Larry Fink, CEO of $6.3 Trillion Manager BlackRock – Warning Letter to CEOs
BlackRock CEO Larry Fink just sent a warning shot to CEOs across the world: start accounting for the societal impact of your companies, or risk disappointing the largest asset manager in the world.
In a letter to CEOs of public companies, Fink, whose firm manages $6.3 trillion in assets, said that companies needed to demonstrate a strategy for long-term value creation and financial performance, and that understanding a company’s effect on the world was a key component.
Simply managing for short-term shareholder profit is not an acceptable management strategy, according to Fink.
“Society is demanding that companies, both public and private, serve a social purpose,” Fink wrote. “To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
Fink said BlackRock would ramp up its investor-stewardship initiative, started in 2011 to favor engaging with companies and their management over proxy voting. The stewardship team will double in size over the next three years under the new leadership of Barbara Novick, a vice chairman who helped found BlackRock, Fink said.
“BlackRock recognizes and embraces our responsibility to help drive this change,” Fink wrote.
He continued: “The growth of our team will help foster even more effective engagement with your company by building a framework for deeper, more frequent, and more productive conversations.”
Here are some more highlights from Fink’s full letter (emphasis ours):
“In order to make engagement with shareholders as productive as possible, companies must be able to describe their strategy for long-term growth. I want to reiterate our request, outlined in past letters, that you publicly articulate your company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors. This demonstrates to investors that your board is engaged with the strategic direction of the company. When we meet with directors, we also expect them to describe the board process for overseeing your strategy.
“The statement of long-term strategy is essential to understanding a company’s actions and policies, its preparation for potential challenges, and the context of its shorter-term decisions. Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends — from slow wage growth to rising automation to climate change — affect your potential for growth.
“Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world? Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that will help them achieve their goals?
“As we enter 2018, BlackRock is eager to participate in discussions about long-term value creation and work to build a better framework for serving all your stakeholders. Today, our clients — who are your company’s owners — are asking you to demonstrate the leadership and clarity that will drive not only their own investment returns but also the prosperity and security of their fellow citizens. We look forward to engaging with you on these issues.”