In search of new values within a company

Should business leaders be better caretakers and allocate more reserves to handle sudden and unexpected events? The choice is up to the companies themselves, but we can only recommend it. The government would even do well to encourage this. The COVID-19 pandemic has cost our society a fortune. The massive creation of free money now confronts us with its consequences. Future generations will also bear the brunt for a long time. We cannot handle another shock in the coming years. It is therefore essential that companies can survive potential future shocks – and they happen more often than we think – independently. But reserves are absolutely necessary for this.

Socially burdensome companies

The above vision is not yet mainstream in the economic world but is evolving. More and more people and companies are considering this. GraydonCreditsafe can already document these discussions with figures and facts.

GraydonCreditsafe can also clearly show which companies are socially burdensome. Consider the example of Booking.com, too big to fail.

The case of Booking.com is a glaring example of how socially burdensome zombie companies can be. The originally Dutch company was taken over by an American group in 2005. To ensure the employment of approximately 5,000 employees and to prevent outsourcing, the Dutch government provided massive subsidies. For years, Booking posted billion-dollar profits, a significant portion of which was subsidised. However, when the pandemic broke out, the company was quick to seek government aid. Apparently, Booking, after making huge profits year after year and being sponsored with public money, had not built up any reserves.

The Dutch government once again reached into its pockets to save the company and the jobs, but it was all in vain. A quarter of the staff has since been laid off. In Amsterdam, this affected around a thousand employees. The customer service department was largely outsourced. It became even more appalling when it was revealed that the three board members had pocketed bonuses totalling around 28 million euros. Outrageous, immoral, antisocial, despicable, vulture behaviour, and a sad display, it was said in the House of Representatives. To appease the situation, Booking returned 65 million in subsidies.

Too big to fail and no one dares to let it go under, even though Booking is enormously socially burdensome in this way.

Zombie companies and burnout

These types of zombie companies also burden our society in other ways. Previous research by GraydonCreditsafe, for example, showed a clear correlation between zombie companies and an increased risk of burnout. Other studies show that where the number of zombie companies increases by 3.65%, the productivity of the economy decreases by 1.2%. This means that society is actually doubly burdened. Zombie companies are funded during shocks, but this also finances future burnouts. And these cost society money again. In short, zombie companies are always socially burdensome, regardless of economic conditions.

From shareholders to stakeholders

It is also becoming increasingly clear that companies actively focusing on the well-being of their stakeholders (their own staff, customers, suppliers, environment, social fabric, etc., and not just on shareholder value) and seeking long-term collaborations become significantly more profitable. When a company looks to the future, wants to guarantee continuity, and wants to break through, it will not only be subject to societal changes. It will actively contribute to the quality of the social fabric and be appreciated for it. Involving stakeholders pays off. A company that does not think about its relationship with its stakeholders today and takes no action will be penalised in the future.

Youth and returns

A good example of this is young investors. They are indeed influenced or guided by evaluations that are not solely based on returns. They are also sensitive to social impact. This explains the success of ethical and/or green investment funds. They focus on sustainability, ESG, climate, etc. It is an evolution that companies will have to take into account. The youth of today will be the thirty-somethings in five years from now and the forty-somethings in ten to fifteen years from now. If they care about the climate now, they will still care about it when they are forty. It is a societal movement that will force companies, especially within a European context, to – willingly or unwillingly – consider social issues. ESG is one of those issues.

Shock resilience as part of ESG

Shock resilience is, for example, one of the elements useful for assessing how ESG-compliant a company is.

Since April 2022, European banks have been required to report on this and collect extensive data through interviews and lengthy questionnaires.

But the results speak for themselves when respondents are allowed to evaluate themselves. Moreover, the way this type of research is conducted still does not provide an overview of the current situation. On the contrary, you get a mass of individual cases.

ESG Indicator

More can be inferred from financial data than just financial matters. Besides shock resilience, there are numerous data elements that provide a solid perception of how a company is dealing with its ESG standards. And you can also assign a value to it: an ESG Indicator. It gives, much more clearly than an individual assessment, an overview of an entire population. Based on the green-orange-red classification, quick decisions can be made.

From intangibles to tangibles

And then it comes down to converting many of those intangibles (non-measurable elements) into tangibles (measurable elements). In the past, companies were always assessed from a financial standpoint. Profitable or not profitable. All value judgments were based on that. However, a societal evolution is underway to also highlight other elements within a company that make it valuable or not. Only, these are not so easy to quantify.

Think, for example, of innovation potential. In the market, companies that are not at all profitable are often sold for fortunes. Mainly because they have potential for innovation. Employee motivation can be a measure of value. Public perception. And so on.

These are just a few parameters that are important to observe and measure. And it works to a certain extent.

In the past fifteen years, discussions about climate change have only become more intense. Who would have thought then that CO2 would have a value? CO2 is not immediately tangible. Yet today it appears in the accounts of every major company as a cost or a revenue. Moreover, you can even trade it. And so you can turn many intangibles into tangibles.