After Davos my impression is that around the globe a shift to the long term across the investment value chain is gaining traction; it’s one of the biggest initiatives to have come out of the financial crisis
Inclusiveness is the bottom line
What happened in Davos
Members of the SHIFTTO Editorial Board - Kempen CIO Lars Dijkstra and Van Lanschot CFO/CRO Constant Korthout – took part in the FCLTGlobal Member CEO Roundtable held in Davos on 23 January 2018. Entitled ‘Research Update and Priorities for Practical Action,’ the special session was attended by 35 representatives of the 40-and-growing organisations that currently support the (non-profit) FCLTGlobal. The Roundtable brought together the C-level of member organisations to share the latest research, which offers evidence of the many advantages of long-term focused inclusive finance to everyone in the financial value chain. Further, those in attendance discussed the tools needed to improve strategic engagement between shareholders and publicly listed companies.
“At Kempen we have been a partner of FCLTGlobal since it launched in July 2016; the aim is to get more long-term thinking, incentivization schemes, and action into our financial system, to see if we can make the rules of finance more long-term,” said Lars Dijkstra after the meeting. He noted the rapid growth of the FCLT initiative, which started with 20 members (including founding partners CPPIB, McKinsey, Tata, BlackRock, and Dow Chemicals) and has nearly doubled its number in the past 18 months. “After Davos my impression is that around the globe a shift to the long term across the investment value chain is gaining traction; it’s one of the biggest initiatives to have come out of the financial crisis,” he said.
Inclusive long-term finance: firmly on the agenda
‘Momentum’ has been the keyword of all things FCLT throughout 2017, and 2018 started out with a momentous push when Larry Fink, Chairman and CEO of BlackRock, published his groundbreaking Annual Letter to CEOs, entitled ‘A Sense of Purpose’ on January 6. “Larry was present at the FCLTGlobal roundtable in Davos and of course commented about his letter. He talked about inclusiveness - and I think for a US firm that is remarkable,” said Dijkstra. He added that it is also an important topic at Kempen, where “our vision is about engagement and not exclusion. We aim for long-term engagement with the companies we invest in, to improve the real world economic outcome for all stakeholders. In fact if you look at the whole Davos agenda and theme – ‘Creating a Shared Future in a Fractured World’ – inclusiveness was the bottom line for many of the session topics.”
From momentum to implementation: evidence-based change
As noted by Business Insider’s Editor Michael Blodgett in his introduction to the WEF 2018 session ‘Towards Better Capitalism’ ,“Government seems unable to fix a lot of problems, which means ultimately that companies have to do it - and they need to do it by creating value for many constituencies.”
Talk is easy; the issue for organizations is really implementation and action, according to Dijkstra, and how to improve strategic engagement between asset owners/managers and companies. “That was the idea behind this FCLTGlobal roundtable; we came up with actionable research and a Top 10 list of practical ideas on how to get asset owners and asset managers to take action towards long-term incentive schemes, long-term reporting, that kind of thing,” he says. The research-based evidence indicates that long-term oriented companies exhibit significantly stronger financial performance and job creation than those with a short-term focus.
Kempen contributed to two recent FCLTGlobal research papers presented at Davos that offered this evidence: ‘Moving Beyond Quarterly Guidance: A Relic of the Past’ and ‘Institutional Investment Mandates: Anchors for Long-term Performance’, which received its first exposure at the Kempen Investment Seminar 4 October 2017 in London. At that seminar, FCLTGlobal CEO Sarah Williamson set the stage for the Davos meeting, saying, “We think there is this virtuous cycle of asset owners that are long term, that can lead to long term behaviour for asset managers, that can then lead to long-term behaviour among corporations, and vice versa.”
We think there is this virtuous cycle of asset owners that are long term, that can lead to long term behaviour for asset managers, that can then lead to long-term behaviour among corporations, and vice versa
From Davos to New York: FCLTGlobal Summit
Just a month after the WEF 2018 roundtable in Davos, Dijkstra will present at the FCLTGlobal Summit in New York on 28 February 2018. “It is organised around topics of inclusiveness in finance, with the aim of defining key building blocks of long-termism and actionable ideas that everyone can implement in their own organisation,” he said of the Summit. “The goal is to create evidence-based change.”
Current topics for research and discussion at FCLTGlobal Summit held on 28 February 2018 in New York:
▪ Risks and opportunities for long-term capital, distinct from short-term capital
▪ Drivers and impact of capital allocation process (buybacks, dividends, debt, reinvestment)
▪ The role of the corporate board in creating long-term value
▪ The investor/corporate dialogue and strategic engagement from long-term shareholders
▪ Capital markets innovations (e.g., new indexes/ETFs, loyalty shares, alternative listings, PIPEs)