What in the hell does Larry Fink know?

3 months ago

For those who have potentially been living under a rock for the past few decades, allow me to first remind the public of who Larry Fink is.

Known as probably the most famous and successful financial executive in America (successful and famous not being mutually exclusive), Larry Fink is the chairman and CEO of BlackRock, an American multinational investment management corporation, one that just happens to be the largest money-management firm in the world, boasting more than $6 trillion in managed assets.

Therefore, if I may address my own question posed in the title of this article, the answer is, “A hell of a lot.” After all, with the insight he brings to the proverbial table from having so much success in business, it’s probably best that we all sit quietly and take notes.

Each year, Mr. Fink writes an open letter to CEOs. This year’s edition, among other things, clearly addressed the topic of sustainability to the point where many readers have taken issue with the tone and nature of his statements.

To quote one of the more poignant sections of his essay:

“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.”

Though some may take this as inflammatory, it may just be the most pressing issue that companies will face in the coming years—many organizations are already suffering the consequences of the “doing well versus doing good” corporate mindset and subsequent challenges.

The time has come when people expect companies to do both well and good, not only providing financial returns, but also showing purpose pertaining to positive social and environmental impact. Organizations that do not acknowledge these expectations, expose themselves to deep-seated issues with their stakeholders, risking activist responses, stock sell-offs, or worse.

With so much at stake, it’s troubling to see Mr. Fink’s message being received with skepticism and cynicism. One retort claimed shareholders only care about revenues, margins, and increasing stock price. Another pointed out that money managers, specifically BlackRock, own less than 10 percent of circulating stock. A third critiqued BlackRock for marketing to customers by subtly threatening companies with activism. I find it interesting that there was no consensus in support of Mr. Fink’s message.

Are we still saying that investors simply don’t care about anything else other than returns? There will always be a subset of investors who are solely profit-driven, but my suspicions are that, for the most part, companies are struggling with the challenge Mr. Fink cites: an increased pressure to be sustainable and to make an impact. This movement, if you will, is still in its early stages and can be disorientating. Executives may feel lost at first, pushed to try new approaches while being held accountable for whatever the results may be. But this movement is gathering momentum, and will likely become the incumbent business model.

Mr. Fink challenges companies to actively engage stakeholders with breadth and depth of action, a mandate that demands trust. Measuring and managing that trust through sentiment tracking, behavioral data, impact verification, and other tools will allow companies to address non-technical risk and highlight stakeholder issues.

At the same time, Mr. Fink still recognizes the importance of long-term growth and financial return. It is this connection that yields success: tying financial performance to trust and sustainable impact. We need to think in terms of impact-adjusted returns that support both the license to operate and the ability to do so.  Although this requires a shift in mindset, it also demands greater transparency and measurement of the sustainability activities that will fuel the change. Fortunately, there are scientific tools and strategic frameworks to support reaching improved impact-adjusted returns (which we are happy to provide).

In the end, Mr. Fink’s letter hit the mark for me and, if one of the most successful men on the planet can’t sway you, then so be it. I, on the other hand, believe, along with countless other executives, that Mr. Fink is onto something.