With BlackRock managing $5.98 trillion in assets and chairman and chief executive Larry Fink enjoying a reputation as a champion of corporate responsibility, the annual BlackRock letter to CEOs commands the attention of companies, investors, and the media alike.
Titled “Purpose & Profit,” this year’s letter was released in late January with the overarching message that focusing on short-term profit maximization will not generate the best long-term results for shareholders. “When a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability,” writes Fink. This message extends the themes in last year’s letter, “A Sense of Purpose.”
Fink argues that a long-term approach is more crucial than ever, as the “fragile” global landscape has become more susceptible to overvaluing short-term results. Unsettled by economic change and perceived government failure to provide permanent solutions, society increasingly places expectations on the corporate world to resolve both economic and social issues. Fink’s latest letter highlights the following three areas companies will need to pay attention to in order to show leadership in 2019 and beyond.
Fink emphasizes the significant implications of retirement planning for the world’s future prosperity. “For much of the 20th century, it was an element of the social compact in many countries that employers had a responsibility to help workers navigate retirement,” he writes. “In some countries, particularly the United States, the shift to defined contribution plans changed the structure of that responsibility, leaving too many workers unprepared.”
While not calling for a blanket return to employer-funded pension plans, Fink urges innovation. Indeed, last year BlackRock revealed it was working alongside Microsoft to develop a retirement platform that would help employees take control of their retirement savings. And in the gig economy, companies like Uber and Lyft and states like Oregon and Washington have implemented strategies to provide contingent workers better access to long-term savings accounts.
In his letter, the BlackRock CEO projects that corporate responsibility will be increasingly reflected in corporate valuations as millennials come to control more investing capital—potentially $24 trillion by 2020, thanks in part to what Fink calls “the largest transfer of wealth in history.” The public is holding companies to more “exacting standards,” and Fink expects this trend to accelerate since this rising generation “express[es] new expectations of the companies they work for, buy from, and invest in.” In fact, when it comes to investing, research from US Trust, TD Ameritrade, and others suggests that millennials are significantly more likely than other generations to consider environmental, social, and governance factors.
Fink himself points to a survey by Deloitte in which millennial workers were asked to name what the purpose of businesses should be; some 63% more of them said improving society than said generating profit. Fink’s letter forecasts that workers will ever more define corporate purpose, especially with millennials beginning to hold more senior positions.
The BlackRock CEO projects that corporate responsibility will be increasingly reflected in corporate valuations as millennials come to control more investing capital.
Fink’s letter lists BlackRock’s wide-ranging investment stewardship engagement priorities for 2019, from board diversity to environmental risks and opportunities. In last year’s letter, Fink put special emphasis on shareholder engagement, calling for a “new model” that “strengthens and deepens communication between shareholders and the companies that they own.”
Since then, however, BlackRock has come under particular criticism for not engaging with companies enough on climate-related issues. Shortly prior to the publication of this year’s letter, Trillium Asset Management, Boston Common Asset Management, and the Ethos Fund—along with nine NGOs—penned a letter to Fink calling on BlackRock to improve its engagement record on climate change. The joint letter claims that BlackRock consistently votes against many shareholder climate proposals and has “a worse track record than other large global asset managers.” These complaints may help explain why a fake BlackRock letter released just before the real one announced that the asset manager would divest from fossil fuels and push companies to target carbon neutrality.
“This proxy season we hope to see BlackRock take action to back their words by voting with climate resolutions and publicly supporting climate change–related initiatives rather than just opting for private ‘engagement’ conversations,” said Lauren Compere, managing director of Boston Common Asset Management.
Despite this call to action, there was relatively little on climate change in this year’s BlackRock letter to CEOs. Moreover, the 2019 letter doesn’t suggest BlackRock will be more or less engaged in this year’s proxy season than it was in 2018. In line with the overarching “purpose” theme of Fink’s last two letters, BlackRock said it had “begun to speak to companies about corporate purpose and how it aligns with culture and corporate strategy.” As Fink states, BlackRock does not intend to focus narrowly on the proxy season but rather engage through “year-round dialogue” as it seeks to understand firms’ strategies for achieving sustainable, long-term growth.