Larry Fink, BlackRock CEO, has sent a warning letter to all the other CEOs out there. Fink is urging CEOs to start accounting for social impact as a modern practice in running their business. Fink wrote that it is becoming important for firms to demonstrate strategy for long term value. The BlackRock CEO added that the effect that a company has on the world is a key consideration.
Fink’s firm BlackRock manages assets worth $6.3 trillion. He argued that the idea of managing assets for short term shareholder profits is not sustainable and it was no longer an accepted management strategy. Fink made it clear that times have changed. Society is now demanding that companies both public and private demonstrate social impact in their operations.
The BlackRock CEO noted that in order for companies to remain sustainable over time, they must not only demonstrate financial performance, but they also need to manage their operations in a way that makes a positive contribution to society. The successes of every company must be felt by all. Everybody including the employees, shareholders, customers, and communities must share in the benefits brought about by this success.
Management, especially in the financial world, has evolved significantly in the recent years. The demand on the industry and the high standards of performance expected by shareholders are putting pressure on managers to innovate in management. Fink says that engagement with shareholders is a key part of this. CEOs of private and publicly traded companies must make sure they are on the same page with shareholders.
In order to do this, Fink thinks that conversations must be about long term strategy instead of short term profit gains. Demonstrating a long term strategy for growth enables CEOs to easily explain their actions and policies. It’s also easier for shareholders to buy into long term growth as opposed to the often risky short term profits.
Fink’s letter also urged companies to question their role in the community. Social impact is now a defining factor of success and incorporating it into daily management is necessary. The BlackRock CEO argues that companies must focus to deliver welfare value for their customers, employees and shareholders in order to achieve sustainable growth.
There is a need to re-evaluate welfare practices at the workplace and assess social impact as part of year-end performance review. BlackRock says that it is willing to lead the conversation about long term value in the financial industry. The company says that it will launch a few programs to help promote changes in management practice that help to deliver a sustainable framework that serves the interests of all stakeholders.
Corporate social responsibility is an emerging trend in management. Although it has been there for a while, it’s only recently that we are starting to see increased emphasis on social impact as a measure of performance by many companies. Fink’s letter reinforces this point and we expect more companies to start tracking social impact as they track other performance indicators.