Long-Term Value Creation in Corporate Governance: The Crucial Role for Boards and Auditors

Abstract

According to the Business Roundtable in the US and the Dutch Corporate governance code, companies should focus more on long-term value creation and be accountable to all their relevant stakeholders. This is only possible if long-term value creation is made explicit and measurable and the reporting is checked by an independent third party. The auditor is the designated party for this.

• Steering for long-term value creation is becoming increasingly important for companies.
• To make the relatively vague understanding of long-term value creation explicit and measurable, new standards are needed.
• The auditor is the appropriate person to audit those new standards.

Long-term value creation is given a prominent place in the revised Dutch Corporate Governance Code 2016 (the “Code”). Management and supervisory boards are accountable for both financial and non-financial aspects of long-term value creation. But the Dutch Code does not prescribe what long-term value creation is and how you determine it. In particular, the non-financial aspects of long-term value creation are difficult to measure and to make comparable, communicable and reliable, let alone controllable. How can we make these aspects more measurable? And who should be responsible for controlling long-term value creation goals?