Decision Rules for Long-term Value Creation
23 Pages Posted: 22 Mar 2021 Last revised: 10 May 2021
Date Written: May 7, 2021
Future-oriented companies manage for long-term value creation (LTVC) rather than merely for shareholder value or stakeholder value. Managing for LTVC involves managing and balancing several types of value (financial, social and environmental) at the same time, often involving trade-offs. Companies need to have decision rules that help them make investment decisions accordingly. This article derives such decision rules by starting from what is needed for LTVC, and by showing to what extent it differs from shareholder value maximisation only. It also outlines transition pathways for companies that are currently value destructive on one of the dimensions. Finally, it introduces a few simple models that allow for the prioritisation of specific types of value, in line with a company’s purpose.
Keywords: Capital budgeting, net present value, integrated present value, financial capital, social capital, natural capital
JEL Classification: G31, G34
Suggested Citation: Suggested Citation