BlackRock CEO Larry Fink sent this letter today to portfolio company CEOs to communicate the investor's expectation that companies demonstrate their social responsibility in addition to financial performance - an expectation seemingly based on evolving societal circumstances that increasingly depend upon private sector-driven solutions, and the belief that social responsibility and shareholder long-term value creation are inherently, inextricably linked:
We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.
Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth. It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives. And ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases, or higher education.
These questions near the close of the letter further illustrate the scope of BlackRock's corporate social responsibility expectations:
Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world? Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that that will help them achieve their goals?
Among other things, the letter also: (i) notes BlackRock's intent to double the size of its investment stewardship team over the next three years to accommodate its more robust, year-round engagement efforts and expectations, (ii) reiterates its purportedly previously-communicated requests that the CEOs "publicly articulate your company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors," and (iii) puts portfolio company boards/directors on notice that BlackRock expects them to be more involved in the company's long-term strategy than has been the case historically, and will expect they describe their corporate strategy oversight process in their engagement meetings.