Day traders, investors and Wall Street may be focused on the short-term returns of publicly traded companies, but Vanguard is among a group of institutional investors that want more information on companies' long-term views. As a result, Vanguard Chairman Bill McNabb – along with nine other institutional investors – signed a letter by CECP, a CEO-led coalition that engages with key stakeholders to transform their social strategies, calling on the leaders of publicly traded companies to focus on the longer term when meeting with investors. The group came up with a list of questions that the executives should be addressing in those meetings.
"Companies that are listed on public stock exchanges face a constant, daily demand from investors for information. In recent years, however, many large institutional investors have expressed a desire to gain a different perspective: the long-term view," stated the letter, noting that CECP has taken the lead in creating CECP Investor Forums to focus on long-term value creation.
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The group said it has held two forums to date with 14 CEOs and companies that have a combined $1 trillion in market capitalization. "We encourage CEOs to use the Forums as an opportunity to talk to 'patient capital' about their companies' long-term plans. Such opportunities are often under-represented in the quarterly-driven system of corporate-shareholder communications, which can be of limited use in shaping a long-term investment, engagement, and voting outlook."
So what do institutional investors like Vanguard want these public companies to address when meeting with investors? According to the letter, a big concern is the key risk factors and megatrends that can affect the business during the course of the next three to seven years and how these considerations will influence the corporate strategy.
Other questions include how the company identifies which issues are financially material, what frameworks are in place to report on the issues, and how the issues figure into business planning and future capital allocation plans. The shareholders also want to know how the company describes its corporate purpose and shares its vision with employees when it comes to its role in society, how that plays into the long-term strategy and how the future strategy acts upon that purpose.
Some other question that are important to to the group of institutional investors include how companies manage future human capital requirements over the long term and how they communicate that to investors. Companies should also be able to explain the corporate framework and strategies for interacting with shareholders and key stakeholders, how the board make-up today and in the future will help achieve long-term goals, and the role of the board in setting the corporate strategy.