Reconsidering Measures Of Value

Gross Domestic Product (GDP), Earnings-per-Share (EPS), and Yield are measures of value that are foundational to the management of our economy, corporations, and markets. For decades these widely-recognized quantitative measures have been used to plan development, allocate capital, and determine success of both business and political leaders.

In recent years scholars and economists have raised both methodological and definitional questions about these benchmarks. Is our measurement of GDP accurate? Does it properly account for the improving nature of goods, free services offered by Large Cap Tech, data transfer, and unpaid work, especially of women?

Do Yield and EPS accurately capture all aspects of value and risk? Do these measurements incorporate both the positive and negative externalities of economic activity, including environmental, social, and governance concerns?

Above all, are there better measures of value to guide leaders and our societies?

A panel of experts debated how we measure business, economic and social progress at the Goal 17 Partner space in Davos, Switzerland, on Wednesday. The panel featured Scott Minerd, Chief Investment Officer at Guggenheim Partners, Douglas Peterson, CEO of S&P Global, Karen Dunn Kelley, Deputy Secretary of the US Department of Commerce, and Savita Subramanian, Managing Director at Bank of America Merrill Lynch (pictured above).

The wide ranging discussion covered economic data, disclosure standards and the steps businesses and government must take to thrive in the coming decade. While panelists widely agreed that GDP remains the baseline for economic indicators, there is considerable room for debate on how to recalibrate or augment this with both broader and more granular data points. 

Deputy Secretary Kelley informed the audience of how the agencies within the Department of Commerce are using new, tech-driven methods for collecting data on the economic realities of American communities—especially the upcoming 2020 US Census. 

Douglas Peterson shared his views of how metrics and accounting standards have changed and continue to evolve, citing the Task Force for Climate Related Financial Disclosures, and the the new WEF initiative to harmonize corporate reporting standards. He cast both as laudable efforts to make use of the “data explosion” that has occurred in the past decade—while calling for even greater levels of disclosures from companies as well as municipalities. 

Subramanian shared her personal experience of the financial crisis and recent engagements with institutional investors to demonstrate the power of, and the challenges presented by, efforts to screen companies and investments with a values based approach. 

Minerd also invoked his personal history in 1960s Pennsylvania to argue that current measures of economic output often hide the long term costs of poor business practices to the environment and livelihoods, emphasizing the importance of employee engagement, inclusion and training for responsible, “conscious” capitalism. 

The session closed with an intriguing question from Minerd: given the lack of sufficient progress toward achieving the UN Sustainable Development Goals to date, should benchmarking organizations like S&P act decisively to incentivize greater action?

Minerd proposed recalibrating the S&P 500 to exclude companies which lag behind on sustainability and inclusivity metrics.

Peterson countered that his company has already created low-carbon weighted indices based off the S&P500. To engage in widespread expulsion would limit the ability to accurately measure economic activity, whereas

Subramanian asserted that this process is already underway through investor reallocation of capital, citing the progressively decreasing share of the energy sector in the stock market as evidence.