If you run a large public company and haven't considered whether your business provides positive contributions to society, then BlackRock CEO Larry Fink would like to have a word with you.
In his annual letter addressed to business leaders on Tuesday, Fink told companies that it's high time they found their "sense of purpose." BlackRock, which controls about $6.3 trillion in assets, is one of the largest investors in the world — something that many CEOs will have in mind when they read the letter.
Marketplace host Kai Ryssdal spoke to Fink about what he's hoping to signal with this call to action. The following is an edited transcript of their conversation.
Kai Ryssdal: You write CEO letters every year. Why this message this time?
Larry Fink: Well, the message has been formed over many years, and I think each year we refine the message. The primary purpose of writing these letters is the investment world is changing and evolving. We're seeing trillions of dollars of money moving into index funds, and we're the largest index provider in the world in the form of the index funds and ETFs. We have to own every stock that is an index, though. And so, if you're an active investor, you could sell a company's shares if you decided that you don't like it's future direction. But, as an index provider, we must own everything that's in the index. Good or bad. And so, the only power we have as an investor representing all our shareholders is the power of our vote. So in the letter of this year, you know, stylistically it's different and there's more and differentiated points. The key point that I wrote about this year is I think there's more pressure on public and private companies than ever before.
Ryssdal: OK, so you have given the thousand or so CEOs who got this letter, you've given them a little something of a talking to, right? This is fairly stern language coming from Larry Fink, right?
Fink: I wouldn't call it stern language.
Ryssdal: It was fairly sober, I'll tell you that. I mean, you basically said, "We've got the power of our votes. We're going to be watching you, and you have to do better."
Fink: We want every leader of a company and his or her board to focus on the long term, and we are representing our shareholders who need long-term returns. And we believe long-term returns are economic, and the greatest way of getting great economic returns over a long horizon is thinking about those other points, too. It is not just making a profit and possibly doing things negative societally or to their employees or anything else. We believe companies need purpose.
Ryssdal: Let me try to drill down a little bit into your motivations for sending this. Obviously, you've been in this game a long time. You understand what companies try to do and the role of companies in this society. I was struck though, by this line you say in this letter, "We also see many governments failing to prepare for the future." Do I take you to mean that companies now have to step up where governments are failing?
Fink: I hope all companies will be stepping up and thinking about the long term. I think the realities are, there are many governments who can't get out of its own way. They're focusing on short-termism. I believe companies were focusing on long-term issues that I presented in my letter. I think those companies will be stronger, better, more profitable in the future.
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Ryssdal: Do you think capitalism needs to change? Is that fair?
Fink: I think capitalism is a function of society's needs. I don't think capitalism, just like technology, is static. I think it evolves, it changes, and I think that capitalism, if it's static, it is not evolving with society, and I think capitalism has to evolve with society. And I do believe we're witnessing a time and place now where we are seeing the better companies more engaged and they're less focused on the quarterly return. They're focusing on the needs of their employees. They're focusing on how best to be better for their clients. And ultimately, if you're good for your employees and good for your clients, you're truly good for your shareholders. It generally all works together. In fact, when companies have high employee satisfaction, those company stocks perform very well. When companies have a very low employee engagement and satisfaction, those companies generally perform very poorly.
Ryssdal: You know, I was about to let you go — and I apologize for doing this — but I need to circle back to something, to the theme that has run through this conversation, and then I promise I'll let you get off the phone.
Ryssdal: You've talked a lot about the long term and how you want the companies in whom your clients invest to be in it for the long term. But it does seem like you're spitting into the wind here, because there is no more industry or sector of this economy that is focused on the short term than Wall Street. Virtually by the minute, companies are tracking how they're doing and what's up. And I wonder if this is not Sisyphean.
Fink: Well, I left Wall Street a little over 30 years ago to form BlackRock.
Ryssdal: But it hasn't changed much, right?
Fink: Well, I'm not part of Wall Street. We are a long-term investment manager who is trying to be as strong a fiduciary to our clients and to our shareholders as anyone. Wall Street is based on velocity of money.
Ryssdal: Right. Right.
Fink: And the velocity of money is just, it's no different than the media business. It's about clicks, unfortunately. That's why I think the media and banking is so connected. Because both businesses are based on clicks and the speed of information.
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