In an unprecedented move, Larry Fink, the CEO of Black Rock has sent a letter to the all the CEOs of the S&P 500 urging them to focus on the long term and make their firms more sustainable.
The letter was published not by Black Rock but by Business Insider, a web site acquired by Axel Springer last year, and can be found here.
Black Rock is a financial giant founded by Fink and his partners in 1988. For this firm who has as its purpose to ”offer (its clients) insight about what to do with their money” to fully embrace long term strategy and sustainability is remarkable and gives hope for the future.
The letter deplores stock buy backs and questions the higher dividends that large companies have been giving their shareholders and sees such moves as a lack of long term strategy. It was brought to my attention by a former student and friend who is Strategy Director for a Fortune 500 company.
For him, Fink’s letter is a challenge and has emboldened him to push his own company to adopt a much bolder and long term focus which will take the company forward in the coming decades.
In the letter Fink asks that every CEO “lay out for shareholders each year a strategic framework for long-term value creation”.
It goes on to say that, “Generating sustainable returns over time requires a sharper focus not only on governance, but also on environmental and social factors facing companies today. These issues offer both risks and opportunities, but for too long, companies have not considered them core to their business—even when the world’s political leaders are increasingly focused on them, as demonstrated by the Paris Climate Accord. Over the long-term, environmental, social and governance (ESG) issues—ranging from climate change to diversity to board effectiveness—have real and quantifiable financial impacts.”
A New Twist
The entrance of such a stalwart institutional investor into this debate clearly moves the conversation up a notch. On the venture capital side, Kleiner Perkins’ John Doer had an environmental epiphany just before the financial crisis which can be seen in an emotional Ted Talk he recorded in March of 2007.
The problem is that with the exception of Elon Musk, the Silicon Valley VC crowd seemed to underestimate the time scales and regulatory issues involved in what was called Green Tech and many of the start ups they funded failed or were taking too long for their funds to be able to benefit.
Fink’s involvement from Black Rock is different because it is not about funding new ventures but about telling traditional companies that if they want access to the $4.7 trillion that his firm manages, they need to think about their long term strategy and the social and environmental consequences of what they do
Mike Rosenberg is Associate Professor of strategic management at IESE Business School where he teaches in the MBA and executive education programs on strategy, sustainability, globalization, and geo-politics.
