Earlier this year BlackRock’s Chairman and CEO Larry Fink published his annual letter to the asset management firm’s investee companies. For the second year in a row Fink has focused on social impact. At the beginning of the letter he addresses the importance of practices that “will drive sustainable, long-term growth and profitability”.
Fink acknowledges that companies are increasingly being held to “more exacting standards” by their stakeholders and stresses that business success in today’s world hinges on taking responsibility:
“Companies that fulfill their purpose and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore them stumble and fail.”
What that means in practice is that stakeholders, including employees, investors and communities (as well as shareholders), are looking to companies to respect human rights and act responsibly. In Fink’s words: “Unnerved by fundamental economic changes and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues,” ranging from “protecting the environment to retirement to gender and racial inequality”.
So, what can companies do to manage these pressures? Fink lists three key recommendations for navigating in this difficult landscape:
- The link between purpose and profits. According to Fink, companies need a clear purpose embedded in their business model and corporate strategy, which will help them sustain long-term financial returns for shareholders.
- The need for leadership. Fink calls on companies to bring strong leadership and to demonstrate their commitment to the countries, regions, and communities in which they operate. Retirement, in particular, is an area where companies must reestablish their leadership, by lending their expertise and capacity for innovation to help employees. This will not only lead to a more stable and productive workforce, but also to a more economically secure population in their areas of operation.
- Understanding the focus of new generations. According to Fink, millennials, who currently represent 35% of the workforce, are increasingly expressing new expectations for their employers. In a recent survey by a leading accountancy practice, millennial workers were asked what the primary purpose of businesses should be – 63% more of them said “improving society” than said “generating profit”. Environmental, social, and governance issues are becoming important corporate valuations and their importance will only grow as millennials step into leadership roles.
Read the full letter here.