for shareholders and doing the right thing. Value for shareholders in the 21st century can only be measured in terms of sustainable value.

See Andrew’s original article here.