Emphatically yes, says the highly influential CEO of BlackRock, Larry Fink, in his latest annual letter to CEOs. BlackRock, according to the NYT, now manages $10 trillion in assets, so the company would be persuasive even if its CEO never put pen to paper (or fingers to keyboard), but for a number of years, Fink has staked out positions in his annual letters on a variety of social and environmental issues that made companies (and media) pay attention. At the Northwestern Law Securities Regulation Institute in 2021, former SEC Chair Mary Schapiro said that, at companies where she was on the board, Fink’s 2020 statement (which announced a number of initiatives designed to put “sustainability at the center of [BlackRock’s] investment approach”) had had “an enormous impact last year.” However, he has also had his denigrators, and this year’s letter allocates a lot of terrain to deflecting criticism that his positions are more aligned with “woke” politics than with making money for shareholders. Not so, he contends, stakeholder capitalism is capitalism: BlackRock’s conviction “is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities, and their shareholders.” Ultimately, he asserts, cultivating these beneficial relationships will drive long-term value. How will this year’s letter land?
Fink starts out by enunciating his theme: “Stakeholder capitalism,” he maintains,
“is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism. In today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders. It is through effective stakeholder capitalism that capital is efficiently allocated, companies achieve durable profitability, and value is created and sustained over the long-term. Make no mistake, the fair pursuit of profit is still what animates markets; and long-term profitability is the measure by which markets will ultimately determine your company’s success.”
The pandemic, he says, has had a significant impact on most companies, changing almost every company’s operating environment and accelerating the impact of technology—how people work and how they buy, creating new businesses and disrupting and destroying others, redefining the relationships between companies and their employees and communities. Just as profoundly, he maintains, the pandemic has led to further polarization and erosion of public trust in institutions, creating something of a void of trust for business leaders to fill by having “a consistent voice, a clear purpose, a coherent strategy, and a long-term view. Your company’s purpose is its north star in this tumultuous environment. [Stakeholders] don’t want to hear us, as CEOs, opine on every issue of the day, but they do need to know where we stand on the societal issues intrinsic to our companies’ long-term success.”
Fink believes that “[p]utting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long-term success. Employees need to understand and connect with your purpose; and when they do, they can be your staunchest advocates. Customers want to see and hear what you stand for as they increasingly look to do business with companies that share their values. And shareholders need to understand the guiding principle driving your vision and mission. They will be more likely to support you in difficult moments if they have a clear understanding of your strategy and what is behind it.” But these ideas require further exploration. To that end, Fink doubles down, announcing the launch of a Center for Stakeholder Capitalism to “create a forum for research, dialogue, and debate.”
Fink observes that there has been “an explosion in the availability of capital. Today, global financial assets total $400 trillion,” which brings with it “risks and opportunities for investors and companies alike.” But, he cautions, “access to capital is not a right. It is a privilege. And the duty to attract that capital in a responsible and sustainable way lies with you.” In Fink’s view, the next unicorns will be innovators “that help the world decarbonize and make the energy transition affordable for all consumers….With the unprecedented amount of capital looking for new ideas, incumbents need to be clear about their pathway succeeding in a net zero economy.” As industry is transformed, he asks CEOs, “will you go the way of the dodo, or will you be a phoenix?”
One category of stakeholder that Fink highlights are employees. The pandemic has led to the great resignation, even as pay rates have climbed. Now, he contends, “employees across the globe are looking for more from their employer—including more flexibility and more meaningful work.” But those worker demands are “an essential feature of effective capitalism,” leading to more competition and more innovative environments that will help companies achieve greater profits for their shareholders. BlackRock research shows that companies that “forged strong bonds with their employees have seen lower levels of turnover and higher returns through the pandemic.” But companies that do not respond “to their workers do so at their own peril. Turnover drives up expenses, drives down productivity, and erodes culture and corporate memory.” Fink wants to hear how companies are “deepen[ing] the bond” with their employees, how companies are ensuring that their boards have “the right oversight of these critical issues” and how company culture is “adapting to this new world.” What’s more, the pandemic has also underscored issues such as “racial equity, childcare, and mental health—and revealed the gap between generational expectations at work. These themes are now center stage for CEOs, who must be thoughtful about how they use their voice and connect on social issues important to their employees.”
Of course, Fink has not abandoned his advocacy of sustainability. Again, he emphasizes his capitalist bona fides: BlackRock focuses “on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing.” Most stakeholders, he contends—”from shareholders, to employees, to customers, to communities, and regulators—now expect companies to play a role in decarbonizing the global economy.” And in the two years since Fink wrote that “climate risk is investment risk” (see this PubCo post), he has witnessed “a tectonic shift of capital” toward sustainable investments. While the auto industry may be in the forefront, he expects every industry to be affected by the move to “net zero.” Fink believes that “the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. It will also leave behind the companies that don’t adapt, regardless of what industry they are in.” He sees that “[e]ngineers and scientists are working around the clock on how to decarbonize cement, steel, and plastics; shipping, trucking, and aviation; agriculture, energy, and construction.” He also notes the importance of ensuring “continuity of affordable energy supplies during the transition” to sustainable energy; driving up energy prices by limiting supply will hurt “those who can least afford it, resulting in greater polarization around climate change and eroding progress.” Although capitalism can “act as a powerful catalyst for change,… businesses can’t do this alone…. When we harness the power of both the public and private sectors, we can achieve truly incredible things. This is what we must do to get to net zero.”
Finally, Fink mentions BlackRock’s initiative to allow clients to vote their own views. Currently, BlackRock allows certain institutional clients to vote if they choose to do so, but it is working to expand that opportunity more broadly.