Companies must do more for social good
To prosper over time, companies must benefit all stakeholders - including shareholders, staff, customers and the community
As BlackRock approaches its 30th anniversary this year, I have had the opportunity to reflect on the most pressing issues facing investors today, and how BlackRock must adapt to serve our clients more effectively.
As a fiduciary, BlackRock engages with companies to drive the sustainable long-term growth that our clients need to meet their goals.
In 2017, equities enjoyed an extraordinary run - with record highs across a wide range of sectors - and yet popular frustration and apprehension about the future simultaneously reached new heights. We are seeing a paradox of high returns and high anxiety.
Since the financial crisis, those with capital have reaped enormous benefits. At the same time, many individuals are facing a combination of low rates, low wage growth, and inadequate retirement systems.
Many do not have the financial capacity, the resources or tools to save effectively.
For millions, the prospect of a secure retirement is slipping further away - especially among workers with less education, whose job security is increasingly tenuous. I believe these trends are a major source of the anxiety and polarisation we see across the world today.
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 is turning to the private sector and asking that companies respond to broader societal challenges.
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, a company must not only deliver financial performance, it must also show how it positively contributes to society. It must benefit all the stakeholders - including shareholders, employees, customers and communities in which it operates.
Just as the responsibilities your company faces have grown, so too have the responsibilities of asset managers.
We must be active, engaged agents on behalf of the clients, who are the true owners of your company. This responsibility goes beyond casting proxy votes at annual meetings - it means investing the resources necessary to foster long-term value.
To make engagement with shareholders as productive as possible, a company must be able to describe its strategy for long-term growth.
The statement of long-term strategy is essential to understanding a company's actions and policies, its preparation for potential challenges and the context of its shorter-term decisions.
Your company's strategy must articulate a path to achieve financial performance. To sustain that performance, you must understand the societal impact of your business as well as the ways that broad structural trends - from slow wage growth to rising automation to climate change - affect your potential for growth.
These statements are not meant to be set in stone. They should continue to evolve along with the business environment and recognise possible areas of investor dissatisfaction.
A central reason for the rise of activism and wasteful proxy fights is that companies have not been explicit enough about their long-term strategies.
Where activists do offer valuable ideas - which is more often than some detractors suggest - we encourage companies to begin discussions early to engage with shareholders and to bring other critical stakeholders to the table.
But when a company waits until a proxy proposal to engage or fails to express its long-term strategy in a compelling manner, the opportunity for meaningful dialogue has often already been missed.
The board's engagement in developing your long-term strategy is essential because an engaged board and a long-term approach are valuable indicators of a company's ability to create long-term value for shareholders. Just as we seek deeper conversation between companies and shareholders, we also ask that directors assume deeper involvement with a company's long-term strategy.
Boards meet only periodically but their responsibility is continuous. Directors whose knowledge is derived only from sporadic meetings are not fulfilling their duty to shareholders. Likewise, executives who view boards as a nuisance only undermine themselves and the company's prospects for long-term growth.
The writer is chairman and chief executive officer of BlackRock. The above is an abridged version of his 2018 letter to CEOs. This article appeared in The Business Times on Jan 17.