In this interview, we had the opportunity to speak to Mijntje Luckerath-Rovers, a professor of corporate governance at Tilburg University and a jury panel member for the Chief Value Officer (CVO) of the Year Award. She is renowned for her expertise in conditions that are necessary for corporate boards to operate effectively and how they can create long-term value creation for all stakeholders. In this interview, Mijntje shares her insights into the the shift from financial to societal value creation, the role of CFOs in this transition, moral dilemmas they face.
What is your main motivation to join the jury of the Chief Value Officer (CVO) of the Year Award?
Mijntje: As a Corporate Governance professor, my work has long revolved around the concept of long-term value creation. It’s worth noting that this idea found its way into the corporate governance code in 2016 as an official definition. However, even before that, I was a strong advocate of the stakeholder model. I believe that corporations should consider all their various stakeholders. It’s not an easy task, but it’s one that has intrigued me for quite some time, prompting my interest in long-term value creation.
In my role as a non-executive director at the Integrated Reporting Framework, I place a strong emphasis on my own company’s approach to long-term value creation. I’ve written several articles highlighting the challenges in establishing a reliable, comparable, and controllable metric for this concept.
In my observations, I’ve seen many companies trying their best to incorporate long-term value creation models into their reporting. On the other hand, I’ve also noticed that sometimes these measurements tend to be vague or self-selected. For instance, when examining their remuneration reports, there often appears to be a disconnect between what they emphasize in terms of long-term value creation and how they remunerate their executives.
Now, there’s still a lot of work to be done in this area, which is why I have a genuine interest in initiatives like the CVO (Chief Value Officer). Initially, I thought, shouldn’t the CEO also be included? However, after gaining a better understanding of the idea behind it, I realized that involving the CFO is indeed a more fitting approach. Addressing reporting and management aspects is crucial, and a Chief Value Officer can have a lot of impact in these areas.
"Addressing reporting and management aspects is crucial, and a Chief Value Officer can have a lot of impact in these area"
Mijntje Luckerath-Rovers is a professor of Corporate Governance at Tilburg University and a jury panel member for the Chief Value Officer (CVO) of the Year Award. She is renowned for her expertise in conditions that are necessary for corporate boards to operate effectively and how they can create long-term value creation for all stakeholders.
We already do see the call for executives to innovate fundamentally. In your view, what are the key developments that are accelerating the shift from financial value creation to societal value creation in the boardroom?
Mijntje: What I found interesting is the adoption of a reporting framework aiming to integrate financial value with other essential values. This framework, called the Integrated Reporting Framework, introduces the concept of six capitals: financial, human, social, environmental, production, and intellectual.
Currently, in accordance with European guidelines, we’re set to divide profits from Environmental, Social, and Governance (ESG) factors. This shift reflects a move toward more sustainable reporting practices—a direction I believe is worth pursuing.
To be clear, I understand that it’s simpler to report solely on financial performance. We have well-established metrics for financial reporting, whereas sustainability and societal measurements are areas where innovation is needed. It’s also important to note that some companies have not yet embraced the inclusion of these different aspects.
Still, I think it would be a pity if we lost the combination of people, planet, and profit. My hope is to foster innovation in our approach, where you indeed can include all those different aspects —whether we call it the six capitals or the people-planet-profit model. What is important is that we try to integrate them together. That is why I like the work of the Impact Economy Foundation in developing the Impact Weighted Account Framework (IWAF).
I think it is difficult to devise a method for combining various types of values. When we consider carbon, it might be the simplest part, as it involves assessing both the cost and measurement. But what about the other kinds of values like societal values, safety, inclusion and diversity? How do we measure that? And can we compare different measurements on financial, societal, human and on the environment. Can we really compare them with each other and ultimately aggregate them like a true price?
Nevertheless, I do see some good examples, such as ABN Amro, who have published their impact reporting. I, at the very least, believe we should try. The innovation lies in attempting to make the values we prioritize and those we overlook visible to the outside world. CFOs can play a pivotal role in this process, given their responsibility for reporting. If they are innovative enough to adopt various methods and measurements, it could represent a significant stride forward. This would enable us, as stakeholders, to engage with and question companies, or even make comparisons when making purchasing decisions.
CFOs can play a pivotal role in this process, given their responsibility for reporting. If they are innovative enough to adopt various methods and measurements, it could represent a significant stride forward. This would enable us, as stakeholders, to engage with and question companies, or even make comparisons when making purchasing decisions."
What do you think are the characteristics that make a CFO a good CVO and how can they transition their position from CFO to CVO?
Mijntje: I believe that for a CFO, having knowledge of reporting is very important. However, when a CFO aims to transition into a CVO, they need to be exceptionally strong. In Dutch, we have a saying – “houw uw recht,” which I think can be translated to “keep your chin up” in English. This is because you will face a lot of challenges and potential backlash. Shareholders may press for higher financial performance, while other stakeholders will urge you to consider other societal and environmental values. So, as a CFO, you must make your decision and stick to your plan, which can be quite challenging.
On the one hand, you have a CEO who is in the spotlight sharing an inspirational story about the company’s activities without needing to provide examples or metrics. On the other hand, a CFO must utilize metrics in their storytelling, relying on examples, setting goals, and using KPIs (Key Performance Indicators), KRIs (Key Risk Indicators), or other risk indicators. This makes it easier for a CVO to get a lot of critics.
"I believe that for a CFO, having knowledge of reporting is very important. However, when a CFO aims to transition into a CVO, they need to be exceptionally strong."
What do you expect from the personal leadership of a CVO in this case?
Mijntje: Building a compelling case is vital, and it’s important to acknowledge uncertainty and make confident choices. A CVO must be driven by their desire to make an impact and inspire others, both within and outside the company. They must embrace values that may not be financially optimal and accept the associated costs. Above all, they need to motivate people on why these values matter.
I also consider Michael Jensen’s agency theory. It highlights the need for non-executive directors to control executive directors, but it often focuses solely on the shareholder model. Jensen argues that maximizing multiple values simultaneously is impossible, favoring the shareholder model for its clear measurement. But, I believe in the “people, planet, profit” model, which integrates these values rather than splitting them. To shift from financial to social value creation, CFOs should include destroyed value in product prices. This presents challenges, as raising prices when competitors don’t can be risky.
A CVO can play a valuable role in making these values visible within their company. They should assemble a diverse team to calculate and measure different values, including individuals with backgrounds in ethics. We must rethink intentionally keeping prices low, knowing it may destroy value.
During a conversation with the CFO of a major Dutch company, we talked about investing in initiatives that may not directly benefit the company. While the CFO viewed it as investing in something of no value to them, I suggested a different perspective. They were making others incur a cost while benefiting from it. This balance between perspectives should change. We are all responsible for our value creation and destruction, and even CFOs should report on value creation that isn’t solely financial.
You touch upon the ethical aspect of decision making and you also wrote a book recently that explores the moral dilemma in the boardrooms. What type of moral dilemmas my CFOs come across when trying to shift towards this broader value creation and how can they come to a decision?
Mijntje: That’s an interesting question. Moral dilemmas can arise from opposing moral norms, presenting CFOs with challenging decisions. For example, they might face dilemmas about whether to prioritize loyalty to the Executive Director or transparency to the outside world. Often, multiple stakeholders with conflicting demands further complicate the decision-making process.
Two ethical approaches commonly considered in such situations are the consequential ethical approach and the moral principle ethical approach. Both approaches are equally valid.
In the consequential ethical approach, one must weigh the interests of various stakeholders, without prioritizing any one group’s utility over others. CFOs must ask themselves if making a decision that benefits one group of stakeholders or society at large, at the expense of harming another group, is truly worthwhile.
The moral principle ethical approach dictates certain actions that cannot be made. These include not polluting other countries, not employing child labor, and not jeopardizing people’s health. Even if a large group of stakeholders stands to profit from such actions, they remain off-limits. But ethical considerations sometimes lead to gray areas where decisions are less obvious. This requires CFOs to have a specific character.
Now, I’m going to shift a little more to the Corporate Sustainability Reporting Directive. What do you think of it? Do you think that the upcoming CSRD will help towards accelerating the shift towards positive societal value creation?
Mijntje: Well, there are three sides to this. First, it’s in the news, and everyone’s talking about it. It’s on every company’s agenda, which I think is great. It pushes us to consider the long-term value of our company.
The second positive aspect is that we’re working on measuring the same types of value creation across different companies so that we can make meaningful comparisons. In 2016, when long-term value creation became a big societal issue, we had 100 initiatives that were trying to in one way or another measure value creation. I think it’s good that we narrowed it down to serious ones such as the International Accounting Standards Board and the CSRD, so we have a generally accepted framework on how we’re going to measure aspects of ESG. This gives us a generally accepted framework for measuring aspects of ESG.
Another thing I find important is that we talk about EESG, where the extra E stands for economic. It’s crucial not to forget about profit. That’s why I like the people, planet, and profit model because it considers financial value too. That’s precisely why I support the CVO. A CVO won’t forget about profit but will also include all the other critical social and environmental values. It’s essential not to overlook creating value for all stakeholders, and that includes shareholders.
What advice would you like to give CFOs that aspire to become CVOs?
Mijntje: I think, as a CFO it is important to always think about the potential for long-term value creation. Even for CFOs who haven’t yet adopted the long-term value creation model (and there are still many), I say that any company can make long-term value creation. This involves identifying input and output variables and assessing the impact created by these output variables.
Without structuring such discussions, there’s a risk of bias in how we perceive values. I might be discussing certain values, while others focus on different ones. To have a meaningful discussion, it’s essential to establish a consensus on the metrics for evaluating these values. Without agreed-upon metrics, it becomes impossible to arrive at a concrete conclusion.
Listen. A CVO must therefore be firmly in its shoes in order to be open to other visions and sounds that may fit even better. A society continues to develop, and it is no different from organizational values. If a CVO is not willing to learn from other sounds, this only provokes more resistance.
The Chief Value Officer of the Year Award is an initiative of the Impact Economy Foundation in collaboration with de Baak and SeederDeBoer. Nominating an impact-driven CFO for this award was possible until 30 June 2023.