It one sense the annual letter from Larry Fink, chief executive of BlackRock, the world’s largest fund manager, is an update; a reminder for CEOs of what should be on their “to do” lists. But perhaps more than usual, this year’s is a warning and a declaration.
A warning because Fink highlights the big global forces shaping businesses and their futures. A declaration because Fink makes it clear BlackRock is willing to stand by positions he has taken in previous letters, and encourages other CEOs to do likewise.
Let’s start there. This year’s BlackRock CEO letter boldly declares that Fink stands by “stakeholder capitalism”, the governance mindset that says all stakeholders—workers, customers, suppliers and society—need to be considered in company decision-making, not just shareholders. He does so by declaring stakeholder capitalism “is not woke”.
This responds to a wave of criticism emerging in the US ever since stakeholderism became part of the mainstream business discourse, and especially since 2018 when a public statement of support for the idea was issued by the Business Roundtable, a select club of US corporate leaders of which Fink is a member.
In particular, Fink is responding to a brand of criticism on the US political right which has targeted governance as part of their “war on woke” (US republican senator Marco Rubio has even tried to claim “woke” governance could be a breach of fiduciary duty).
Fink writes: “Stakeholder governance is not about politics. It is not a social or ideological agenda. It is not ‘woke’. It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers and communities your company relies on to prosper.”
Purpose and a long-term view
Fink goes further to suggest that CEOs may even receive a higher degree of trust than politicians and this gives them a special responsibility. He explains why it has “never been more essential” for CEOs to have a voice, a clear purpose, a coherent strategy and a long-term view.
“They don’t want to hear us,” he writes, “as CEOs, opine on every issue of the day, but they do need to know where we stand on the societal issues intrinsic to our companies’ long-term success.” Where it matters then, get stuck in, Fink seems to be saying.
And if there is another declaration it is Fink’s belief that the world needs more and better disclosure standard for ESG, and especially climate issues. Outside the pandemic, the climate crisis remains the biggest issue facing the planet, a fact that recently caused the US to embark on a consultation about the introduction of mandatory ESG reporting standards. The move which has met with rowdy opposition (why wouldn’t it, in such a polarised world?).
But business cannot save the environment on its own, says Fink. “We need governments to provide clear pathways and a consistent taxonomy for sustainability policy, regulation and disclosure across markets.” Mandatory reporting rules would doubtless please Fink.
Pathway to net zero
Amid all this are some warnings. There is more capital swilling about chasing ESG investments than ever, a “tectonic shift”, as Fink puts it, fuelling a vast global army of start-ups chasing innovation in their sectors. Fink says “established companies” should look out.
“With the unprecedented amount of capital looking for new ideas, incumbents need to be clear about their pathway succeeding in a net zero economy.” But there is still hope. Disruptive ideas and technologies are not the exclusive role of startups. “Bold incumbents can and must do it too. Indeed, many incumbents have an advantage in capital, market knowledge and technical expertise on the global scale required for the disruption ahead.”
But if anyone is expecting BlackRock to bail out of “carbon-intensive” industries, that won’t be happening. “Divesting from entire sectors,” declares Fink, “…will not get the world to net zero.”
In previous BlackRock CEO letters, Fink has focused on specific governance policy initiatives. But in this, he is all too aware of the global issues competing for attention. As he says, we live in a polarised world with some attempting to politicise business as they pursue narrow ideological agendas.
Fink’s overall message to CEOs seems to be stay true to your mission; employees and the public are looking to you for guidance. That’s a heavy burden to bear in a world where political leadership can, at times, seem suspect. But it’s one CEOs increasingly face nevertheless.