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E-book Corporate Finance for Long-Term Value

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Penilaian

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What is the company’s social responsibility? Following Milton Friedman’s state-ment that “the business of business is business”, shareholders have been playing an increasingly dominant role in business since the 1980s. Shareholders have the primary objective of maximising the financial value (F) of the company. But corporate models that adopt the shareholder value paradigm do not account for social and environmental externalities. These companies are focused on operating in the upper half of the value creation matrix: Quadrants 1 and 2 of Table 1. Without distinguishing between these two quadrants, the result is an overpopulation of Quadrant 1. In response to the negative impact created by major companies in Quadrant 1, a debate about the ‘licence to operate’ of companies has arisen. This book takes the view that companies are also responsible for combatting social inequality (S) and environmental pollution (E). A survey of US citizens finds that 63% of American citizens—including 71% of millennials (born between 1981 and 1996)—expect business to take the lead in driving social and environmental change (Cone Communications, 2017). Addressing social and environmental problems cannot be unilaterally left to governments, which of course have an important role as legislator. With long-term value creation as a central objective, companies can actively contribute to these transitions (moving to Quadrant 2) and thus maintain their licence to operate. Another rationale for long-term value is to see it as a means to deal with uncertainty. Uncertainty means that the probability distribution over possible future outcomes is not known. There’s uncertainty about the way the major transitions will unfold. And because of that uncertainty, companies are being advised to hedge their bets, preparing themselves for several transition scenarios. The adoption of the long-term value lens helps them to do this. So what exactly is long-term value, and how can CFOs create it? Long-term value implies an important shift in thinking: from static to dynamic. The major sustainability transitions result in changes in the markets for products and services. Frontrunner companies can strengthen their competitive position in the new market, while the laggards are in danger of disappearing. This is Schumpeter’s process of “creative destruction”. The transformation of the car industry is a good example. As one of the early frontrunners, Tesla brought the public’s attention to the electric vehicle market, thereby creating financial and environmental value. Other car manufacturers, such as Volkswagen, are catching up and making large-scale investments in the production of electric vehicles. he broader social trend of corporate responsibility creates expectations for companies; society looks to leading companies to contribute to the major transitions. For example, carbon taxes are accelerating the adoption of low-carbon production technologies and the phasing out of carbon-intensive ones. Technological advances in combination with economies of scale make wind and solar energy competitive with fossil energy for electricity generation. In addition, authorities are currently preparing regulations for working conditions throughout the value chain. Customer preferences are also relevant. The campaign of chocolate manufacturer Tony’s Chocolonely, for example, has ensured that consumers mainly buy Fairtrade chocolate, even when they buy other brands. These are examples of direct forms of internalisation. Table 2 illustrates the long-term alignment between profit and impact with examples of the various combinations.

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Ketersediaan

Informasi Detail

Judul Seri

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No. Panggil

658.154 SCH c

Penerbit

Switzerland : Springer Nature., 2023

Deskripsi Fisik

652 hlm

Bahasa

English

ISBN/ISSN

9783031350092

Klasifikasi

658.154

Tipe Isi

text

Tipe Media

computer

Tipe Pembawa

online resource

Edisi

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Subjek

Budgeting

Info Detail Spesifik

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Pernyataan Tanggungjawab

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Versi lain/terkait

Lampiran Berkas

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