Jan-Menko Grummer, Partner at EY Germany, Austria, Swizterland and Lead of the Long Term Value Program GSA, explains why a value-driven economy is inevitable.
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Highlights of the conversation:
- Public value occurs when companies make transparent their positive impact on society. Those who do not take society and the environment into consideration quickly become disconnected from our modern world. Such disconnect feeds declining trust between society, the private sector and the public sector. Trust has been seriously damaged in the past few years and it challenges a value-driven future.
- Our entire economic system, including financial transactions, are based on trust. A system that no longer relies on trust can only generate risks for society.
- Transparency is one of the most important tools to develop trust. It is essential for any company to operate freely at a global level. Corporates now need to report transparently, not only on their finances, but also on their long-term behaviour towards employees, customers, society, towards all stakeholders and the environment as well.
- Accountability today is difficult to manage. Participants of our society act globally and their accountability is regulated by different countries. All activities need to be explained from a long-term perspective. We need to focus on what long-term accountability could be (with long-term reporting).
- It is wrong to consider that companies can decide to report either to their shareholders or to all stakeholders. All stakeholders are in the same boat. The difference between shareholders and other stakeholders lies only in the timing of revenue. If a company does not have positive impact on society and the environment, it will not survive in the long term.
- It is urgent to standardise reporting on long-term value to allow us to get proper insight in companies and drive healthy comparison.
- The multiplication of initiatives on sustainability creates confusion. We need to work in close collaboration with international regulators to define the new standards of long-term development and a value-driven economy.
- EY started mid-2017 the “Embankment Project for Inclusive Capitalism” with the Coalition for Inclusive Capitalism to change the way we measure value and create new metrics to demonstrate long-term value to financial markets. Following a year of discussion, the project came up with 63 metrics that consider human capital, consumer value, financial value, innovation and performance.
- Implementation of such metrics remains a challenge. This is why regulators have a key role to play.
- Our new world is value-based and new talents in the private sector need to be particularly agile and open-minded to properly hear and understand the needs of society.
EY Germany funded our first Public Value Lab held in Berlin in September 2017 with the objective to co-create public value principles.