Last week’s “BlackRock Letter”, sent by the firm’s boss Larry Fink to the chief executives of the companies his company invests in, is a warning shot across the bows of Corporate America and beyond.
The letter sets out in stark terms what many of us have been arguing for a long time, namely that companies should do more than make profits, that they need to make a positive contribution to society, or – and this is the stick – risk losing his support.
However, the letter is much more than a threat. Fink also lays out a roadmap that he expects chief executives and their boards to follow.
He expects them to question their role in the community and their impact on the environment. He wants them to proactively create a diverse workforce, providing retraining opportunities to help employees thrive in an increasingly automated world. He wants them to use behavioural finance to help workers make the transition into retirement.
In short, Fink wants leadership.
Crucially, he makes it abundantly clear that the old “hands off” institutional shareholder model, based on infrequent engagement and proxy voting at AGMs, is redundant.
Instead, he champions a new model based on meaningful and productive engagement. He wants a year-round conversation aimed at improving long-term value, not just making sure the numbers are positive in the run up to the next quarterly results statement.
Perhaps most importantly, the workings of the board are firmly in his crosshairs – the letter demands real change, not tokenism.
For Fink, this is not just about diversity, although he makes the point that ethnicity, gender and career experiences are important to him. Rather, it is about operational governance. In other words, how can the writ of the board, which only meets periodically, be driven down through an organisation, and how can directors keep on top of their remit.
As he writes: “directors whose knowledge is derived only from sporadic meetings are not fulfilling their duty to shareholders”. Like Fink, I too want directors out of the boardroom, onto the production line, into the communities they are operating in, talking to people and, crucially, listening to them.
Will this letter make a difference? Certainly, the BlackRock track record in recent years suggest strongly that Fink is serious. His company has held Exxon to account due to its non-engagement policy, and Proctor & Gamble, among others, have found BlackRock siding with activist shareholders against them.
I have argued in the past for greater institutional shareholder activism to hold chief executives and their boards to account, but progress is slow. For the head of BlackRock, with more than $6 trillion in funds under management, to make such a public statement feels like a seismic moment.
The letter is a clear demonstration that the shareholder-only model, focused on short-term returns, is no longer up to task.