In seven years’ time we should have a financial sector that is not driven by maximising shareholder value, but instead focused on maximising broader economic value on the short- and longer-term. At the heart of this is a genuine focus on creating value for all stakeholders
INTERVIEW - Meet the editorial board: Lars Kurznack
Rients Abma invites: Lars Kurznack as the next participant to this ‘relay interview’. His reason: 'Lars is responsible for KPMG’s Sustainable Finance & Investment Advisory services in the Netherlands. He helps financial institutions manage business impact
What is your personal motivation to SHIFT TO?
My personal motivation to SHIFT TO and to promote long-term investing in the financial sector is twofold:
A: I want to contribute to the development of a financial sector which is stable and responsible and serves the real economy in such a way that it contributes to the wealth of our societies. The current dominance of short-term thinking in capital markets and the broader financial sector shows that such a role for financial institutions is definitely not common practice yet.
B: I believe that asset managers and owners and financial institutions can be financially more successful if they steer their organisations on long-term value creation, by taking into consideration the wealth they create for all their stakeholders when making investment or financing decisions. Financial institutions benefit from stable and prosperous societies, and destroying the wealth of individual stakeholders could be a major risk for the success of financial institutions in the long run. For example, the negative impact of globalisation on individual employees and citizens, and the impact of climate risk on sectors and individual companies.
How does this fit into your professional ambitions?
As a consultant it is my job to help clients achieve their ambitions and support them in defining responses to current and future challenges in their business environment. What we see is that the future drivers of business success within the financial sector are rapidly changing and increasingly require a longer-term business perspective. E.g. the increasing relevance of intangible assets; the growing interest of financial regulators in the non-financial performance of financial institutions; and a gap between the information investors need to assess companies, and the information that they are receiving through corporate reporting channels. We aim to help our clients with applying such a long-term value creation perspective, both in management and reporting/accounting practices, to make them successful also in the long run.
In your opinion, where should the financial industry be in seven years’ time?
In seven years’ time we should have a financial sector that is not driven by maximising shareholder value, but instead focused on maximising broader economic value on the short- and longer-term. At the heart of this is a genuine focus on creating value for all stakeholders. For example, financial institutions need to be focused on offering clients something important to them that they cannot get from another institution, instead of a unilateral focus on costs and capital. Or that financial institutions should measure and quantify the positive and negative effects on society, and take those effects into consideration in financing and investment decisions.
Who should we definitely hear from in this newsroom?
It would be good if the dialogue on long term investing and value creation does not take place solely among institutional investors, but also between investors and companies. So I would especially welcome CFOs and members of supervisory boards to participate in the debate on how to embed long-term value creation into their companies.
Which issue is most urgent in your view/field of work?
There are some issues which are urgent in moving towards long-term investing and value creation:
A: Measuring, quantifying and monetising non-financial and intangible assets: ‘what gets measured gets managed’;
B: Accounting and reporting in an integrated way about the business performance, which means defining both short-term and long-term operational KPIs, reporting about financial and non-financial performance, and a balance between backward- and forward-looking information in the reporting;
C: Diversifying the dialogue between companies and capital markets. The dialogue is currently dominated by financially- and short-term-oriented shareholders, which is reflected in the reporting channels of companies such as their quarterly earning calls and annual reports. Companies need to improve their ability to communicate their broader value creation story to capital markets in a proactive way. The recent take-over discussions about Unilever and AkzoNobel show how important this is.
Rients Abma adds one question:
“In your view, can integrated reporting be considered as an ’economic’ anti-takeover measure for ‘sustainable companies’, and if so, how?”
Although corporate reporting alone cannot help companies avoid hostile take-overs by activist shareholders, such as hedge funds, I believe it could definitely help to minimise the chances that sustainable companies are confronted with such take-over perils. First, integrated reporting via the Integrated Reporting Framework supports companies with disclosing a more holistic view of their business performance, the broader economic value created by the company. If this information is financially relevant to investors, they could integrate it into their prospects for the company with a resulting higher share price. Secondly, by proactively reporting and communicating a more holistic perspective of your value creation story, you could attract more, longer-term oriented investors which makes you less vulnerable to activist shareholders. Finally, integrated reporting could be an engine for improving business performance. By having a more in-depth understanding of how your company creates value and a more robust, broader understanding of business risks and opportunity, integrated reporting could support you in making better business decisions.
The members of the editorial board of SHIFT TO all have professional but also very personal reasons to join this initiative. In a ‘relay interview’ we learn more about their motivations as they ask each other: ‘Why do you want to SHIFT TO?’
After Lars Kurznack, all members of SHIFT TO's Editorial Board have participated in this 'relay-interview'. The concept will however continue in a slightly different format. A new series of interviews with people that each gave a different perspective on the matter is coming soon.