BlackRock’s CEO Larry Fink published his annual letter to CEOs expanding on the theme of corporate-purpose that he raised in last year’s letter. Mr. Fink again appeals to CEOs to take a leadership role in addressing pressing global social and economic issues and underscores that “profits and purpose are inextricably linked.” Mr. Fink asserts that a company’s “purpose” will unify management, employees, and communities, and will drive ethical behavior creating an essential check on actions that go against the best interests of stakeholders.
Key takeaways for CEOs and their companies from Mr. Fink’s letter are as follows:
- Expect 2019 Engagement to Include ESG, Corporate Strategy and Purpose. Companies should expect that, in accordance with BlackRock’s Investment Stewardship engagement priorities for 2019, BlackRock will continue to engage with companies on board diversity, corporate strategy and capital allocation, compensation that promotes long-termism, environmental risks and opportunities, and human capital management. BlackRock, has over the past year, and will continue to engage with companies about corporate purpose, and its alignment with culture and strategy. Mr. Fink reiterated that in order to achieve long-term value, shareholder engagement must be a year-round conversation, rather than one focused on annual meetings and proxy votes.
- Don’t Underestimate Influence of Millennials. Companies must not underestimate the impact of millennials, who today represent 35 percent of the workforce. Citing a survey by Deloitte, the letter highlights what millennials believe the primary purpose of a business should be—when asked, 63 percent more of millennial workers said “improving society” than said “generating profit.” Mr. Fink cautions that in the coming years, the sentiment of the new generations will drive not only their decisions as employees, affecting the fight for talent, but also as investors who view environmental, social and governance (ESG) issues as increasingly material. The letter also cautions that BlackRock is devoting considerable resources to improving the data and analytics for measuring ESG issues, integrating such issues across its entire investment platform, and continuing to engage with companies to better understand their approach to ESG issues.
- Address Retirement Risk. Mr. Fink urges CEOs to take responsibility for their employees’ retirement planning. He suggests that U.S. companies in particular have moved away from providing retirement benefits to employees by shifting to defined contribution plans leaving employees unprepared for retirement. Mr. Fink states that greater longevity and the lack of preparedness for retirement is fueling anxiety and fear, which undermines productivity in the workplace and contributes to divisiveness.
Although Mr. Fink “remains optimistic” about future prospects for investors, his letter highlights concern for global divisiveness, “wrenching political dysfunction” and the growing fragility and volatility of the global landscape, which he worries will create incentives to maximize short-term results at the expense of long-term growth.