Writing letters is easy; Will BlackRock act on it?

Today, BlackRock’s Larry Fink issued his 2021 letter to CEOs. As usual, the New York Times devoted significant coverage to it. Again, we at SGI are heartened by Fink’s words. I’ll call your attention to this nugget near the letter’s conclusion:

Questions of racial justice, economic inequality, or community engagement are often classed as an “S” issue in ESG conversations. But it is misguided to draw such stark lines between these categories. For example, climate change is already having a disproportionate impact on low-income communities around the world – is that an E or an S issue? What matters is less the category we place these questions in, but the information we have to understand them and how they interact with each other. Improved data and disclosures will help us better understand the deep interdependence between environmental and social issues.

I loved this line: “And now, business leaders and boards will need to show great courage and commitment to their stakeholders.”

At the same time, I am reminded of the “Peanuts” comic. Time and again, Lucy tells Charlie Brown that she will hold a football while he runs up to kick it. Initially, Charlie Brown usually refuses to kick it, not trusting Lucy. Then, Lucy says something to persuade Charlie Brown to trust her. Charlie Brown runs up to kick the ball, but at the very last moment before he can kick it, Lucy removes the ball. As a consequence, Charlie Brown flies into the air, falls down on his back, and hurts himself.

We’ve seen these letters each year from Fink, and we have written about our reactions to them before. Nonetheless, when it comes to voting their proxies, BlackRock, like Lucy, yanks the ball away (See: BlackRock voted against climate resolutions over 80% of the time in 2020). To be honest, I hope that I am wrong. I pray for an abundance of “great courage and commitment.” Time will tell if 2021 will be any different.

BlackRock CEO challenges companies to “serve a social purpose”

Larry Fink, CEO of BlackRock, called for corporations to act with social responsibility and to see beyond short-term gains in his annual letter to S & P 500 CEOs. The critical paragraph reads:

We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. 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.

Larry Fink, CEO, BlackRock (courtesy of FT)

In the letter, Fink calls on companies to proactively manage environmental, social, and governance matters through deeper board and investor engagement and thoughtful strategy development. Companies, Fink suggests, should act as stewards for all their stakeholders – including employees, customers, and communities.

Public response to the letter has been mixed. While some find a billionaire’s plan to combat inequality to be ironic, hypocritical, and hollow, many, including us here at SGI, hope this call-to-action will have effect.

BlackRock, the world’s largest asset manager with $5.7 trillion in assets under management as of July 2017 (or, put another way, 20% of the U.S. market), is a significant shareholder in all the largest companies, for better or worse. As Bloomberg’s Matt Levine noted:

Pick your least favorite public company — guns or tobacco or oil or opioids or Facebook or whatever you think is doing the most harm to society — and BlackRock Inc. is among the top five holders. Fink’s threat — contribute to society or you’ll lose BlackRock’s support — rings a bit hollow since BlackRock’s index funds can’t sell. (They can vote against directors, sure, but what exactly do you want a gun maker’s directors to do?)

Aside from supporting the ICCR proposal to enhance Exxon Mobile’s climate disclosures, BlackRock has  avoided shareholder advocacy in the past. If BlackRock genuinely engages, it has an opportunity to dramatically move the needle in favor of corporate social responsibility.