Black Rock says businesses need to do more than deliver profits … they need to contribute to society … or they won’t get investment
March 1, 2018
On January 16, 2018, the leaders of the world’s largest public companies will be receiving a letter from one of the most influential investors in the world. It is likely to cause a firestorm in the corner offices of companies everywhere and a debate over social responsibility that stretches from Wall Street to Washington.
Laurence Fink, founder and chief executive of the investment firm BlackRock, will inform business leaders that their companies need to do more than make profits … they need to contribute to society as well if they want to receive the support of BlackRock.
Fink has the clout to make this kind of demand. His firm manages more than $6 trillion in investments, exchange-traded funds and mutual funds, making it the largest investor in the world, and he has an outsize influence on whether directors are voted on and off boards.
“Society is demanding that companies, both public and private, serve a social purpose,” he wrote in a draft of the letter that was shared with me. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
The New York Times suggested it may be a watershed moment on Wall Street, one that raises all sorts of questions about the very nature of capitalism. “It will be a lightning rod for sure for major institutions investing other people’s money,” said Jeffrey Sonnenfeld, a senior associate dean at the Yale School of Management and an expert on corporate leadership. “It is huge for an institutional investor to take this position across its portfolio.‘‘ He said he’s seen “nothing like it.’’
In a candid assessment of what’s happening in the business world — and perhaps taking a veiled shot at Washington at the same time — Fink wrote that he is seeing “many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining.” He added, “As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges.”
It is a refrain that we’re hearing more and more from various pockets of the business community, and in fact last year company leaders found themselves taking stands on issues like immigration policy, race relations, gay rights and more.
But for the world’s largest investor to say it aloud — and declare that he plans to hold companies accountable — is a bracing example of the evolution of corporate America. Fink says he is adding staff to help monitor how companies respond; only time will tell whether BlackRock truly uses his firm’s heft to influence new social initiatives.
Part of Fink’s argument rests on the changing mood of the country regarding social responsibility. He contends that if a company doesn’t engage with the community and have a sense of purpose “it will ultimately lose the license to operate from key stakeholders.”