BlackRock CEO Larry Fink issued his annual shareholder letter with a stunning directive for the financial giant – manager of over $1 trillion in assets- and the industry writ large. The letter titled “A Sense of Purpose” lays out a direct challenge to the financial industry to cease the focus on quarterly profits at the expense of the values of purpose; it is essential to delivering real value to society and that is the ultimate path to sustainable profits. Fink sets the stage by identifying that despite robust gains in the stock market, there are serious sources of anxiety and uncertainty globally. Short-term gains are a poor substitute for a long-term strategy:
“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.”
Why does this matter? CSR, sustainability, and conscious capitalism – none of this is new. Companies have thrown around terms du jour for social responsibility while continuing to operate within a system that serves the few at the expense of the many. BlackRock has drawn a line in the sand that the old way of doing things is no longer socially acceptable; it is most likely untenable in the face of grave challenges like climate change and global inequality. Fink’s commitment to a values-centered investment strategy forces businesses to take notice due to the sheer size and scope of BlackRock’s financial operation.
To call this a wake-up call does not do justice to the potential impact it can have on the way business is conducted. Others have tried to sound the alarm. Bill Gross of PIMCO comes to mind as he too opined on late-stage capitalism and pondered its relevance in the face of income inequality. Those warnings went unheeded, but this moment comes in the face of a growing lack of faith in our institutions (government, media) and titans of industry (Silicon Valley/VC’s). If things feel different this time, it’s because the crisis is.
The career I had in financial services (I was a Goldman Sachs Equity Trader) and my current work as a cultural anthropologist provide a unique perspective on just how relevant Fink’s perspective is. The culture of Wall Street, which drives all business, has operated with a short-term perspective for as long as I can remember. This thinking has infected all industries, to a certain extent, because publicly-traded companies are at the mercy of shareholders. Shareholder value has become the sole metric to which CEOs must be responsible (and responsive) for. Fink’s letter reverses that and centers the focus on society rather than on the shareholder in isolation. What was able to exist separately, i.e. the shareholder apart from the needs of society, has been reconciled.
I have advised many companies, particularly those making significant bets on culture, that short-term thinking was simply incompatible with their stated goals. Culture is not microwavable and is rarely beholden to shareholders. As Fink states, “Just as we seek deeper conversation between companies and shareholders, we also ask that directors assume deeper involvement with a firm’s long-term strategy.” Culture requires an investment in big strategic ideas and the commitment to see them through.
also recognizes that inclusion is critical to long-term success. He states,
“We also will continue to emphasize the importance of a diverse board. Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more diverse and aware mindset. They are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.”
Diversity in the most traditional sense (encompassing racial, gender, sexual orientation) is still tragically lacking across corporate America. Diversity in all forms, including cognitive diversity, must be embraced. Innovation comes from the margins. It is the voices that are seldom heard that are often forced through circumstances to question the status quo and charge ahead into uncharted waters. Those are the voices that must be heard because they are the ones who truly drive change. A call for diversity is a call for marginalized voices to be made more relevant.
We are now tasked to determine what type of society we want to live in. Do we continue down a path that obviously only works for a few with an ever-shrinking window of relevance, or do we course correct at this pivotal moment? Where Fink calls for “discussions about long-term value creation and to build a better framework for serving all your stakeholders,” I envision a discussion about meaning and purpose. Capitalism is a system created by and designed by human beings and that gives human beings the power to change it as they see fit. We have the power to turn the cult of extraction into a cult of prosperity.
Assuming the rhetoric is matched by deeds we could remember this as a watershed moment. Let’s not squander this opportunity to significantly change the way we do business and measure success. Society is literally depending on the choices we make. Let’s choose wisely.