Making Capitalism More Moral

In January Larry Fink, CEO of the world’s biggest investment firm which handles more than six trillion dollars in assets, created a stir by addressing an open letter to the bosses of the world’s biggest companies. Pitched somewhere between a call to order and a cry for change, the letter asks companies to take a more inclusive, longer-term approach to capitalism. Leaders League presents an extract.

In January Larry Fink, CEO of the world’s biggest investment firm which handles more than six trillion dollars in assets, created a stir by addressing an open letter to the bosses of the world’s biggest companies. Pitched somewhere between a call to order and a cry for change, the letter asks companies to take a more inclusive, longer-term approach to capitalism. Leaders League presents an extract.


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 across the world are facing a combination of low rates, low wage growth, and inadequate retirement systems. (…) I believe these trends are a major source of the anxiety and polarization that we see across the world today.

We also see many governments failing to prepare for the future. (…) 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. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate. Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings. (…)

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 invested with BlackRock, who are the true owners of your company. This responsibility goes beyond casting proxy votes at annual meetings – it means investing the time and resources necessary to foster long-term value. (…)

In order to make engagement with shareholders as productive as possible, companies must be able to describe their strategy for long-term growth. I want to reiterate our request (…) that you publicly articulate your company’s strategic framework for long-term value creation. (…) Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business. (…)

Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? (…) BlackRock is eager to participate in discussions about long-term value creation and work to build a better framework for serving all your stakeholders. (…)

Adapted by Caroline Castets

Read the full Special Report: Conscious Capitalism

What is the role of a company? Two schools of thought, two rival philosophies, have vied for supremacy for over twenty years now. Is it to put the interests of shareholders above all else, as Nobel prize-winning economist Milton Freedman declared? Or is it, in addition to the shareholders, to serve other stakeholders such as staff, clients, suppliers and beyond?
Summary Nicolas Notat (President of Vigeo-Riris): “Staff and shareholders are two constituent parts of value creation” Jean-Luc Petithuguenin (Founder, Paprec): “Profit is the oxygen of a company, but it's only a means and not an end” “Nurturing well-being in the workplace and provoking the curiosity of the individual is vital to economic performance” Philippe Joannis (Founder, 5fois5): “Purpose before profit: this inversion of priorities is the key to conscious capitalism” “A reasonable level of profit is important to guarantee the continuous distribution of capital” “If a company is driven by short term profit, it’s doomed” Serge Papin (CEO, Système U): “The director must turn his company into a place of reconciliation for the different stakeholders” “It’s impossible to be profitable in the long-term while ‘massacring’ stakeholders” Stanislas Guerini (French parliamentarian): “Reimagine businesses by removing the twin barriers which oppose capital and work”

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