Trust in Value

A cynic is a man who knows the price of everything and the value of nothing.
Oscar Wilde (Lady Windermere’s Fan, 1892)

Are you a cynic?  How important is price?  How do you define and measure value?

The latter was a key question raised in University College London economist Mariana Mazzucato’s book The Value of Everything: Making and Taking in the Global Economy.  Mazzucato outlined the evolution of how theories of value have evolved since the late 1600s.

Defining what creates value and measuring it is not as easy as it sounds.  For example, in the late 1600s and early 1700s, there were different schools of thought as to how much value creation should be attributed to the land (or land owner) versus the farm laborer and whether import/export merchants were value creators, or simply people who moved goods around.  The political culture of the times largely influenced the definition and measurement of value.

Fast forward to today, and virtually anything that can have a price associated with it is deemed to create value regardless of the energy or resources expended, the real risk involved or benefits delivered.  In parallel with the rise of this theory of value, so has the theory of shareholder primacy gained ascendance and with it came the nearly myopic focus on metrics like earnings, cash flow, margins, market share and stock price.

It seems we’ve forgotten the dichotomy inherent in the definition of value.  The Oxford dictionary defines value as:

  1. The regard that something is held to deserve; the importance, worth, or usefulness of something.
  2. The principles or standards of behavior; one’s judgement of what is important in life.

People are rejecting the idea that you can divorce value from notions of principles and standards.  That’s why there’s increasing investor focus on corporate purpose and culture.  Don’t believe me?  Read BlackRock’s or State Street’s annual letter to directors and review the Edelman Trust Barometer survey of institutional investors.

Today, business is being viewed in a larger social context and trust is an essential part of that.  Business has higher trust scores than government and media and is increasingly expected to take a lead in addressing societal issues from cybersecurity to income inequality to workplace diversity and more, according to the Edelman report.

Investors have expanded their focus, seeking more information on how companies conduct themselves, advance their corporate culture and evaluate and manage environmental and social factors. So, when communicating about your business, create context by talking about your company’s purpose, culture and operating environment. You’ll build trust and gain value.

Lisa Ciota
Lead-IR Advisors, Inc.