Measuring longterm value

Nothing is more practical than a good theory

Recently there has been a lot of focus on short-term pressure in our capital markets and a lively discussion around value creation and corporate reporting. It is time to update how we value companies and measure their impact on all stakeholders, not just shareholders.

Even in the shareholder-oriented United States, there is a growingawareness that a one-sided focus on short-term pro t targets maywork out well for certain investors and directors, but ultimately costs economic growth and jobs. That is why super investor Warren Buffett and CEO Jamie Dimon of JPMorgan Chase have recently pleaded in favour of abolishing quarterly guidance on result expectations, because it may encourage short-term behaviors too strongly. Boards, executives and investors are stressing the need for a better balance between the short and long term. That said, long-term value creation is too often regarded as a vague concept. There is a real need for better and company-speci c elaboration.

The Embankment Project for Inclusive Capitalism (EPIC) offers a market-based framework and indicators with which long-term value creation can be measured and communicated. This article outlines the background and core elements of the EPIC project.

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