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Investment and corporate sustainability: Aging reflections

Peter Truesdale, OBE

“I grow old…I grow old

I shall wear the bottoms of my trousers rolled”

I don’t think that it is quite time for me to roll my trouser bottoms up.  Yet on the other hand it can’t be denied that I am getting on a bit.  Well certainly enough to take more of an interest in what shares I have got in my pension portfolio.  My investment advisor expertly advises me on their historic performance.  The trouble is I am not really sure that this is the issue.  As far as I can work out we are all going to live to be a hundred.  Consequently I am rather more interested in whether or not they will still be giving stellar returns in forty years time.   Apparently the regulator’s rules forbid him from speculating on that!

Just as well then that Corporate Citizenship is undertaking research into companies and long-term value creation.  The results will be shared at the end of September.  However, the hours I have spent poring over assorted Annual Report and Accounts have catalysed in my mind three things I want a company to come clean on before I would be willing to invest.

The first, and arguably the biggest, is the most obvious question:

‘What do you think the future holds?’

For the most part it is a question that goes unaddressed.  That’s a bit rich.  I have addressed the question for myself.  I think the likeliest is that the future holds for me a retirement of some thirty years plus with a period of incapacity and the need for domiciliary care.  Am I guaranteeing that that’s what the future holds? No.  But I have examined future trends and it looks like the best planning basis to me.  Here I seem to be streets ahead of the average large company.

For the most part, in public communication, companies prefer profound silence about the future to informed analysis.  I have five topics I wish companies would tell me about:

  • Economic growth: Which economies does the company believe are going to grow? How do they believe they are going to grow?  How far do they believe they are going to grow?  And why?
  • Basic processes: What reason is there to believe that the basic processes inherent in the company’s business model will be transformed? Thirty five years ago as a young Esso employee I had to go to the bank at lunchtime if I wanted to check my balance.  Now I consult my banking app.  When I returned from lunch I worked on exploiting the tar sands of Alberta. My successors still are working on it. Some things never change!
  • Demographics: Is demographic change boosting or impeding the business model?  I once saw a fund manager defending an investment in a holiday company.  He said that the increasing number of fit, well-off seventy somethings liked going on cruises.  (I must try to fit one in before I am confined to the care home).
  • Environmental constraints: It is all very well reading about the abatement of corporate CO2 emissions.  Surely from an investor’s point of view the most significant question is whether or not environmental changes provide a bonus or a constraint for the business model.  Agricultural producers perform reasonably well here.  Beyond that performance is patchy.
  • Security: It may be my age again but the contemporary world feels far less secure than the Cold War world of my youth.    Data security.  Food security.  Extreme weather events.  Do these impact the company’s business model?  Are they growing in importance?  Are they being mitigated?

Is this so very unreasonable?  Surely these are all matters that corporates ought to have a view on.  Surely it is sensible to factor those views into business strategy and planning.

It might be objected that these are speculative matters.

OK I look for three current characteristics that I believe to be good indicators of future business success.

Does the company love the customer? 

I don’t mean by this just: ‘Is the company measuring customer satisfaction?’  I mean does the company understand the customer, changing customer preferences, customer aspirations, and the triggers that drive trust, delight and spontaneous recommendation?

Without such determined customer focus in the present it is hard to see how a company can navigate whatever unexpected shocks trends or developments may be waiting for it in the future.

Is the company an innovator?

Corporate structures have an inbuilt tendency towards deadening conformity.  Economies are in a perpetual state of change, flux and disruption.  They are full of surprises – not all of them pleasant.  To have a mind-set of innovation is to recognise the inevitability of change.  It is also to recognise the desirability of restless energy as a positive corporate virtue.

A company that innovates may falter.  But a company that does not innovate will fail.

Is the company a relentless driver of efficiency?

As a man in late middle age I am only too well aware of the dangers of flab.  Companies are equally exposed to this hazard.  So what I look for is a company that wants to tell me about how it is getting more efficient.  Clearly cost cutting is an indispensable part of this but it is not the whole story.  More value adding and investment to make the basic processes more effective are up there too.

The point is if a company is not compelled to tell me about the improvement processes now, why would I believe it can adapt to thrive in future?

My questions are reasonable. The silence from companies is deafening. Maybe I should start self-managing my pension portfolio.

 

Peter Truesdale is a Director at Corporate Citizenship. This blog forms part of a series called the Long Term Value Project which Corporate Citizenship launches in September 2016 and explores the changing relationship between investor relations and corporate responsibility.

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