In his annual letter to CEOs, the head of the world’s largest asset manager took companies to task and emphasized the need for companies to contribute to society.
“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” CEO Larry Fink writes in the letter. “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
In the letter, Fink calls for a new model for corporate governance beyond casting proxy votes at annual meetings.
“The time has come for a new model of shareholder engagement – one that strengthens and deepens communication between shareholders and the companies that they own,” he writes in the letter.
According to Fink, shareholder engagement has been too focused on annual meetings and proxy votes.
“If engagement is to be meaningful and productive – if we collectively are going to focus on benefitting shareholders instead of wasting time and money in proxy fights – then engagement needs to be a year-round conversation about improving long-term value,” he writes.
Fink also acknowledges BlackRock’s responsibility to help drive this change and outlined the firm’s efforts to do so. BlackRock has more than $6 trillion in assets under management.
Over the past several years, BlackRock has evolved its approach – led by Michelle Edkins, global head of investment stewardship – from one predominantly focused on proxy voting toward an approach based on engagement with companies.
Fink acknowledge the need to do more, and in his letter announced that BlackRock would be expanding its investment stewardship team.
Barbara Novick, vice chair and a co-founder of BlackRock, will now oversee the firm’s investment stewardship efforts, with Edkins continuing to lead the global investment stewardship group day-to-day.
According to Fink, the firm also intends to double the size of the investment stewardship team over the next three years.
“The growth of our team will help foster even more effective engagement with your company by building a framework for deeper, more frequent, and more productive conversations,” he wrote in the letter.
In order to make engagement with shareholders as productive as possible, companies must be able to describe their strategy for long-term growth, according to Fink.
Fink then reiterated BlackRock’s request outlined in past letters that companies “publicly articulate their strategic framework for long-term value creation and explicitly affirm that it has been reviewed by the board of directors.”
According to Fink, this demonstrates to investors that your board is engaged with the strategic direction of the company.
“We recognize that the market is far more comfortable with 10-Qs and colored proxy cards than complex strategy discussions,” Fink writes. “But a central reason for the rise of activism – and wasteful proxy fights – is that companies have not been explicit enough about their long-term strategies.”
These strategies should include environmental, social and governance matters. According to Fink, a company’s ability to manage ESG matters demonstrates the leadership and good governance that is essential to sustainable growth.
“Companies must ask themselves: What role do we play in the community?” Fink writes. “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?”
The letter was not without its critics. “Why don’t you guys contribute by giving up your carried interest loophole?” conservative pundit Ann Coulter tweeted.
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