BlackRock, the world’s largest asset manager, expects the companies in which it invests to do far more than deliver quarterly profits. In his most-recent annual letter to CEOs of the companies in BlackRock’s portfolio, BlackRock CEO Larry Fink calls on companies to “serve a social purpose,” and to articulate how they make “a positive contribution to society.” In Fink’s view, “Companies must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate.”
Despite one critic’s quip that he “didn’t know Larry Fink had been made God,” the increasing popularity of index investing means that companies are advised to take heed of BlackRock’s views, together with those of its primary competitors, Vanguard Group and State Street Global Advisors. A recent post on a Harvard Law School blog provides useful tips for companies attempting to navigate the “new world order of passive investing,” concluding that “for the foreseeable future, companies and their boards need to be in dialogue with passive investors’ governance departments. And they need to be prepared for a conversation in which ESG [Environmental, Social and Governance] issues are squarely on the agenda.”
An article in The Wall Street Journal discussing Fink’s letter explains that “Index-fund managers are unable to sell companies whose actions they disagree with. ... That leaves proxy voting and talks with the company as the main avenues index-fund managers can use to press for changes.” As the Ticker has previously reported, BlackRock and other leading index-fund managers are increasingly pressing for—and achieving—changes, particularly in relation to ESG issues.